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Exhibit 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement made as of the 21st day of June,
1993, by and between Xxxxxxx Electronics, Inc., a Delaware corporation (the
"Company"), and Reg X. Xxxxxxx ("Executive").
The Company and Executive entered into an Employment Agreement dated as of
April 7, 1992 setting forth the terms and conditions under which Executive is
currently serving the Company as its Chief Executive Officer. The Company and
Executive desire to amend and restate said Employment Agreement, and
accordingly, said Employment Agreement is hereby amended and restated to read in
full as follows:
AGREEMENT
In consideration of the mutual agreements contained herein, the parties
agree as follows:
I. EMPLOYMENT
The Company hereby agrees to employ Executive, and Executive hereby agrees
to remain an employee of the Company, for the term and on and subject to the
terms and conditions hereinafter set forth.
II. POSITION AND DUTIES
2.01 (a) Chief Executive Officer. Executive shall serve as Chief Executive
Officer of the Company until June 30, 1998. In such capacity, Executive shall
have primary responsibility for
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managing the business of the Company and shall report directly to the Board of
Directors of the Company.
(b) Post June 30, 1998 Employment. During the period from July 1, 1998 to
June 30, 2000, Executive shall be employed by the Company in an executive or
consulting capacity, and shall have such appropriate title as the Board of
Directors of the Company determines. During such period, Executive shall have
such duties and functions as shall be assigned to him from time to time by the
Board of Directors of the Company, and shall report directly to the Board of
Directors.
2.02 Full Business Efforts. During any period Executive is Chief Executive
Officer, he shall devote his full and exclusive business time, attention and
energies to the performance of his duties hereunder, and shall not be employed
by, participate or engage in, or be part of, in any manner, the management or
operation of any business enterprise other than (i) that of the Company and its
subsidiaries; and (ii) such as are consented to in writing by the Board of
Directors of the Company in advance of any such involvement of Executive after
complete disclosure of the terms of such involvement to the Board of Directors;
provided, that those activities described in clause (ii) above shall not
preclude Executive from devoting substantially all of his time to the
performance of his responsibilities hereunder. Notwithstanding the foregoing, it
is expressly understood and
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agreed that Executive may serve as a member of the board of directors of not
more than two for profit corporations, provided that any such corporation shall
not be a competitor, significant customer or significant supplier of the Company
and that Executive keeps the Board of Directors of the Company advised of such
board memberships. The foregoing restrictions on Executive's participation in
the affairs of a business enterprise other than that of the Company and its
subsidiaries shall not be construed as restricting Executive's ability to
provide, without compensation, time and advice to charitable organizations so
long as such provision of time and advice does not interfere with the
performance by Executive of his responsibilities hereunder.
III. COMPENSATION
3.01 (a) Base Salary - Chief Executive Officer. Commencing July 1, 1993
and continuing during the period Executive is Chief Executive Officer, he shall
receive a base salary at the rate of not less than $290,000 per annum, payable
by the Company in biweekly installments. Commencing with the Company's fiscal
year beginning July 1, 1994 and for each fiscal year thereafter during which
Executive is Chief Executive Officer, the Board of Directors of the Company as
part of its regular review of officers salaries for that fiscal year shall
review Executive's base salary to determine whether such base salary is to be
increased based upon attainment of the Company's performance objectives and
Executive's personal objectives and upon such
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other criteria as the Board of Directors shall establish from time to time.
(b) Base Salary Post June 30, 1998. During the period after June 30,
1998 in which Executive is serving in such executive or consulting capacity as
contemplated by Section 2.01(b), he shall receive a base salary at the rate of
not less than $100,000 per annum.
(c) Bonus. In addition to base salary, Executive shall receive an
annual bonus ("Bonus"), to the extent earned, for each fiscal year of the
Company during the period Executive is serving as Chief Executive Officer, in
accordance with the Company's Management Incentive Plan, if any, from time to
time in effect. It is the intention of the parties to develop and agree upon a
mutually acceptable individual incentive plan for Executive within sixty (60)
days of the date hereof.
(d) Stock Options/Stock Appreciation Rights. Executive presently
holds options for 310 shares of the Company's common stock granted under the
Company's Stock Option and Award Plan for Key Employees, and Stock Appreciation
Rights (SARs) for 2,000 units granted under the Company's Stock Appreciation
Rights Plan for Key Employees (the SAR Plan). At the Company's discretion,
additional SARs may be granted to Executive over the term of this Agreement.
(e) Pension Plan. Executive will be entitled to participate in the
Xxxxxxx Electronics, Inc. Pension Plan (the Pension Plan) or any similar plan or
plans made available by the
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Company to its executives during the term of Executive's employment hereunder.
(f) Health Care Benefits; Disability Coverage. During the term of
Executive's employment hereunder, the Company shall provide Executive with
coverage under the Company's major medical and other health insurance programs
and disability coverage under the Company's long term disability plan at such
level, and on such basis, as is generally provided thereunder for top executives
of the Company.
3.02 Vacation. During the period Executive is serving as Chief Executive
Officer, he shall be entitled to a vacation of four weeks during each fiscal
year of the Company during the term hereof (in addition to regular Company
holidays), during which time Executive's compensation hereunder shall be paid in
full. During the period after June 30, 1998 in which Executive is serving in
such executive or consulting capacity as contemplated by Section 2.01(b), his
vacation shall be extended to not less than eight weeks during each fiscal year.
3.03 Expense Reimbursement. During the term of Executive's employment
hereunder, the Company shall reimburse Executive for all reasonable and ordinary
and necessary business expenses incurred by him in connection with the discharge
of his duties hereunder. Such payments shall be made by the Company upon
submission by Executive of vouchers itemizing such expenses in such form as is
generally required of top executives of the Company.
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3.04 Sale of Company. In the event the Company is sold prior to July 1,
1999 and the purchaser of the Company has not at or prior to the closing of such
sale entered into an agreement with Executive employing him in an executive
capacity (i) providing for the compensation of Executive through June 30, 2000
on a basis equivalent to or better than the basis of Executive's compensation
provided herein, and (ii) precluding Executive's termination without cause for
at least two (2) years after such closing, the Company shall make a special
compensation payment to Executive in the amount of (x) $500,000 if Executive was
serving as Chief Executive Officer of the Company at any time within ninety (90)
days of such closing, or (y) $250,000 if Executive was serving the Company in an
executive or consulting capacity as contemplated by Section 2.01(b) (but not
Chief Executive Officer of the Company) within ninety (90) days of such closing.
Such special compensation payment shall be made at the closing of such sale.
Such special compensation payment is not intended to be in lieu of, nor
otherwise affect, the payment of compensation by the Company to Executive in
accordance with the other provisions of this Agreement. Sale of the Company
shall be deemed to occur when either (i) the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of
the Xxxxxxx Family in the Company is reduced to less than fifty percent (50%) of
the combined voting power of the Company's voting securities entitled to vote in
the election of directors, or (ii) all, or substantially all, of the assets and
business of
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the Company are sold or otherwise disposed. The term "Xxxxxxx Family," as used
herein, means the widow and the descendants of Xxxx X. Xxxxxxx.
IV. TERM; TERMINATION
4.01 Term. The term of this Agreement shall commence July 1, 1993 and,
except with respect to the provisions of Article V, shall terminate on July 1,
2000, unless earlier terminated as hereinafter provided or unless extended by
written agreement of the Company and Executive.
4.02 Termination.
(a) Death. Following the death of Executive, the Company shall not
thereafter be obligated to make any further payments to Executive under Sections
3.01(a), 3.01(b), or 3.03 or 3.04 of this Agreement other than such compensation
payments and reimbursement for expenses due, accrued or payable (including those
expenses incurred by Executive but not yet submitted for reimbursement) as of
the date of Executive's death. Within one hundred twenty (120) days following
the end of the fiscal year in which Executive dies, the Company shall be
obligated to pay to Executive's personal representatives an amount equal to any
Bonus which Executive would have been entitled to receive pursuant to Section
3.01(c) for such fiscal year but for his death, multiplied by a fraction of
which the numerator shall equal the number of days in such fiscal year which
preceded Executive's death and of which the denominator shall equal 365 or 366
(depending on the actual number of days in such fiscal year).
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(b) Disability. The employment of Executive shall terminate on the
total disability of Executive. Upon such termination, the Company shall be
obligated to continue to pay Executive the sum of $15,000 per month until June
30, 1998 or Executive's death, whichever first occurs, provided that the Company
shall be entitled to credit against such monthly payments the amount of
disability benefits Executive receives, during the period of such monthly
payments, from (i) the Company's long term disability plan and (ii) the Social
Security Administration. Within one hundred twenty (120) days following the end
of the fiscal year in which Executive becomes totally disabled, the Company
shall be obligated to pay to Executive an amount equal to any Bonus which
Executive would have been entitled to receive pursuant to Section 3.01(c) for
such fiscal year but for his total disability, pro-rated as specified in Section
4.02(a). Apart from the foregoing, the Company shall have no further obligation
to Executive hereunder other than as specified under Section 3.01(f) with
respect to health and disability insurance and to pay Executive such
compensation payments and reimbursement for expenses as may be due, accrued or
payable (including those expenses incurred by Executive but not yet submitted to
reimbursement) as of the date of such total disability pursuant to Sections
3.01(a), 3.01(b), or 3.01(c), 3.03 and 3.04. "Total disability" shall be deemed
to have occurred whenever Executive has suffered physical or mental incapacity
due to illness or accident during the term of this Agreement of such a nature,
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degree or effect as to render Executive unable to perform his duties herein for
a period of one hundred twenty (120) consecutive days. The Board of Directors of
the Company shall designate a reputable and qualified physician approved by
Executive to examine Executive for the purpose of determining whether Executive
has in fact incurred a "total disability" within the meaning of that term as set
forth above. In the event the Board of Directors of the Company and the
Executive cannot agree on an examining physician, such physician shall be
designated by an independent representative of the American Medical Association.
The determination of the designated physician shall be conclusive and binding
upon the parties. The fees of the physician, as well as any other related
expenses of the physician, shall be paid by the Company. The termination of
Executive's employment by reason of his total disability shall not affect his
right to receive disability benefits under any disability plan of the Company in
which he may be participating.
(c) Discharge for Cause. The employment of Executive shall
immediately terminate if the Company discharges Executive for cause. "Cause"
shall mean the following: (i) a pattern of gross negligence or an act of willful
misconduct by Executive in the performance of his duties under Section 2.01,
(ii) Executive's fraud, (iii) misappropriation of funds or embezzlement by
Executive, (iv) actions of Executive which substantially damage the reputation
of the Company, or (v) the material breach by Executive of his obligations under
Sections 5.01 or 5.02 of this
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Agreement. Upon termination of Executive's employment for cause, the Company
shall have no further obligations to Executive hereunder other than to pay
Executive such compensation payments and reimbursement for expenses as may be
due, accrued or payable (including those expenses incurred by Executive but not
yet submitted for reimbursement) as of the date of such termination pursuant to
Sections 3.01(a), 3.01(b), or 3.01(c), 3.03 and 3.04.
(d) Optional Termination. The employment of Executive shall be
terminable by the Company in its sole discretion without cause effective
immediately upon written notice to Executive. Upon any such termination, the
Company shall be obligated to continue to pay Executive or his personal
representatives his base salary as above provided through June 30, 2000,
including any increases or decreases in base salary as provided in Sections
3.01(a) and 3.01(b). In addition, at the time of any such termination without
cause, Company shall make a lump sum payment to Executive, the amount of such
lump sum payment to be determined by the following schedule:
Amount of Lump
Date of Termination Sum Payment
After 6/30/93 and before 7/1/94 265,000
After 6/30/94 and before 7/1/95 230,000
After 6/30/95 and before 7/1/96 190,000
After 6/30/96 and before 7/1/97 150,000
After 6/30/97 and before 7/1/98 110,000
After 6/30/98 and before 7/1/99 60,000
After 6/30/99 and before 7/1/2000 30,000
In addition to making the applicable payment or payments specified above,
the Company shall be obligated to pay to Executive, within one hundred twenty
(120) days following the end
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of the fiscal year in which the Company terminates the employment of Executive
pursuant to this Section 4.02(c), an amount equal to the Bonus, if any, which
Executive is entitled to receive pursuant to Section 3.01(c) based upon the
fiscal year in which Executive's employment is terminated pursuant to this
Section 4.02(d), pro-rated as specified in Section 4.02(a). In addition to the
foregoing, the Company shall be obligated to supplement each benefit payment
Executive, his spouse or other beneficiary receives at any time and from time to
time under the Pension Plan by that amount, if any, by which the amount of such
payment is less than the amount such payment under the Pension Plan would have
been if Executive's Credited Service (as defined in the Pension Plan) is
determined as if Executive's employment by the Company had continued until June
30, 2000. Apart from the foregoing, the Company shall have no further obligation
to Executive hereunder other than as specified under Section 3.01(g) with
respect to health and disability insurance and to pay Executive such
compensation payments and reimbursement for expenses as may be due, accrued or
payable (including those expenses incurred by Executive but not yet submitted
for reimbursement) as of the date of such termination pursuant to Sections
3.01(a), 3.01(b), or 3.01(c), 3.03 and 3.04.
