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EXHIBIT 10.3
ARGO-TECH CORPORATION
00000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
October 15, 1986
Dear Xx. Xxxxxxxx:
As you are aware, TRW Inc. ("TRW") has entered into an agreement with
Argo-Tech Corporation ("Argo-Tech" or the "Company") pursuant to which TRW will
sell all of the assets of its Power Accessories Division ("PAD") to Argo-Tech.
At the time of the closing of the transaction (the "Closing"), it is anticipated
that the Company will issue shares of its Class A Common Stock to its proposed
management (the "Management Investors"). As one of the Management Investors, you
have subscribed for 800 shares (the "Shares") of Class A Common Stock of the
Company. Assuming that (i) the transaction between TRW and Argo-Tech is fully
consummated, and (ii) you purchase the Shares for which you have subscribed,
we are pleased to offer you a position with the Company, the terms of
compensation for which are outlined herein.
1. Employment.
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As of the Closing and until terminated as described in this letter,
you will be the Vice President for Operations of the Company, with the power and
duties ordinarily associated with and commensurate with such position unless
otherwise directed by the Board of Directors. During your employment with the
Company, we expect that you will devote your best efforts and abilities to the
performance of your duties and will devote your entire business time and energy
to the furtherance of the business and affairs of the Company. For the fiscal
year beginning November 1, 1986 and ending October 31, 1987 (the "1987 Fiscal
Year"), you will receive an annual base salary of $73,000, payable semi-monthly
or otherwise in accordance with the Company's payroll policies. The Company will
give consideration annually commencing with January 1, 1987 to appropriate
adjustments in your compensation to reflect your experience and contribution to
the Company, and to reflect the value of your services in the employment market.
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In addition to this base salary, you will be eligible for bonuses to be
determined at the discretion of the Board of Directors (with substantial input
from appropriate management), in an amount not to exceed 40% of your annual base
salary. All bonuses will be payable after the end of each fiscal year (I.E., for
the 1987 Fiscal Year, after October 31, 1987) and will be based on the overall
performance and success of the Company as of such fiscal year end as well as
your individual contribution to the Company in light of specific set goals. The
details of such goals will be discussed with you in the near future with respect
to the 1987 Fiscal Year and at the beginning of each subsequent fiscal year.
You shall be reimbursed for normal and reasonable expenses which you
incur on behalf of the Company in accordance with the Company's policies. In
addition, the Company shall provide certain fringe benefits as determined in the
discretion of the Board of Directors with due consideration to then current
market conditions and practices.
Promptly after the Closing, the Board of Directors of the Company will
establish guidelines for a stock incentive plan (the "Incentive Plan") for all
officers of the Company, in which you will be eligible to participate. The
Incentive Plan will be fully established not later than October 31, 1987 and the
details of the Incentive Plan will be made available to you as soon as it is in
place. The Incentive Plan will provide, among other things, that (i) the Company
will issue options to acquire not less than 2,000 shares of its Class A Common
Stock to the Management Investors (the specific amounts determined by the Board
of Directors), all of such options to be issued not later than January 31, 1989;
(ii) the Company shall reserve options to acquire not less than 1,000 shares of
its Class A Common Stock for issuance (at the discretion of the Board of
Directors) to persons other than the Management Investors who are as of the date
of the Closing employed by the Company and who shall, at the time of the
issuance of such options to such persons, become members of the executive
management group of the Company; and (iii) the Company shall reserve options to
acquire not less than 1,000 shares of its Class A Common Stock for issuance (at
the discretion of the Board of Directors) to persons who are not as of the date
of the Closing employed by the Company and who shall, at the time of the
issuance of such options to such persons, become members of the executive
management group of the Company;
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PROVIDED, that to the extent that any of the options described in paragraphs
(ii) and (iii) above are not issued as of the date of an initial public offering
of shares of stock of the Company, such options shall be aggregated with the
options described in paragraph (i) above and shall be distributed to the
Management Investors under conditions