(e) Survival. Notwithstanding anything to the contrary contained in
this Agreement, the provisions of Article V shall survive any termination of
Executive's employment hereunder, regardless of the basis for such termination.
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V. ADDITIONAL COVENANTS
5.01 Non-competition.
(a) General Prohibition. In consideration of the good and valuable
consideration to be received hereunder by Executive, Executive will not, during
the term of his employment and for a period of two (2) years following the date
of termination of his employment with the Company for any reason whatsoever (the
"Restricted Period"), compete, directly or indirectly, with the Company or any
of its subsidiaries, whether now existing or hereafter created or acquired,
during the Restricted Period with respect to any Competitive Activities (as
defined below). The foregoing prohibition against competition shall apply within
the United States, Canada and Europe and to any other market area, whether
determined by national boundaries or otherwise, in which the Company has
maintained an office, manufacturing or assembly plant or warehouse, marketed its
products or otherwise engaged in business. For purposes hereof, "Competitive
Activities" shall mean the production, manufacture, distribution or sale of
hearing aid components, engine controls, smart sensors and any other products or
business activities in which the Company has during the period of Executive's
employment with the Company been actively involved or announced plans of its
intention to become involved.
(b) Prohibition on Indirect Competition. Executive shall be deemed
to be competing, as described in paragraph (a) hereof, if Executive shall
engage, directly or indirectly, in any
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Competitive Activities, whether for his own account or that of any other person,
firm, corporation, partnership or other business entity, and whether his
participation shall be as a stockholder, general or limited partner, or investor
possessing an ownership interest exceeding one percent (1%) in any such entity,
or as a principal, agent, proprietor, officer, director, employee, sales
representative, consultant, lender or in any other capacity.
(c) Non-Solicitation. During the Restricted Period, Executive shall
not, directly or indirectly, solicit, divert, take away or induce any employee,
sales representative, distributor or customer of the Company to leave the employ
of or cease to do business with or reduce the amount of business done with the
Company.
5.02 Confidentiality. Executive acknowledges and agrees that in the course
of, or incident to, his employment hereunder, the Company will provide to
Executive, or Executive will otherwise become exposed to, confidential
information. For purposes of this Agreement, the term "confidential information"
shall mean all proprietary or confidential information concerning the business,
products or affairs of the Company, including, without limitation, customer
lists and financial information, and all information received from third parties
and held in confidence by the Company. In light of the foregoing, Executive
agrees that:
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(a) during the period of Executive's employment with the Company and
during the Restricted Period and at all times thereafter, Executive will
hold the confidential information in the strictest confidence and will not
disclose any portion thereof to any person or entity (which terms, as used
in this Agreement, shall include without limitation, any individual, firm,
corporation, partnership, association or group), except as required in the
performance of Executive's duties for the Company, or by order of any
court or similar tribunal or any other governmental body or agency of
appropriate jurisdiction, provided that Executive shall, to the extent
practical, give the Company prior notice of any such disclosure and shall
reasonably cooperate with the Company in obtaining at the Company's cost a
protective order or such similar protection as the Company may deem
appropriate to preserve the confidentiality of such information; and
(b) upon and subsequent to the termination of Executive's employment
with the Company for any reason whatever, Executive will not, at any time,
make any use whatever of the confidential information or any portion
thereof, either on Executive's own behalf or in conjunction with or on
behalf of any other person or entity. The foregoing obligation to maintain
the confidential information in strict confidence and not to make any use
of the confidential information shall not apply to information
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which is or, through no fault on the part of Executive, becomes generally
available to the public.
5.03 Equitable Relief. Executive expressly acknowledges that damages alone
will be an inadequate remedy for any breach or violation of any of the
provisions of Sections 5.01 and 5.02 and that the Company, in addition to all
other remedies available at law or hereunder, shall be entitled to injunctive
relief, including specific performance, with respect to any such breach or
violation, in any court of competent jurisdiction.
5.04 Disclosure and Assignment of Inventions; Patents; Trademarks.
(a) Executive shall communicate to the Company promptly and fully,
and hereby assigns, sells and transfers to the Company, Executive's entire
right, title and interest in and to, all inventions, whether or not patentable
or trademarkable, made or conceived by Executive during the term of Executive's
employment with the Company (alone or jointly with others and whether or not
made or conceived during regular business hours) which (i) are related in any
manner, directly or indirectly, to the business, products, research or
development work of the Company or (ii) result from or are suggested by any work
which Executive may do for or on behalf of the Company or any affiliate. For
purposes of this Agreement, the term "invention" shall include, without
limitation, any new, useful or original art, machine, process, software,
product, apparatus, compound,
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formula, shape, composition of matter or configuration of any kind.
(b) Executive agrees to assist the Company and its nominees during
and subsequent to his employment with the Company or any affiliate in every
proper way (entirely at its or their expense) to obtain for its or their own
benefit patents and/or trademarks for such inventions in any way and all
countries, said inventions to be and remain the sole and exclusive property of
the Company or its nominees, whether patented, trademarked or not. If said
assistance is required and Executive is no longer an employee of the Company,
the Company agrees to compensate Executive for his time at an hourly rate
determined on the basis of the base salary of Executive in effect at the time of
termination of his employment.
(c) Executive agrees to make and maintain adequate and current
written records of all such inventions, in the form of notes, sketches,
drawings, or reports relating thereto; which records shall be and remain the
property of and available to the Company at all times.
(d) Notwithstanding any other provision hereof, this Agreement, and
Article V in particular, does not apply to work product for which no equipment,
supplies, facility, or trade secret information of the Company was used and
which was developed entirely on the Executive's own time, unless (i) the work
product relates to (x) the business of the Company, or (y) the Company's actual
or demonstrable anticipated research or
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development, or (ii) the work product results from any work performed by the
Executive for the Company. Executive acknowledges that the preceding sentence
constitutes notice of the limitation required by the Illinois Employee Patent
Act as to the provisions of Article V in particular, and this Agreement in
general.
VI. MISCELLANEOUS
6.01 Notices. All notices, requests or other communications hereunder
shall be in writing and delivered personally or sent by registered or certified
United States mail, return receipt requested, by overnight courier or by
facsimile or telecopy to the parties at the addresses set forth below or to such
other addresses as shall be specified by notice to the other parties hereunder:
To the Company at:
0000 Xxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
(Fax No. 000-000-0000)
such notice to be directed to the attention of the Chairman Emeritus of the
Company, with copies of the notice to the Chairman of the Compensation Committee
of the Board of Directors at the above address, and to the Corporate Secretary
of the Company. A copy of the notice shall also be mailed to the Chairman of the
Compensation Committee at his home address if such address is known to
Executive.
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To Executive at his home address as set forth in the Company's employment
records relating to the Executive.
6.02 Assignability. This Agreement shall not be assignable by Executive,
but otherwise shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns.
6.03 Entire Agreement. This writing represents the entire agreement and
understanding of the parties with respect to the matters addressed herein except
for the Stock Option Agreements dated November 23, 1983 and November 15, 1988,
respectively, and the Stock Appreciation Rights Agreement dated November 15,
1991, and June 15, 1992, respectively, and it may not be altered or amended
except by a written instrument signed by the Company and Executive. Any and all
promises, agreements, representations, warranties and other statements, written
or oral, made between the parties in respect to such matters prior to, or
contemporaneously with, the execution hereof are hereby canceled and superseded
and shall be of no further force and effect.
6.04 Severability. If any provision of this Agreement shall be or become
illegal or unenforceable in whole or in part for any reason whatsoever, the
remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
6.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
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6.06 Headings. The headings in this Agreement are for convenience only;
they form no part of this Agreement and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
XXXXXXX ELECTRONICS, INC.
By /s/ Xxxxx X. Xxxxxxx
-------------------------------------
Chairman, Compensation Committee
/s/ Reg X. Xxxxxxx
----------------------------------------
Reg X. Xxxxxxx
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INCENTIVE BONUS PLAN
Xxxxxxx Electronics, Inc., a Delaware corporation (the "Company"), and Reg
X. Xxxxxxx ("Executive") are parties to an Amended and Restated Employment
Agreement dated as of June 21, 1993 (the "Agreement"). Section 3.01(c) of the
Agreement states that it is the intention of the parties to develop and agree
upon a mutually acceptable individual incentive plan for Executive. The bonus
plan set forth herein (the "bonus plan") has been developed in compliance with
said Section 3.01(c), and is to be deemed a part of, and construed in accordance
with, the Agreement.
1. The Company will pay Executive a bonus determined on the basis of the
Company's financial performance with respect to the three bonus factors and
their respective target numbers as set forth below:
Bonus Factors Target Numbers
------------- --------------
Net Sales in Fiscal 1998 $169,884K
Operating Income in
Fiscal 1998 66,071K
Average Annual Operating Income
Return on Net Assets, F'94--
F'98 26.18%
As used herein, "Net Sales" means Net Sales on Manufacturing Operations on
a consolidated basis; "Operating Income" means Operating Income on a
consolidated basis; "Operating Income
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Return on Net Assets " means Operating Income as a percentage of Net Assets(at
year end) on a consolidated basis (and is hereinafter referred to as "Operating
RONA"); and "Net Assets" means total assets less current liabilities on a
consolidated basis. The "weighted average annual Operating RONA," as that phrase
is used herein, shall be determined as indicated in the attached Schedule D --
i.e., the total amount of Operating Income in the subject period divided by the
sum of the ending Net Assets for each fiscal year in the subject period.
As soon as practicable after the audited financial statements of the
Company for fiscal 1998 are available, the amount, if any, of the bonus shall be
determined by the following four steps:
A. Net Sales
The Bonus Percentage attributable to the Net Sales bonus factor
shall be determined by applying, in the manner provided below, the
following Table A to the Net Sales of the company in Fiscal 1998:
TABLE A
NET SALES (in 000's) SALES AS % BONUS BONUS
BENCHMARK NOS. OF TARGET (in 000's) PERCENTAGE
-------------- --------- ---------- ----------
Not less
than $229,343 135% $2,250 150%
217,452 128% 2,100 140%
205,560 121% 1,950 130%
193,668 114% 1,800 120%
181,776 107% 1,650 110%
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169,884* 100% 1,500 100%
162,857 95.86% 1,200 80%
155,829 91.73% 900 60%
less than 155,829 -0-
* Target Number
If Net Sales in Fiscal 1998 are $229,343,000 or higher, the Bonus
Percentage shall be 150%, and if lower than $155,829,000, the Bonus
Percentage shall be zero. If Net Sales in Fiscal 1998 are less than
$229,343,000, more than $155,829,000 and do not equal one of the Benchmark
Numbers, the Bonus Percentage shall be that percentage that bears the same
relationship to the corresponding two Bonus Percentages set forth in Table
A as Net Sales in Fiscal 1998 bears to the Benchmark Numbers set forth in
the Table that are immediately above and immediately below the Net Sales
in Fiscal 1998. To illustrate, if Net Sales in Fiscal 1998 are
$165,000,000, the Bonus Percentage is 86.0994%.
(1) 165.000 - 162.857
----------------- =.30497
169,884 - 162,857
(2) [(100% - 80%) X .30497] + 80% = 86.0994%
B. Operating Income
The Bonus Percentage attributable to the Operating Income bonus
factor shall be determined by applying, in the manner provided below, the
following Table B to the Operating Income of the Company in Fiscal 1998:
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TABLE B
OPERATING INCOME OPERATING
(in 000's) INCOME AS % BONUS BONUS
BENCHMARK NOS. OF TARGET (in 000's) PERCENTAGE
-------------- --------- ---------- ----------
Not less
than $82,589 125% $2,250 150%
79,285 120% 2,100 140%
75,982 115% 1,950 130%
72,678 110% 1,800 120%
69,375 105% 1,650 110%
66,071* 100% 1,500 100%
63,106 95.51% 1,200 80%
60,140 91.02% 900 60%
less than 60,140 -0-
* Target Number
If Operating Income in Fiscal 1998 is $82,589,000 or higher, the
Bonus Percentage shall be 150%, and if lower than $60,140,000, the Bonus
Percentage shall be zero. If Operating Income in Fiscal 1998 is less than
$82,589,000, more than $60,140,000 and does not equal one of the Benchmark
Numbers, the Bonus Percentage shall be that percentage that bears the same
relationship to the closest two Bonus Percentages set forth in Table B as
Operating Income in Fiscal 1998 bears to the closest two Benchmark Numbers
set forth in the Table.
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C. Operating RONA
The Bonus Percentage attributable to the Operating RONA bonus factor
shall be determined by applying the following Table C to the weighted
average annual Operating RONA achieved by the Company during the five
fiscal year period ending June 30, 1998:
TABLE C
AVERAGE AVERAGE
OPERATING OPERATING
XXXX XXXX
`94 -- `98 AS % BONUS BONUS
BENCHMARK % OF TARGET (in 000's) PERCENTAGE
----------- --------- ---------- ----------
Not less
than 31.42% 120% $2,250 150%
30.37% 116% 2,100 140%
29.32% 112% 1,950 130%
28.27% 108% 1,800 120%
27.23% 104% 1,650 110%
26.18%* 100% 1,500 100%
25.47% 97.29% 1,200 80%
24.76% 94.58% 900 60%
less than 24.76% -0-
* Target Number
If the weighted average annual Operating RONA over the five year
period ending June 30, 1998, is 31.42% or higher, the Bonus Percentage
shall be 150%, and if lower than 24.76%, the Bonus Percentage shall be
zero. If the weighted average annual Operating RONA over the five year
period
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ending June 30, 1998, is less than 31.42%, more than 24.76% and does not
equal one of the Benchmark Percentages, the Bonus Percentage shall be that
percentage that bears the same relationship to the closest two Bonus
Percentages set forth in Table C as the average annual Return on Equity
over the five year period ending June 30, 1998, bears to the closest two
Benchmark Percentages set forth in the Table.
D. Final Bonus Calculation
The Bonus Percentage, determined as above provided, for each bonus
factor shall be totaled, the sum so derived shall be divided by 3, and the
amount of the bonus shall then be determined by multiplying $1,500,000 by
such quotient. Any Bonus Percentage that is less than 60% shall be
included in the calculation at zero weight, and the Bonus Percentage for
any bonus factor shall in no event be greater than 150%. To illustrate, if
the Bonus Percentages were 120%, 110% and 80%, the amount of the bonus
would be $1,550,000 [(120% +110% + 80% / 3) X $1,500,000].
2. (a) The "target numbers" set forth in paragraph 1, and on which the
bonus plan is based, are taken from the Company's December 1992 Strategic Plan
(as revised ) for the fiscal year, and the five fiscal year period, ending June
30, 1998. (The December 1992 Strategic Plan as revised for purposes of the bonus
plan is reflected in attached Schedules A, B, C, and D, and is herein referred
to as the "December 1992 Strategic Plan (as revised)").
- 6 -
26
(b) In the event the Company hereafter makes any acquisition or
divestiture (assets and/or business) that significantly changes the Company's
financial projections as set forth in the December 1992 Strategic Plan (as
revised) of its Net Sales, Operating Income or Operating RONA, for part or all
of the five year period ended June 30, 1998, the parties will negotiate in good
faith to make appropriate and timely adjustments in the bonus plan, such
adjustments to reflect the revised financial projections of the Company through
fiscal 1998 as approved by its Board of Directors.
(c) In determining Operating Income for any fiscal year and for any
purpose of this Agreement, the total expense taken into account for charitable
contributions in any year shall in no event exceed 0.2% of consolidated Net
Revenue for that year.
(d) In determining Operating RONA for any fiscal period and for any
purpose of this Agreement, (i) Net Assets shall be reduced by the amount of
short-term loans (90 days or less), if any, in the portfolio of The Financial
Corporation of Illinois and Operating Income shall be reduced by the amount of
income attributable to such short-term loans in the relevant period; and (ii)
Net Assets shall be reduced by the amount, if any, by which cash and cash
equivalents exceed $5,757K (being the amount of cash and cash equivalents at
6/30/93).
- 7 -
27
(e) In the event the Company diversifies into the manufacture and sale of
product or products which upon or after such diversification is expected and
projected to produce a significantly different Operating RONA than the Operating
RONA target number set forth in paragraphs 1 and 3, the parties will negotiate
in good faith to make appropriate adjustments in such target number to reflect
revised financial projections of the Company through fiscal 1998 as approved by
its Board of Directors.
(f) Except as expressly provided in subparagraphs (c) and (d) above, the
books and records of account of the Company as audited by its independent public
accounting firm shall govern the determination of the bonus amount pursuant to
paragraph 1, and the conditional accrual amounts pursuant to paragraph 3, and
the financial results for fiscal 1994 through 1998 shall be deemed final and
binding on the parties as to each such fiscal year upon the issuance by such
firm of the audited financial statements of the Company for that year.
3. As of the end of each of fiscal 1994, 1995, 1996 and 1997, the Company
will conditionally accrue a portion of the bonus payable hereunder on the
following basis. If the Company achieves an Interim Target Number in the
specified year as set forth in Table D below, the Company will conditionally
accrue, as of the end of that year, the amount immediately adjoining that
Interim Target Number in the column captioned "Amount of Conditional Accrual."
- 8 -
28
TABLE D
Interim Amount of
Target Conditional
Fiscal Year Bonus Factors Numbers Accrual*
----------- ------------- ------- --------
1993 -0-
1994 Net Sales $111,620K $100,000
Operating Income 36,675K 100,000
Operating RONA (F'94) 18.97% 100,000
1995 Net Sales 122,846K 200,000
Operating Income 44,551K 200,000
Average Operating
RONA (F'94-'95) 20.91% 200,000
1996 Net Sales 134,537K 300,000
Operating Income 50,597K 300,000
Average Operating
RONA (F'94-'96) 22.42% 300,000
1997 Net Sales 145,519K 400,000
Operating Income 55,820K 400,000
Average Operating
RONA (F'94-'97) 23.69% 400,000
(*The amount of the accrual is cumulative -- i.e., each amount for 1995 is for
the '94-'95 period, each amount for 1996 is for the '94-'96 period, and so on.)
If prior to July 16, 1997, (i) Executive's employment with the Company is
terminated by reason of his death or total disability or by the Company without
cause, or (ii) the Company is sold (any such event being hereinafter called the
"termination event"), and the termination event takes place within fifteen (15)
days, either before or after, of June 30, 1994, 1995, 1996 or 1997, the Company
will pay Executive the amount, if any,
- 9 -
29
conditionally accrued as of such June 30th date as set forth above.
If the termination event does not take place within fifteen (15) days of
June 30, 1994, 1995, 1996 or 1997, the Company will pay Executive the greater
of:
(a) that amount, if any, conditionally accrued as set forth above as of
the June 30th immediately preceding the termination event; or
(b) that amount, if any, conditionally accrued as set forth above as of
the June 30th immediately succeeding the termination event
multiplied by a fraction the numerator of which shall equal the
number of days from July 1, 1993 to the termination event, and the
denominator of which shall equal the number of days from July 1,
1993 to the June 30th immediately succeeding the termination event.
If the termination event takes place after July 15, 1997 and before June
30, 1998, the Company will pay Executive the amount of the bonus, if any, which
would have been payable to Executive if he were employed by the Company on June
30, 1998 multiplied by a fraction the numerator of which shall equal the number
of days from July 1, 1993 to the termination event, and the denominator of which
is 1,826.
If the Company is sold after July 15 in any year and before June 30, 1998,
and either (a) Executive does not continue as Chief Executive Officer of the
Company until the end of the
- 10 -
30
fiscal year in which such sale occurs, or (b) the structure and/or operations of
the Company are so changed as to render the financial results of the fiscal year
in which such sale occurs not reasonably comparable with the financial
projections for that year set forth in the December 1992 Strategic Plan (as
revised), the sale of the Company (i.e., the termination event) shall be deemed
for purposes of this paragraph 3 to have occurred on the June 30th immediately
preceding the sale of the Company.
In determining whether a termination event has taken place for purposes of
this paragraph 3, "total disability" shall have the same meaning as that term
has in Section 4.02(b) of the Agreement; termination of employment "without
cause" shall be deemed to be any discharge of the Executive by the Company other
than discharge for "cause" as defined in Section 4.02(c) of the Agreement; and
sale of the Company shall be deemed to occur if it is deemed to have occurred
under the provisions of Section 3.04 of the Agreement.
Any amount conditionally accrued as of any June 30th pursuant to this
paragraph 3 shall be of no significance, and have no application, under the
bonus plan if a termination event does not occur prior to the earlier of (i)
June 16th of the next succeeding year and (ii) July 16, 1997.
4. In the event Executive is deceased at the time an amount is payable to
him pursuant to paragraphs 1 or 3, such payment shall be made in a lump sum to
the beneficiary or beneficiaries designated by Executive pursuant to the
provisions
- 11 -
31
of subparagraph 5(d), or in the event no beneficiary shall have been so
designated or the last designated beneficiary shall not be living at Executive's
death, then to the estate of Executive. Except as provided in the preceding
sentence, any amount payable to Executive pursuant to the provisions of 1 or 3
shall be paid to Executive within ten (10) days of the determination of such
amount, at the sole discretion of the Company, (i) in a lump sum, (ii) by the
purchase of a single premium annuity contract, or (iii) as deferred compensation
as provided in paragraph 5.
5. (a) If pursuant to paragraph 4, the Company determines that an amount
payable to Executive shall be paid as deferred compensation, the Company shall
credit such amount to an account maintained on its books in the name of
Executive, hereinafter called the "Deferred Compensation Account." Until the
balance in the Deferred Compensation Account is completely paid to Executive or
his beneficiary or beneficiaries as hereinafter provided, the Company shall also
credit the Deferred Compensation Account, on a quarterly basis, with an amount
representing interest on the unpaid balance in the Deferred Compensation Account
from time to time, computed at the prime rate. The term "prime rate" as used
herein means the annual interest rate charged from time to time by the
Continental Bank N.A. to its most credit-worthy customers, provided that only
the last change in said rate in any calendar month shall be taken into account
and then shall be taken into account only on the first day of the month
following the month in which the change occurs. As above provided, such amount
- 12 -
32
representing interest shall be computed on the then balance in the Deferred
Compensation Account monthly, and credited to the Deferred Compensation Account
quarterly.
It is further understood and agreed that:
(i) Neither Executive nor his beneficiary or beneficiaries
shall have any interest in the Deferred Compensation Account and
such amounts, as the same are constituted from time to time, shall
at all times remain general assets of the Company subject to the
claims of general creditors of the Company. The rights of Executive
and his beneficiary or beneficiaries to deferred compensation
hereunder shall be solely those of an unsecured general creditor of
the Company.
(ii) The Company, its employees and agents shall not be
fiduciaries with respect to said Deferred Compensation Account.
(b) The balance in the Deferred Compensation Account, as adjusted in
accordance with subparagraph (a) shall be paid to Executive in sixty (60) equal
monthly installments, provided, however, that said installments shall be
adjusted from time to time to reflect the adjustments referred to in
subparagraph (a) accruing after the commencement of said installment payments.
The payment of said installments shall commence upon the first (1st) day of the
month following the month in which Executive attains age 70 years.
- 13 -
33
(c) If Executive dies before the payment of the installments provided in
subparagraph (b) shall commence, or before said installments have been
completely paid, the remaining balance in Executive's Deferred Compensation
Account shall be paid in a lump-sum to the beneficiary or beneficiaries
designated by Executive pursuant to the provisions of subparagraph 5(d), or in
the event that no beneficiary shall have been designated or the last designated
beneficiary shall not be living at Executive's death, then to the estate of
Executive. In case any amount is payable to Executive's estate pursuant to this
subparagraph (c), or paragraph 4, the Company may defer payment until an
executor or administrator of the estate has been duly appointed and has
qualified.
(d) The designation of a beneficiary or beneficiaries (who may be
designated contingently) shall be in writing on form(s) prescribed by the
Company and may be changed by Executive from time to time. No change of
beneficiary shall take effect until such change shall have been acknowledged in
writing by the Company. When, however, the change has been so acknowledged,
whether Executive be living or not, it shall take effect as of the date of
execution of the beneficiary designation, but without prejudice to the Company
on account of any payment made or any action taken or permitted by the Company
before such acknowledgement. With the Company's consent, a trust may be
designated as a beneficiary. Payments pursuant to this subparagraph 5(c), or
paragraph 4 to or for such beneficiary or
- 14 -
34
beneficiaries or to the estate of Executive shall completely discharge the
interests of all persons under this Agreement to the extent so paid and the
Company shall have no responsibility for the application of any such payments.
(e) The Company shall provide Executive with a statement as to the status
of his Deferred Compensation Account at least annually.
(f) Executive during his lifetime shall not be entitled to commute,
encumber, sell or otherwise dispose of his rights to receive deferred
compensation payments provided for herein, and the rights thereto shall be
nonassignable and nontransferable except by Will or the laws of descent and
distribution, or by beneficiary designation as herein provided.
This Incentive Bonus Plan is agreed upon by the parties as of the 7th day
of April, 1994.
XXXXXXX ELECTRONICS, INC.
BY: /s/ Xxxxx X. Xxxxxxx
--------------------------------
Chairman, Compensation Committee
/s/ Reg X. Xxxxxxx
------------------------------------
Reg X. Xxxxxxx
- 15 -
35
Schedule A
Consolidated Net Manufacturing Sales
December 1992 Strategic Plan
-----------------------------------------------
STRATEGIC PLAN
-----------------------------------------------
*1994 1995 1996 1997 1998
---------------------------------------------------------
Net Sales on Mfg. Operations 114,000 149,044 180,105 215,066 241,437
(1) Less: IRP 503 5,030 7,407 9,455 11,523
(2) MSI 0 16,965 31,137 49,782 60,030
Revised Net Sales on Mfg. Operations 113,497 127,049 141,561 155,829 169,884
* From the FY1994 profit plan including IRP.
(1) IRP's profit plan sales are reduced by $503K to reflect RGG's best
estimate of IRP's sales of $3.25 million for 1994; IRP's 12/92 strategic
plan numbers are deducted in subsequent years because of an assumed
disposition by 7/1/94.
(2) MSI's profit plan for fiscal 1994 did not provide for any outside
commercial sales. For 1995 through 1998, the reduction includes MSI's
intercompany product sales which had not been eliminated in the 12/92
Strategic Plan consolidation.
36
Schedule B
Consolidated Operating Income
* December 1992 Strategic Plan
---------------------------------------------
STRATEGIC PLAN
---------------------------------------------
** 1994 1995 1996 1997 1998
--------------------------------------------------------
Consolidated Operating Income (12/92 Plan) 48,980 59,865 71,668 80,113
Less: IRP 617 1,240 1,988 2,738
TFC's 6/30 Update 597 608 618 628
(1) MSI 1,555 4,539 8,922 10,676
Revised Consolidated Operating Income 37,446 46,211 53,478 60,140 66,071
(2) Add: Projected IRP Operating Loss for 1994 (100)
--------
Revised 1994 Consolidated Operating Income 37,346
* For TFC the June 1993 update was used because the lower interest rate
assumptions (50 basis points) are more consistent with prevailing market
conditions.
** From the approved FY1994 profit plan.
(1) MSI's income on outside commercial activity after deduction of all
marketing expense and a pro-rata share of all other period expenses.
(2) IRP included for 1994 only; a disposition or liquidation by 7/1/94 is
assumed at no gain or loss.
37
Schedule C
Planned Increases to Consolidated Net Assets
Profit Plan
1994 1995 1996 1997 1998
SSPI Fixed Capital Investment 571 200 149 160 250
Less: Depreciation Expense (368) (208) (229) (150) (200)
---------------------------------------------------------
Net Fixed Asset Additions 203 (8) (80) 10 50
HACBU Fixed Capital Investment 6,750 3,000 3,000 3,000 3,000
Less: Depreciation Expense (4,416) (3,675) (3,550) (3,450) (3,350)
---------------------------------------------------------
Net Fixed Asset Additions 2,334 (675) (550) (450) (350)
Increase/(Decrease) in Working Capital
HACBU (1,305) 2,502 2,788 2,787 2,690
SSPI 601 (52) 41 237 (73)
TFC Increase in Portfolio 2,000 2,000 2,000 2,000 2,000
MSI's Planned Capital Additions 418 295 325 395 300
Less: Depreciation Expense (644) (566) (493) (446) (358)
Less IRP Assets @ 12/18/93 (1,820)
---------------------------------------------------------
Net Increase in Consolidated Net Assets 3,607 1,676 4,031 4,533 4,259
=========================================================
From the approved 1994 profit plan and the December, 1992 strategic plan for
years 1995 through 1998.
IRP included for 1994 only; a disposition or liquidation by 7/1/94 is assumed at
no gain or loss.
38
Schedule D
Calculation of Consolidated Operating Income Return on Net Assets
6/30/93 1994 1995 1996 1997 1998
-------- -----------------------------------------------------------
Consolidated Assets 203,525
Current Liabilities (12,457)
-------
* Consolidated Net Assets 191,068
Increase in Net Assets (Sch. C) 3,607 1,676 4,031 4,533 4,259
Ending Net Assets 194,675 196,351 200,382 204,915 209,174
Consolidated Operating Income (Sch. B) 37,346 46,211 53,478 60,140 66,071
Revised Consolidated Operating Income (Sch. B)
as a% of Net Assets 19.18% 23.53% 26.69% 29.35% 31.59%
Weighted average Operating Income RONA for the five year period (1994 through
1998):
Revised Consolidated Operating Inc. (Sch. B) 263,246
-----------
Cumulative Consolidated Net Assets 1,005,497 = 26.18%
* Consolidated net assets per the Ernst & Young audited statements.
From the approved FY1994 profit plan and the December, 1992 strategic plan
for years 1995 through 1998.
IRP included for 1994 only; a disposition or liquidation by 7/1/94 is
assumed at no gain or toss.
39
October 30, 1995
Mr. Reg X. Xxxxxxx
President & CEO
Knowles Electronics, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Dear Reg:
This is intended to confirm our understanding regarding the amendment of
the Amended and Restated Employment Agreement dated June 21, 1993 (the
"Agreement"), and the related Incentive Bonus Plan dated April 7, 1994 (the
"Plan"), between you and the Company. It is proposed that the Agreement and the
Plan as they pertain to Fiscal 1999 and Fiscal 2000 be amended as follows:
1. The date "June 30, 1998" as it appears in Sections 2.01(a) and 4.02(b)
of the Agreement is changed to "June 30, 2000". (The date "July 1, 1999" as it
appears in Section 3.04 of the Agreement, by intention, is not changed.)
2. Sections 2.01(b) and 3.01(b) and the last sentence of Section 3.02 of
the Agreement, and all references, if any, in the Agreement to Sections 2.01(b)
and 3.01(b) and the last sentence of Section 3.02, are deleted. Also, clause (y)
in Section 3.04, which refers to Section 2.01(b), is deleted.
3. The second sentence of Section 4.02(d) of the Agreement is amended to
read in full as follows:
Upon any such termination, the Company shall be obligated to pay Executive
or his personal representative his base salary as above provided through
June 30, 2000, including any increase in base salary as provided in
Section 3.01(a).
4. In addition to the incentive bonus for the period from Fiscal 1993
through Fiscal 1998 as set forth in the Plan, you will be eligible to receive an
incentive bonus for each of Fiscal 1999 and Fiscal 2000. Your incentive bonus
for Fiscal 1999 and Fiscal 2000 will be determined and paid separately for each
year in accordance with the provisions of the Plan as modified below:
40
Mr. Reg X. Xxxxxxx
October 30, 1995
Page 2
(a) The three bonus factors and their respective target numbers are:
TARGET NUMBERS
BONUS FACTORS F1999 F2000
------------- ----- -----
Net Sales $193,342 $207,801
Operating Income $70,849 $75,855
Operating RONA 34.00% 34.00%
(b) The Bonus Percentage for the three bonus factors will be
determined by applying the following three Tables, utilizing the
respective Benchmarks for Fiscal 1999 and Fiscal 2000 as indicated:
NET SALES - TABLE A
NET SALES (in 000's)
BENCHMARK NOS.
---------------------- SALES AS % BONUS
F1999 F2000 OF TARGET PERCENTAGE
----- ----- ---------- ----------
Not less
than $217,510 $233,776 112.50% 160%
$212,676 $228,581 110.00% 148%
$207,843 $223,386 107.50% 136%
$203,009 $218,191 105.00% 124%
$198,176 $212,996 102.50% 112%
$193,342* $207,801* 100.00% 100%
$181,741 $195,333 94.00% 70%
$170,141 $182,865 88.00% 40%
less than $170,141 $182,865 -0-
*Target Number
41
Mr. Reg X. Xxxxxxx
October 30, 1995
Page 3
OPERATING INCOME - TABLE B
OPERATING INCOME
(in 000's)
BENCHMARK NOS. OPERATING
----------------- INCOME AS % BONUS
F1999 F2000 OF TARGET PERCENTAGE
----- ----- ---------- ----------
Not less
than $79,705 $85,337 112.50% 160%
$77,934 $83,441 110.00% 148%
$76,163 $81,544 107.50% 136%
$74,391 $79,648 105.00% 124%
$72,620 $77,751 102.50% 112%
$70,849* $75,855* 100.00% 100%
$66,598 $71,304 94.00% 70%
$62,347 $66,752 88.00% 40%
less than $62,347 $66,752 -0-
* Target Number
(Continued on page 4)
42
Mr. Reg X. Xxxxxxx
October 30, 1995
Page 4
OPERATING RONA - TABLE C
OPERATING RONA
BENCHMARK %
--------------- OPERATING RONA BONUS
F1999 F2000 % OF TARGET PERCENTAGE
----- ----- -------------- ----------
Not less
than 37.40% 37.40% 110.00% 160%
36.72% 36.72% 108.00% 148%
36.04% 36.04% 106.00% 136%
35.36% 35/36% 104.00% 124%
34.68% 34.68% 102.00% 112%
34.00%* 34.00%* 100.00% 100%
31.96% 31.96% 94.00% 70%
29.92% 29.92% 88.00% 40%
less than 29.92% 29.92% -0-
* Target Number
(c) The final bonus calculation for each of Fiscal 1999 and Fiscal
2000 will be made by applying the provisions of step 1D at page 6 of
the Plan, except that the bonus will be determined for Fiscal 1999
by multiplying $336,000 by the average of the applicable three Bonus
Percentages (i.e., the "quotient") for Fiscal 1999, and for Fiscal
2000, by multiplying $348,000 by the Fiscal 2000 quotient.
(d) The Target Numbers and Benchmarks set forth in subparagraphs (a)
and (b) above are negotiated numbers based, in part, on the December
1992 Strategic Plan (as revised) and the December 1993 and December
1994 Strategic Plans, and this basis for the Target Numbers and
Benchmarks may be taken into account in applying the provisions of
paragraph 2 of the Plan to the bonus determination for each of
Fiscal 1999 and Fiscal 2000.
(e) In lieu of paragraph 3 of the Plan, if your employment with the
Company is terminated during Fiscal
43
Mr. Reg X. Xxxxxxx
October 30, 1995
Page 5
1999 or Fiscal 2000 by reason of your death or total disability or
by the Company without cause, you will be paid the amount of the
bonus, if any, which would have been payable if you were employed by
the Company on June 30 of the fiscal year in which your employment
is so terminated, multiplied by a fraction the numerator of which is
equal to the number of days from the preceding July 1 to the date of
the termination, and the denominator of which is 365.
(f) In applying paragraphs 4 and 5 of the Plan to a bonus amount
payable to you for Fiscal 1999 or Fiscal 2000, (i) such amount shall
be deemed payable to you pursuant to paragraph 1 of the Plan or
subparagraph (e) above; and (ii) the triggering age for commencement
of installment payments from the Deferred Compensation Account
pursuant to paragraph 5(b) shall be 72 rather than 70. In applying
paragraphs 4 and 5 of the Plan to a bonus amount payable to you for
Fiscal 1993 through Fiscal 1998, Fiscal 1999 or Fiscal 2000, the
Bank of America Illinois and any corporate successor shall be
considered to be the Continental Bank N.A.
5. Unless the context otherwise requires, words, terms and phrases defined
in the Agreement or Plan shall have the same meaning if and where used in this
letter agreement.
6. This letter agreement has been approved by the Compensation Committee
of the Board of Directors, and subject to your acceptance, will be recommended
to the full Board for approval at its October 30, 1995 meeting.
Reg, if you are in agreement with the foregoing, please so indicate by
signing and returning the enclosed copy of this letter.
Sincerely,
/s/ Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
Chairman, Compensation Committee
Agreed to this 30th day
of October, 1995.
/s/ Reg X. Xxxxxxx
------------------------------------
Reg X. Xxxxxxx
44
AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AND TO AMENDMENT TO
INCENTIVE BONUS PLAN
Xxxxxxx Electronics, Inc., a Delaware corporation (the "Company"),
and Reg X. Xxxxxxx are parties to an Amended and Restated Employment Agreement
dated as of June 21, 1993 (the "Agreement") and a related Incentive Bonus Plan
dated April 7, 1994 (the "Plan"), both such Agreement and Plan being subject to
a letter amendment dated October 30, 1995.
On July 1, 1996 the Company intends to establish an interest charge
domestic international sales corporation pursuant to Section 991 et. seq. of the
Internal Revenue Code of 1986. The corporation is to be organized under the
Delaware General Corporation Law with the name of Xxxxxxx Export Distribution
Co. ("KEDCO"). The stock ownership of KEDCO is to parallel that of the Company.
It is expected that from and after July 1, 1996 approximately one-half of the
profits derived from the Company's export business will be the earnings of
KEDCO.
It is the desire of the parties that for purposes of interpreting
and applying the provisions of the Agreement as heretofore amended, and the Plan
as heretofore amended, the Company shall be deemed to include KEDCO, and all
financial determinations shall be made on the basis of the combined companies
and governed by the annual combined financial statements of the Company and
KEDCO as of June 30 prepared by the Company's independent public accounting
firm.
The parties hereby agree that the Agreement as heretofore amended,
and the Plan as heretofore amended, are further amended as necessary and
appropriate to reflect the treatment of KEDCO as part of the Company consistent
with the desire of the parties as set forth above.
XXXXXXX ELECTRONICS, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Vice President-Finance
/s/ Reg X. Xxxxxxx
-------------------------------------
Reg X. Xxxxxxx
Dated: June 25, 1996
45
Executed Copy
AMENDMENT OF
INCENTIVE BONUS PLAN AS EXTENDED
--------------------------------
Xxxxxxx Electronics, Inc. (the "Company") and Reg X. Xxxxxxx ("Executive")
are parties to an Amended and Restated Employment Agreement dated as of June 21,
1993 (the "Agreement"), a related Incentive Bonus Plan dated April 7, 1994 (the
"Plan") and a letter agreement dated October 30, 1995 (the "letter agreement")
extending the respective terms of the Agreement and the Plan to June 30, 2000.
In September, 1996, the Company acquired Ruf GmbH and its related company,
Ruwido, and the Company has very recently changed its annual accounting period
from the twelve months ending June 30 to the calendar year. The provisions of
the Plan contemplate that in such circumstances the parties will negotiate in
good faith to make appropriate and timely adjustments in the Plan. To this end,
the parties hereby agree as follows:
1. The Company will pay, and Executive will accept, the sum of $961,200 in
full satisfaction and discharge of the respective rights and obligations of the
parties under the Plan for the period from July 1, 1993 through June 30, 1996.
The basis for determining said sum is set forth in Attachment 1. With respect to
periods after June 30, 1996, the following provisions of this Amendment shall
apply.
2. For the six-month period ended December 31, 1996 (the "stub period"),
Executive will be entitled to an incentive bonus determined in accordance with
the provisions of the Plan as modified below:
46
(a) The three bonus factors and their respective target numbers are
taken from the first six months of the approved Profit Plan for fiscal 1997 (see
Attachment 2) and are as follows:
Bonus Factors Targets
------------- -------
Net Sales $74,385
Operating Income 25,554
Operating RONA 13.64%
(b) The Bonus Percentage for the three bonus factors will be
determined by applying the respective tables set forth in Attachment 3. The
Bonus Percentage for any bonus factor may not exceed 150%, and will be zero if
the benchmark required for a 60% Bonus Percentage is not achieved.
(c) The bonus calculation for the stub period will be made by
applying the provisions of step 1D at page 6 of the Plan, except that the bonus
will be determined by multiplying $150,000 by the average of the applicable
three Bonus Percentages (i.e., the "quotient").
3. For calendar 1997, Executive will be entitled to an incentive bonus
determined in accordance with the provisions of the Plan as modified below.
(a) The three bonus factors and their respective target numbers are
taken from the December 1996 Strategic Plan as restated from a fiscal to a
calendar year basis (the "restated December 1996 Strategic Plan") and are as
follows:
Bonus Factors Targets
------------- -------
Net Sales $227,015
Operating Income 58,135
Operating RONA 27.26%
- 2 -
47
(b) The Bonus Percentage for the three bonus factors will be
determined by applying the respective tables set forth in Attachment 4. The
Bonus percentage for any bonus factor may not exceed 150%, and will be zero if
the benchmark required for at least a 60% Bonus Percentage is not achieved.
(c) The bonus calculation for calendar 1997 will be made by applying
the provisions of step 1D at page 6 of the Plan by multiplying $300,000 by the
average of the applicable three Bonus Percentages (i.e., the "quotient").
4. For calendar 1998 and calendar 1999, Executive will be entitled to an
incentive bonus determined and paid separately for each year in accordance
with the provisions of the Plan and the letter agreement as modified below:
(a) The three bonus factors and their respective target numbers are
taken from the restated December 1996 Strategic Plan and are as follows:
Targets
Bonus Factors C1998 C1999
------------- ----- -----
Net Sales $259,433 $300,796
Operating Income 70,256 83,726
Operating RONA 30.94% 34.73%
(b) The Bonus Percentage for the three bonus factors will be
determined by applying the respective tables set forth in Attachment 5. The
Bonus Percentage for any bonus factors may not exceed 160%, and will be zero if
the benchmark required for at least a 40% Bonus Percentage is not achieved.
(c) The bonus calculation for each of calendar 1998 and calendar
1999 will be made by applying the provisions of step 1D at page 6 of the Plan,
except that the bonus will be determined for calendar 1998 by multiplying
$336,000 by the average of the applicable three
- 3 -
48
Bonus Percentages (i.e., the "quotient") for calendar 1998, and for calendar
1999, by multiplying $348,000 by the calendar 1999 quotient.
(d) The provisions of paragraphs 4(e) and 4(f) of the letter
agreement shall continue to apply, except that "Fiscal 1999" shall be deemed to
be "calendar 1998", "Fiscal 2000" shall be deemed to be "calendar 1999", "June
30" shall be deemed to be "December 31" and "July 1" shall be deemed to be
"January 1".
5. With respect to the six month period from January 1, 2000 to June 30,
2000, the parties will negotiate and agree upon a mutually acceptable incentive
plan prior to July 1, 1998, such plan to be based upon overall consolidated
financial performance for such period, and upon progress toward and/or
achievement of the following long-term goals of the Company:
(a) Production of the silicon microphone and establishment of a
related alliance, if necessary;
(b) Commercially successful sales of Digital Signal Processing
products, and establishment of a related alliance, if
necessary;
(c) Successful operations and financial performance at Ruf; and
(d) Render full cooperation and assistance in achieving successful
transition to successor chief executive officer.
6. As noted, the target numbers in paragraphs 3 and 4 are based on the
restated December 1996 Strategic Plan, and this basis may be taken into account
in applying the provisions of the Plan and the letter agreement to the bonus
determination for each of calendar 1997, 1998 and 1999.
7. With respect to the target percentages for Operating RONA set forth in
paragraphs 4 and 5 and the related benchmarks in Attachments 4 and 5,
appropriate adjustments will be made as soon as practical to these percentages
and related benchmarks to reflect the Company's
- 4 -
49
recent election to be treated as an S corporation under the Internal Revenue
Code and the finalization of the Ruf/Ruwido balance sheets.
8. The Targets, related benchmarks and the tables in Attachments 3, 4 and
5 have been determined on the basis of converting the projected financial
results of the Ruf and Ruwido operations from Deutchmarks to Dollars at the
exchange rate of 1.5DM to $1.00. In determining and applying the Targets,
related benchmarks and tables at any time and from time to time in accordance
with the provisions of the Plan, such Targets, benchmarks and/or tables shall be
adjusted to reflect, in lieu of the 1.5DM to $1.00 exchange rate, the Deutchmark
to Dollar exchange rate published in the Wall Street Journal for the business
day immediately preceding the date as of which the adjustment is being made.
9. The Amendment dated June 25, 1996 to the Agreement and the Plan
providing for the treatment of Xxxxxxx Export Distribution Co., an interest
charge domestic international sales corporation ("KEDCO") as part of the Company
shall continue to apply as to any accounting period during any part of which the
Company maintains KEDCO as a related interest charge domestic international
sales corporation.
10. The Company has determined that the sum payable to Executive pursuant
to paragraph 1 shall be paid as deferred compensation in accordance with
paragraph 5 of the Plan as hereinbelow amended. It is understood that such
payment is subject to FICA withholding from Executive's current compensation as
an officer of the Company.
11. Subparagraph 5(b) of the Plan is hereby amended by adding the
following two sentences at the end, and as part of, said subparagraph:
"Notwithstanding the foregoing provision of this subparagraph (b), if the
Company is sold at any time that there is a balance in
- 5 -
50
the Deferred Compensation Account, said balance shall be paid to Executive in a
lump sum at or immediately prior to the closing of said sale. Sale of the
Company shall be deemed to occur when either of the events of sale described in
Section 3.04 of the Agreement occur."
12. Unless the context otherwise requires, words, terms and phrases
defined in the Agreement, Plan or letter agreement shall have the same meaning
if and when used in this Amendment.
13. This Amendment has been approved by the Compensation Committee of the
Board of Directors and will be recommended to the full Board for approval at its
April 14, 1997 meeting.
This Amendment is agreed upon and executed as of the 14th day of April,
1997.
XXXXXXX ELECTRONICS, INC.
By /s/ E. Xxxxxxxx Xxxxx
--------------------------------------
Chairman, Compensation Committee
/s/ Reg X. Xxxxxxx
----------------------------------------
Reg X. Xxxxxxx
- 6 -
51
Attachment 1
($ Expressed in '000s) Page 1 of 4
Consolidated Net Manufacturing Sales
----------------------------------------
PLAN
----------------------------------------
1994 1995 1996
----------------------------------------
(1) Revised Net Sales on Mfg.
Operations $113,497 $127,049 $141,561
----------------------------------------
ACTUAL
----------------------------------------
1994 1995 1996
----------------------------------------
Net Sales on Mfg. Operations $121,113 $133,242 $141,502
Actual Over/(Under) Plan:
Annual $7,616 $6,193 ($59)
% of Achievement:
Annual 106.7% 104.9% 100.0%
(2) Bonus Percentage 109.6% 107.0% 99.8%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 107% of target will yield a bonus percentage
of 110% and 91.73% of target will yield a bonus of 60%. The actual bonus
percentage is calculated in accordance with the method prescribed on page
4 in the April 7, 1994 plan.
52
Attachment 1
($ Expressed in '000s) Page 2 of 4
Consolidated Operating Income
----------------------------------------
PLAN
----------------------------------------
1994 1995 1996
----------------------------------------
(1) Revised consolidated Operating
Income $37,346 $46,211 $53,478
----------------------------------------
ACTUAL
----------------------------------------
1994 1995 1996
----------------------------------------
Consolidated Operating Income $45,772 $47,132 $50,212
Actual Over/(Under) Plan:
Annual $8,426 $921 ($3,266)
% of Achievement:
Annual 122.6% 102.0% 93.9%
(2) Bonus Percentage 145.1% 104.0% 72.8%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 125% of target will yield a bonus of 150%
and 91.02% of target will yield a bonus percentage of 60%. The actual
bonus percentage is calculated in accordance with the method prescribed on
page 4 in the April 7, 1994 plan.
53
Attachment 1
($ Expressed in '000s) Page 3 of 4
Calculation of Consolidated Operating Income Return on Net Assets
----------------------------------------
PLAN
----------------------------------------
1994 1995 1996
----------------------------------------
(1) Ending Net Assets $194,675 $196,351 $200,382
Consolidated Operating Income
(page 2, Attachment 4) $37,346 $46,211 $53,478
Revised consolidated Operating
Income as a % of Net Assets 19.18% 23.53% 26.69%
----------------------------------------
ACTUAL
----------------------------------------
1994 1995 1996
----------------------------------------
Ending Net Assets $199,000 $202,505 $197,828
Consolidated Operating Income
(page 2, Attachment 4) $45,772 $47,132 $50,212
Consolidated Operating Income
as a % of Net Assets 23.00% 23.27% 25.38%
Actual Over/(Under) Plan:
Annual 3.82% -0.26% -1.31%
Cumulative 3.82% 1.77% 0.71%
Weighted average Operating Income RONA for the three year period (1994 through
1996) - Plan:
Revised Consolidated Operating Inc. $137,035
--------
Cumulative Consolidated Net Assets $591,408 = 23.17%
Weighted average Operating Income RONA for the three year period (1994 through
1996) - Actual:
Consolidated Operating Income $143,116
--------
Cumulative Consolidated Net Assets $599,333 = 23.88%
(2) Weighted average bonus percentage = 107.6%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 104% of target will yield a bonus percentage
of 110% and 100% of target will yield a bonus of 100%. The actual bonus
percentage is calculated in accordance with the method prescribed on page
4 in the April 7, 1994 plan.
54
Attachment 1
Page 4 of 4
* Calculation of 3 Year Payout
Bonus Percentage Fiscal 1994 Fiscal 1995 Fiscal 1996 Average
---------------- ----------- ----------- ----------- -------
Sales (page 1) 109.6% 107.0% 99.8% 105.5%
Operating Income
(page 2) 145.1% 104.0% 72.8% 107.3%
RONA (page 3) -------Not Applicable------- 107.6%
-----
TOTAL 320.4%
(320.4% / 3) * $900,000 = $961,200
*In accordance with the methodology outlined on page 6, section D of the April
7, 1994 plan.
55
Attachment 2
Preliminary Consolidation Income Statement
Stub Year 6 Month Estimates
-------------------------------------------------------------
(In Thousands of $) Plan Plan
Approved FY '97 1st Six Months 2nd Six Months
Profit Plan Ended 12/31/96 (1/1/97 - 6/30/97)
-------------------------------------------------------------
Net Sales on Mfg. Operations $115,548 $74,385 $81,163
Interest & Loan Fee Income 9,267 4,587 4,680
-------------------------------------------------------------
Net Revenue $164,815 $78,972 $85,843
Cost of Sales 83,485 40,160 43,325
Gross Margin $ 81,330 $38,812 $42,518
As a % of Net Revenue 49.3% 49.1% 49.5%
Research & Development $5,037 $2,516 $2,521
Marketing 7,226 3,594 3,632
General & Administrative 14,369 7,148 7,221
-------------------------------------------------------------
Total Period Expenses $26,632 $13,258 $13,374
Operating Income $54,698 $25,554 $29,144
As a % of Net Revenue 33.22% 32.4% 34.0%
-------------------------------------------------------------
56
($ Expressed in '000s) Attchment 3
* Consolidated Profit Plan
1st Half Ending 12/31/96
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
----------------------------
of Target 12/31/96 Percentage
--------------------------------------------------------------------------------
91.73% 68,233 60.00%
95.86% 71,305 80.00%
100.00% 74,385 100.00%
107.00% 79,592 110.00%
114.00% 84,799 120.00%
121.00% 90,006 130.00%
128.00% 95,213 140.00%
135.00% 100,420 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
----------------------------
of Target 12/31/96 Percentage
--------------------------------------------------------------------------------
91.02% 23,259 60.00%
95.51% 24,407 80.00%
100.00% 25,554 100.00%
105.00% 26,832 110.00%
110.00% 28,109 120.00%
115.00% 29,387 130.00%
120.00% 30,665 140.00%
125.00% 31,943 150.00%
--------------------------------------------------------------------------------
Op. RONA as a % Table C - Operating RONA Bonus
----------------------------
of Target 12/31/96 Percentage
--------------------------------------------------------------------------------
94.58% 12.90% 60.00%
97.29% 13.27% 80.00%
100.00% 13.64% 100.00%
104.00% 14.19% 110.00%
108.00% 14.73% 120.00%
112.00% 15.28% 130.00%
116.00% 15.82% 140.00%
120.00% 16.37% 150.00%
57
($ Expressed in '000s) Attachment 4
* Consolidated Profit Plan
Twelve Months Ending 12/31/97
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target --------------------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
91.73% 208,241 60.00%
95.86% 217,617 80.00%
--------------------------------------------------------------------------------
100.00% 227,015 100.00%
--------------------------------------------------------------------------------
107.00% 242,906 110.00%
114.00% 258,797 120.00%
121.00% 274,688 130.00%
128.00% 290,579 140.00%
135.00% 306,470 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target --------------------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
91.02% 52,914 60.00%
95.51% 55,525 80.00%
--------------------------------------------------------------------------------
100.00% 58,135 100.00%
--------------------------------------------------------------------------------
105.00% 61,042 110.00%
110.00% 63,949 120.00%
115.00% 66,855 130.00%
120.00% 69,762 140.00%
125.00% 72,669 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target --------------------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
94.58% 25.78% 60.00%
97.29% 26.52% 80.00%
--------------------------------------------------------------------------------
100.00% 27.26% 100.00%
--------------------------------------------------------------------------------
104.00% 28.35% 110.00%
108.00% 29.44% 120.00%
112.00% 30.53% 130.00%
116.00% 31.62% 140.00%
120.00% 32.71% 150.00%
--------------------------------------------------------------------------------
* Includes RUF acquisition.
58
($ Expressed in '000's) Attachment 5
* Consolidated Strategic Plan
Twelve Months Ending 12/31/98 and 12/31/99
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target ------------------------------------------------ Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
88.00% 228,301 264,700 40.00%
95.00% 246,461 285,756 75.00%
--------------------------------------------------------------------------------
100.00% 259,433 300,796 100.00%
--------------------------------------------------------------------------------
105.00% 272,405 315,836 124.00%
112.50% 291,862 338,396 160.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target ------------------------------------------------ Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
88.00% 61,825 73,679 40.00%
95.00% 66,743 79,540 75.00%
--------------------------------------------------------------------------------
100.00% 70,256 83,726 100.00%
--------------------------------------------------------------------------------
105.00% 73,769 87,912 124.00%
112.50% 79,038 94,192 160.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target ------------------------------------------------ Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
88.00% 27.23% 30.56% 40.00%
95.00% 29.39% 32.99% 74.84%
--------------------------------------------------------------------------------
100.00% 30.94% 34.73% 100.00%
--------------------------------------------------------------------------------
105.00% 32.49% 36.47% 130.10%
110.00% 34.03% 38.20% 160.00%
--------------------------------------------------------------------------------
* Includes RUF acquisition
59
($ Expressed in '000s)
Consolidated Net Manufacturing Sales
--------------------------------------------------------
PLAN
--------------------------------------------------------
1994 1995 1996 12/31/96
--------------------------------------------------------
(1) Revised Net Sales on Mfg. Operations $113,497 $127,049 $ 141,561 $74,385
--------------------------------------------------------
ACTUAL
--------------------------------------------------------
1994 1995 1996 12/31/96
--------------------------------------------------------
Net Sales on Mfg. Operations $121,113 $133,242 $ 141,502 $76,542
Actual Over/(Under) Plan:
Annual $ 7,616 $ 6,193 ($ 59) $ 2,157
% of Achievement:
Annual 106.7% 104.9% 100.0% 102.9%
(2) Bonus Percentage 109.6% 107.0% 99.8% 104.1%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 107% of target will yield a bonus percentage
of 110% and 91.73% of target will yield a bonus of 60%. The actual bonus
percentage is calculated in accordance with the method prescribed on page
4 in the April 7, 1994 plan.
60
($ Expressed in '000s)
Consolidated Operating Income
--------------------------------------------------------
PLAN
--------------------------------------------------------
1994 1995 1996 12/31/96
--------------------------------------------------------
(1) Revised Consolidated Operating Income $37,346 $46,211 $ 53,478 $ 25,554
--------------------------------------------------------
ACTUAL
--------------------------------------------------------
1994 1995 1996 12/31/96
--------------------------------------------------------
Consolidated Operating Income $45,772 $47,132 $ 50,212 $ 27,970
Actual Over/(Under) Plan:
Annual $ 8,426 $ 921 ($ 3,266) $ 2,416
% of Achievement:
Annual 122.6% 102.0% 93.9% 109.5%
(2) Bonus Percentage 145.1% 104.0% 72.8% 118.9%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 125% of target will yield a bonus percentage
of 150% and 91.02% of target will yield a bonus of 60%. The actual bonus
percentage is calculated in accordance with the method prescribed on page
4 in the April 7, 1994 plan.
61
($ Expressed in '000s)
Calculation of Consolidated Operating Income Return on Net Assets
-------------------------------------------------------
PLAN
-------------------------------------------------------
1994 1995 1996 12/31/96
-------------------------------------------------------
(1) Ending Net Assets $194,675 $196,351 $200,382 $187,359
Consolidated Operating Income (page 2, Attachment 4) $ 37,346 $ 46,211 $ 53,478 $ 25,554
Revised Consolidated Operating Income as a % of Net Assets 19.18% 23.53% 26.69% 13.64%
-------------------------------------------------------
ACTUAL
-------------------------------------------------------
1994 1995 1996 12/31/96
-------------------------------------------------------
Ending Net Assets $199,000 $202,505 $197,828 $194,638
Consolidated Operating Income (page 2, Attachment 4) $ 45,772 $ 47,132 $ 50,212 $ 27,970
Consolidated Operating Income as a % of Net Assets 23.00% 23.27% 25.38% 14.37%
Actual Over/(Under) Plan:
Annual 3.82% -0.26% -1.31% 0.73%
Cumulative 3.82% 1.77% 0.71%
Weighted average Operating Income RONA for the three year period (1994 through
1996) - Plan:
Revised Consolidated Operating Inc. $137,035
--------
Cumulative Consolidated Net Assets $591,408 = 23.17%
Weighted average Operating Income RONA for the three year period (1994 through
1996) - Actual:
Consolidated Operating Income $143,116
--------
Cumulative Consolidated Net Assets $599,333 = 23.88%
(2) Weighted average bonus percentage = 109.4%
12/31/96 bonus percentage = 113.3%
(1) Per RGG's incentive bonus plan dated April 7, 1994.
(2) The bonus plan specifies that 104% of target will yield a bonus percentage
of 110% and 100% of target will yield a bonus of 100%. The actual bonus
percentage is calculated in accordance with the method prescribed on page
4 in the April 7, 1994 plan.
62
* Calculation of 3 Year Payout
Bonus Percentage Fiscal 1994 Fiscal 1995 Fiscal 1996 Average
---------------- ----------- ----------- ----------- -------
Sales (page 1) 109.6% 107.0% 99.8% 105.5%
Operating Income (page 2) 145.1% 104.0% 72.8% 107.3%
RONA (page 3) ------------ Not Applicable ------------ 107.6%
-----
TOTAL 320.4%
(320.4%/3) * $900,000 = $961,200
*In accordance with the methodology outlined on page 6, section D of the April
7, 1994 plan.
Bonus Percentage 12/31/96
---------------- --------
Sales (page 1) 104.1%
Operating Income (page 2) 118.9%
RONA (page 3) 113.3%
-----
TOTAL 336.3%
(336.3%/3) * $300,000/2 = $168,150
63
Documentation re Incentive Plan Adjustments
(Dec. '97 - Jan. '98)
A. Excerpt from minutes of BOD meeting of 12/15/97
B. ELK report to BOD dtd 1/6/98
C. BJS memo of 1/13/98 re LTIP replacement schedules
64
Excerpt from minutes of 12/15/97 BOD meeting:
Xxxxx Xxxxx then addressed Reg Garratt's proposal with respect to
adjustment of the LTIP performance schedules by reason of certain developments
that he believes to be uncontrollable factors and hence, warrant the requested
adjustments to maintain meaningful incentives for the LTIP participants. Xxxxx
Xxxxx reported that Reg Garratt believes adjustments are in order for the 1997
schedules for the extraordinary capital expenditures relating to the Franklin
Park facility closure, the impact of S corporation status on 1997 results, the
impact of currency exchange rate fluctuations on pricing and the extraordinary
expenditures incurred in the silicon microphone project. Xx. Xxxxx also reported
that Xx. Xxxxxxx had requested adjustment of the target incentive schedules for
1998 and 1999 by utilizing the respective profit plans for these years as the
basis of these schedules. Xx. Xxxxx reported that the Compensation Committee had
given consideration to these suggested adjustments and concluded that certain of
the factors, such as the S corporation election, provide an appropriate basis
for adjustment, but that as a policy matter, it generally is not advisable to
adjust long term incentive targets from year to year.
After discussion, it was agreed that Xxxxx Xxxxx should discuss the matter
of incentive plan adjustments for 1997, 1998 and 1999 with Reg Garratt. Xx.
Xxxxx is then to report the outcome of these discussions, first to the
Compensation Committee and then to the Board of Directors, with the intention
that subject to the Board's review, the Compensation Committee will finalize
adjustments to the LTIP programs for 1997, 1998 and 1999.
A
65
To: Xxxxx Xxxxxxx 6 January 1998
Xxxx Xxxxxxxxx
Xxxxxxxx Xxxxxx
Xxxx Xxxx
From: Xxxxx Xxxxx
cc: Xxxx Xxxxxxx
Xxxxxxx Xxxxxxx
Reg Garratt
Subject: Xxxxxxx Long Term Incentive Plan
You will recall that at the December Board of Directors meeting, I reported that
the Compensation committee had reviewed a proposal from Reg Garratt to modify
the Long Term Incentive Plan (LTIP) which encompassed FY 1997, 1998 and 1999.
The plan includes Messrs. Garratt, Brander, Xxxxxxxx and Xxxxx for those years.
The rationale was that a number of unforeseen events had materialized which had
not been incorporated in the financial forecast projections. These included the
following:
1 - Unfavorable currency swings.
2 - The change to a sub S corporation.
3 - Capital costs associated with the close down of Franklin Park.
4 - KE pricing which was a by-product of the currency swings.
The committee felt that, as a policy, it was a mistake to start a process of
altering targets in mid stream -- other than major changes over which management
has no control. The conversion to the sub S corporation would be such an
example.
A subsequent detailed review by the Comp Committee resulted in the following
recommendations.
1 - Allow the impact of currency since the LTIP contract language
expressly covers that circumstance.
2 - Adjust the targets so that there is no penalty relating to the
sub S.
B
66
3 - Increase the base levels for all participants as summarized on
Exhibit #1 attached.
4 - Change the matrix for Garratt to be consistent with the other
participants. This applies to FY 1998 and 1999 for performance below
100% only i.e. above 100% there is no change.
If you have any questions on any of the above, please call either Xxxx Xxxx or
myself. In either case please let either of us know no later than January 16th
whether you are in accord with the committee recommendation.
67
EXHIBIT #1
Long Term Incentive Plan
------------------------
Base Payout @ 100%
($ 000)
1997 1998 1999
---- ---- ----
Original Proposed Original Proposed Original Proposed
Reg Garratt $300 $330 $336 $368 $348 $382
Other
Participants $ 60 $ 60 $ 60 $ 66 $ 80 $ 88
68
14509620
MEMORANDUM
XXXXXXX ELECTRONICS, INC.
C O N F I D E N T I A L
TO: RGG, JWH, ELK
FROM: BJS
SUBJECT: LTIP SCHEDULES DATE: JANUARY 13, 1998
In response to Larry's January 6, 1998 memo to the Board (Subject: Xxxxxxx
Long Term Incentive Plan), I am attaching replacement schedules for the
two incentive agreements that are in place. The nature of the revisions to
the superceded schedules are summarized below:
Attachment 1, Page 2 of 3 - As the footnote indicates, the RONA was
adjusted for the estimated $4.1 million effect of the S Corp. conversion.
(The actual adjustment will not be known until completion of the 1997
audit).
Attachment 1, Page 3 of 3 - This schedule applies only to PWC. As the
footnote indicates, the targets have been adjusted to reflect the transfer
of Deltek and the infra-red businesses which occurred after LTIP was put
in place. Because these adjustments are more extensive, a schedule (Engine
Controls Group) itemizing these revisions is also attached.
Attachment 4 - As the footnote indicates, the estimated S Corp. effect on
RONA has been reflected.
Attachment 5 - In addition to the S Corp. effect, the percent of targets
and related bonus percentages under 100% were revised to conform to the
same scales as those of the other LTIP participants (see Attachment 1,
Page 2 of 3).
Because of the transfer of the infrared business to Emkay and its impact
on the asset base, the related targets for David's LTIP arrangement must
be developed and will be issued shortly.
/s/ BJS
BJS/dw C
69
($ Expressed in '000's) Attachment 1
Page 2 of 3
Long Term Incentive Plan (LTIP) - Other Participants
Consolidated - Including RUF/SSPI
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target --------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
90.00% $204,314 $233,490 $270,716 90.00%
95.00% 215,664 246,461 285,756 95.00%
--------------------------------------------------------------------------------
100.00% 227,015 259,433 300,796 100.00%
--------------------------------------------------------------------------------
105.00% 238,366 272,405 315,836 105.00%
110.00% 249,717 285,376 330,876 110.00%
115.00% 261,067 298,348 345,915 115.00%
120.00% 272,418 311,320 360,955 120.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target ---------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% $46,508 $56,205 $66,981 80.00%
90.00% 52,322 63,230 75,353 90.00%
95.00% 55,228 66,743 79,540 95.00%
--------------------------------------------------------------------------------
100.00% 58,135 70,256 83,726 100.00%
--------------------------------------------------------------------------------
105.00% 61,042 73,769 87,912 105.00%
110.00% 63,949 77,282 92,099 110.00%
115.00% 66,855 80,794 96,285 115.00%
120.00% 69,762 84,307 100,471 120.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target -------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% 21.40% 24.31% 27.32% 80.00%
90.00% 24.08% 27.35% 30.74% 90.00%
95.00% 25.41% 28.87% 32.44% 95.00%
--------------------------------------------------------------------------------
100.00% 26.75% 30.89% 34.15% 100.00%
--------------------------------------------------------------------------------
105.00% 28.09% 31.91% 35.86% 105.00%
110.00% 29.43% 33.43% 37.57% 110.00%
115.00% 30.76% 34.95% 39.27% 115.00%
120.00% 32.10% 36.47% 40.98% 120.00%
--------------------------------------------------------------------------------
Note: "S" Corp. effect on financial statements not yet known; it was originally
estimated that the asset base would increase by $4.1 million, and the RONA
targets have been adjusted to reflect this adjustment. The actual impact
on the asset base from the "S" Corp. conversion will not be known until
completion of the 1997 audit.
70
($ Expressed in '000's) Attachment 1
Page 3 of 3
RUF/SSPI
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target --------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
90.00% $85,964 $79,635 $95,186 90.00%
95.00% $90,739 $84,059 $100,474 95.00%
--------------------------------------------------------------------------------
100.00% $95,515 $88,483 $105,762 100.00%
--------------------------------------------------------------------------------
105.00% $100,291 $92,907 $111,050 105.00%
110.00% $105,067 $97,331 $116,338 110.00%
115.00% $109,842 $101,755 $121,626 115.00%
120.00% $114,618 $106,180 $126,914 120.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target --------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% $6,738 $8,432 $12,047 80.00%
90.00% $7,580 $9,486 $13,553 90.00%
95.00% $8,001 $10,013 $14,306 95.00%
--------------------------------------------------------------------------------
100.00% $8,422 $10,540 $15,059 100.00%
--------------------------------------------------------------------------------
105.00% $8,843 $11,067 $15,812 105.00%
110.00% $9,264 $11,594 $16,565 110.00%
115.00% $9,685 $12,121 $17,318 115.00%
120.00% $10,106 $12,648 $18,071 120.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target --------------------------------------------- Percentage
12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% 22.54% 26.43% 31.78% 80.00%
90.00% 25.35% 29.74% 35.76% 90.00%
95.00% 26.76% 31.39% 37.74% 95.00%
--------------------------------------------------------------------------------
100.00% 28.17% 33.04% 39.73% 100.00%
--------------------------------------------------------------------------------
105.00% 29.58% 34.69% 41.72% 105.00%
110.00% 30.99% 36.34% 43.70% 110.00%
115.00% 32.40% 38.00% 45.69% 115.00%
120.00% 33.80% 39.65% 47.68% 120.00%
--------------------------------------------------------------------------------
NOTE: Targets have been adjusted to reflect the business transfer of Deltek to
KE and Infrared to Emkay. The asset base has not been adjusted to exclude
any property, plant and equipment which may also be utilized by Emkay.
71
1/13/98
ENGINE CONTROLS GROUP
CY1997 CY1998 CY1999
------------------------------------
Sales - Original CY Strategic Plan $65,334 $70,133 $ 83,866
Less: Ruwido - Deltek (2,000) (2,333) (2,667)
Less: Ruwido - Infrared 0 (17,467) (22,067)
Less: Ruwido - Tooling 0 (1,150) (1,300)
------------------------------------
Adjusted RUF Sales Target $63,334 $49,183 $ 57,832
Add: SSPI Sales 32,181 39,300 47,930
------------------------------------
Adjusted SSPI/RUF Sales Target $95,515 $88,483 $105,762
====================================
Operating Income - Original CY Strategic Plan $ 2,534 $ 5,533 $ 9,533
Less: Ruwido - Deltek (100) (320) (421)
Less: Ruwido - Infrared 0 (2,393) (3,487)
Less: Ruwido - Tooling 0 (158) (205)
------------------------------------
Adjusted RUF Operating Income $ 2,434 $ 2,663 $ 5,420
Add: SSPI Operating Income 5,988 7,877 9,639
------------------------------------
Adjusted SSPI/RUF Operating Income Target $ 8,422 $10,540 $ 15,059
====================================
Net Assets - Original CY Strategic Plan $26,601 $29,134 $ 34,200
Less: Reclassification of liabilities to short term for GAAP (7,000) (7,467) (7,867)
------------------------------------
Adjusted RUF Net Assets $19,601 $21,667 $ 26,333
Add: SSPI Net Assets 10,293 10,235 11,570
------------------------------------
Adjusted SSPI/RUF Net Assets $29,894 $31,902 $ 37,903
====================================
Original CY Strategic Plan RONA Target 23.10% 34.06% 41.89%
Adjusted RONA Target 28.17% 33.04% 39.73%
72
($ Expressed in '000s) Attachment 4
Long Term Incentive Plan - RGG
Calendar 1997
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target --------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
91.73% 208,241 60.00%
95.86% 217,617 80.00%
--------------------------------------------------------------------------------
100.00% 227,015 100.00%
--------------------------------------------------------------------------------
107.00% 242,906 110.00%
114.00% 258,797 120.00%
121.00% 274,688 130.00%
128.00% 290,579 140.00%
135.00% 308,470 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target --------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
91.02% 52,914 60.00%
95.51% 55,525 80.00%
--------------------------------------------------------------------------------
100.00% 58,135 100.00%
--------------------------------------------------------------------------------
105.00% 61,042 110.00%
110.00% 63,949 120.00%
115.00% 66,855 130.00%
120.00% 69,762 140.00%
125.00% 72,669 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target --------------------------------- Percentage
12/31/97
--------------------------------------------------------------------------------
94.58% 25.30% 60.00%
97.29% 26.03% 80.00%
--------------------------------------------------------------------------------
100.00% 26.75% 100.00%
--------------------------------------------------------------------------------
104.00% 27.82% 110.00%
108.00% 28.89% 120.00%
112.00% 29.96% 130.00%
116.00% 31.03% 140.00%
120.00% 32.09% 150.00%
--------------------------------------------------------------------------------
Note: "S" Corp. effect on financial statements not yet known; it was originally
estimated that the asset base would increase by $4.1 million, and the RONA
target has been adjusted to reflect this adjustment. The actual impact on
the asset base from the "S" Corp. conversion will not be known until
completion of the 1997 audit.
73
($ Expressed in '000's) Attachment 0
Xxxx Xxxx Xxxxxxxxx Xxxx - XXX
Xxxxxx Months Ending 12/31/98 and 12/91/99
--------------------------------------------------------------------------------
Sales as a % Table A - Net Sales Bonus
of Target ----------------------------------- Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
90.00% 233,490 270,716 90.00%
95.00% 246,461 285,756 95.00%
--------------------------------------------------------------------------------
100.00% 259,433 300,796 100.00%
--------------------------------------------------------------------------------
105.00% 272,405 315,836 124.00%
112.50% 291,862 338,396 160.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. Inc. as a % Table B - Operating Income Bonus
of Target ----------------------------------- Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% 56,205 66,981 80.00%
90.00% 63,230 75,353 90.00%
--------------------------------------------------------------------------------
100.00% 70,256 83,726 100.00%
--------------------------------------------------------------------------------
105.00% 73,769 87,912 124.00%
112.50% 79,038 94,192 160.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
% of Target ----------------------------------- Percentage
12/31/98 12/31/99
--------------------------------------------------------------------------------
80.00% 24.31% 27.32% 80.00%
90.00% 27.35% 30.74% 90.00%
--------------------------------------------------------------------------------
100.00% 30.39% 34.15% 100.00%
--------------------------------------------------------------------------------
105.00% 31.91% 35.86% 130.00%
110.00% 33.43% 37.57% 160.00%
--------------------------------------------------------------------------------
Note: "S" Corp. effect on financial statements not yet known; it was originally
estimated that the asset base would increase by $4.1 million, and the RONA
targets have been adjusted to reflect this adjustment. The actual impact
on the asset base from the "S" Corp. conversion will not be known until
completion of the 1997 audit.
74
March 15th, 1998
Mr. Reg X. Xxxxxxx
Chairman and CEO
Knowles Electronics, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Dear Reg:
This is intended to confirm the amendment of the Amended and Restated
Employment Agreement dated June 21, 1993 as heretofore amended October 30, 1995,
and June 25, 1996, which Agreement as so amended is herein referred to as the
"Agreement," and the related Incentive Bonus Plan dated April 7, 1994 as
heretofore amended October 30, 1995, June 25, 1996 and April 14, 1997, which
Plan as so amended is herein referred to as the "Plan." This amendment was
authorized at the meeting of the Board of Directors of the Company held December
15, 1997, and I was authorized to act on behalf of the Board to bring this
matter to closure by the negotiation and execution of this letter agreement on
behalf of the Board and the Company. To this end, it is proposed that the
Agreement and the Plan be amended as follows:
1. The following sentence is added to the Agreement at the end of Section
2.01(a):
"Effective December 15, 1997, the by-laws of the Company shall be
amended to provide that the Chairman of the Board of Directors
("Chairman") shall be the Chief Executive Officer of the Company,
and Executive shall thereupon be elected to that office."
2. The following five Sections are added to the Agreement immediately
following Section 2.01(a):
"(b) Post June 30, 2000 Employment. During the period from July 1,
2000 to June 30, 2003, Executive shall be employed by the Company
either as Chief Executive Officer (with the title of Chairman) as
provided in Section 2.01(c), or in another executive or consulting
capacity as provided in Section 2.01(d)."
"(c) Post June 30, 2000 Employment as CEO. If the Board of Directors
of the Company decides to extend Executive's term as Chief Executive
Officer for the period from July 1, 2000 through June 30, 2001, the
Company may do so by giving Executive written notice to that effect
not later than January 15, 1999, and Executive's term as Chief
Executive Officer under this Agreement shall thereupon be so
extended. Executive's term as Chief Executive Officer hereunder may
similarly be so extended for the period from July 1, 2001 through
June 30, 2002,
75
Mr. Reg X. Xxxxxxx
Xxxxxxx Electronics, Inc.
March 15, 1998
Page 2
and for the period from July 1, 2002 through June 30, 2003, by the
Company by giving Executive written notice to that effect not later
than January 15, 2000 and January 15, 2001, respectively."
"(d) Post-June 30, 2000 Employment as Chairman and/or Consultant. If
Executive's term as Chief Executive Officer of the Company is not
extended as to any part of the period from July 1, 2000 through June
30, 2003, then as to that part of such period Executive shall serve
as Chairman of the Board of Directors, if the Board of Directors so
desires, and as a consultant to the Company, and in such capacities
Executive shall devote one-half of his business time to the
chairmanship responsibility, if applicable, and to such other
appropriate duties as consultant as the Board of Directors from time
to time may reasonably assign. Executive shall be compensated for
such service, whether or not any commitment of time by Executive is
required, at the rate set forth in Section 3.01(b) of this
Agreement."
"(e) Management Succession Process. It is agreed that it is in the
Company's best interest that more authority and responsibility with
commensurate title changes be given to two or three key managers as
soon as possible, and to this end, Executive will initiate
discussion with the Board of Directors with the view of undertaking
the evaluation of the respective performances of the key managers in
anticipation of establishing a management succession process."
"(f) Executive's Management Development and Succession Plan.
Executive will submit a detailed management development and
succession plan, including management at least two levels below that
of Chief Executive Officer, to the Board of Directors by September
30, 1998."
3. The following provision is added to the Agreement as Section 3.01(b):
"(b) Base Salary as Chairman and/or Consultant Post June 30, 2000.
During any period after June 30, 2000 in which Executive is serving
as Chairman and/or consultant as contemplated by Section 2.01(d), he
shall receive a base salary (but no incentive bonus) at the rate of
$400,000 per annum."
4. The second sentence of Section 3.01(c) of the Agreement is amended to
read in full as follows:
76
Mr. Reg X. Xxxxxxx
Xxxxxxx Electronics, Inc.
March 15, 1998
Page 3
"Executive shall also be entitled to an individual incentive bonus
during his term as Chief Executive Officer as heretofore provided in
the Plan; and if Executive's term as Chief Executive Officer is
extended beyond June 30, 2000 as provided in Section 2.01(c) of this
Agreement, within sixty (60) days after each such extension, the
parties shall develop and agree upon a mutually acceptable amendment
of the Plan providing for an individual incentive bonus for
Executive for the calendar year next succeeding the calendar year in
which the notice of extension is to be given plus the following six
month stub period."
5. The following sentence is added to the Agreement at the end of Section
3.02:
"During any period after June 30, 2000 in which Executive is serving
as Chairman and/or consultant as contemplated by Section 2.01(d), he
shall be entitled to paid vacation of two weeks during each
consecutive twelve month period he so serves."
6. The first two sentences of Section 3.04 of the Agreement are deleted
and replaced by the following four sentences:
"3.04 Sale of Company. If the Company is sold at any time during or
within one year after the period in which Executive is Chief
Executive Officer of the Company, the Company shall make a special
incentive payment to Executive for his full cooperation and
assistance in furthering the sale in an amount equal to 0.33% of the
sale price. The term "sale price" as used in the preceding sentence
means the total of any and all consideration (at fair market value)
paid or to be paid to the stockholders in the case of a sale of
stock or merger, or the Company in the case of a sale of assets, as
a result of the closing of the sale, including if the transaction
involves the sale of assets rather than stock, any liabilities of
the Company assumed by the purchaser. For purposes of determining if
and when the Company is sold and the fair market value of that
portion of consideration paid at closing, the sale shall be deemed
to be made at the close of business on the date of closing. Such
special incentive payment shall be made to Executive not later than
ten (10) days after the closing."
77
Mr. Reg X. Xxxxxxx
Xxxxxxx Electronics, Inc.
March 15, 1998
Page 4
7. Section 4.01 is amended to read as follows:
"4.01 Term. The term of this Agreement shall commence July 31, 1993
and, except with respect to the provisions of Article V, shall
terminate on July 1, 2003, unless earlier terminated as hereafter
provided or unless extended by written agreement of the Company and
Executive."
8. The second sentence of Section 4.02(d) of the Agreement is amended to
read in full as follows:
"Upon any such termination, the Company shall be obligated to pay
Executive or his personal representative his base salary as above
provided through June 30, 2003."
9. Unless the context otherwise requires, words, terms and phrases defined
in the Agreement or Plan shall have the same meaning if and where used in this
letter agreement.
Reg, if you are in agreement with the foregoing, please so indicate by
signing and returning the enclosed copy of this letter.
Sincerely,
/s/ R. Xxxxxx Xxxxxxx
R. Xxxxxx Xxxxxxx
Agreed to this 15th day of
March, 1998.
/s/ Reg X. Xxxxxxx
----------------------------
Reg X. Xxxxxxx
78
AGREEMENT
This Agreement is entered into the 23rd day of February 1999, by and
between Xxxxxxx Electronics, Inc., a Delaware corporation (the "Company") and
Reg X. Xxxxxxx ("Executive") for the purpose of (i) amending Section 3.04 of the
Amended and Restated Employment Agreement, dated June 21, 1993 between the
parties as amended, and specifically as amended by Paragraph 6 of the letter
agreement dated March 15, 1998 (which Section 3.04 as so amended is hereafter
referred to as "Section 3.04 of the Employment Agreement"), and (i) Subparagraph
5(b) of the Incentive Bonus Plan dated April 1, 1994 between the parties as
amended, and specifically as amended by paragraph 11 of the Amendment of
Incentive Bonus Plan as Extended dated November 14, 1997 (which Subparagraph
5(b) as so amended is hereafter referred to as "Subparagraph 5(b) of the
Incentive Plan").
1. It is agreed that the first four sentences of Section 3.04 of the
Employment Agreement are deleted and replaced by the following four sentences:
"3.04 Sale of Company. In the event the Company or its stockholders enter
into a definitive agreement ("the definitive agreement") providing for the sale
or other complete disposition of the Company (excluding TFC) at any time during
or within one year after the period in which Executive is Chief Executive
Officer of the Company, the Company shall make a special incentive payment to
Executive in recognition of his past service and continuing cooperation and
assistance in furthering the sale in an amount equal to 0.42% of the sale price.
The term "sale price" as used in the preceding sentence means the total of any
and all consideration to be paid to the stockholders of the Company in the case
of a sale of stock or merger, or the Company in the case of a sale of assets,
determined on the basis of the definitive agreement as amended (if any) and in
effect as of the day immediately preceding the closing. Should the sale price
include elements other than cash or cash equivalent payable at closing
(including but not limited to an 'earn out' feature), the parties shall make a
good faith determination as to the amount and/or method or calculation, and the
timing, of any special incentive payment attributable to such other elements of
the sale price. For purposes of the foregoing, customary post-closing
adjustments to the sale price made pursuant to provisions in the definitive
agreement or otherwise shall be disregarded. Except for any special incentive
payment as provided above that (a) is attributable to a post closing `earn out'
feature and (b) is mutually agreed to be payable post closing, the special
incentive payment provided above shall be made to Executive on the day
immediately preceding the date of closing, provided that on or before that day
Executive has not been notified, orally or in writing, by the Company that the
buyer under the definitive agreement is refusing to close the transaction or
that the definitive agreement has been or is being terminated and the closing
will not occur."
2. It is also agreed that the last two sentences of Subparagraph 5(b) of
the Incentive Plan are deleted and replaced by the following two sentences:
"Notwithstanding the foregoing provisions of this Subparagraph (b), if the
Company is sold at any time that there is a balance in the Deferred
Compensation Account, said
79
Balance shall be paid to Executive in a lump sum on the day immediately
preceding the date of closing of such sale. Sale of the Company shall be
deemed to occur when either of the events of sale described in Section
3.04 of the Agreement occur."
This Agreement is agreed upon and executed as of the day and year above
written.
XXXXXXX ELECTRONICS, INC.
By /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------------------
Xxxxxxx X. Xxxxxxx for the Compensation Committee
/s/ Reg X. Xxxxxxx
-------------------------------------------------
Reg X. Xxxxxxx
100.00% 25,554 100.00%
105.00% 26,832 110.00%
110.00% 28,109 120.00%
115.00% 29,387 130.00%
120.00% 30,665 140.00%
125.00% 31,943 150.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Op. RONA as a Table C - Avg. Operating RONA Bonus
----------------------------
% of Target 12/31/96 Percentage
--------------------------------------------------------------------------------
94.58% 12.90% 60.00%
97.29% 13.27% 80.00%
100.00% 13.64% 100.00%
104.00% 14.19% 110.00%
108.00% 14.73% 120.00%
112.00% 15.28% 130.00%
116.00% 15.82% 140.00%
120.00% 16.37% 150.00%
--------------------------------------------------------------------------------
* Excludes RUF acquisition.
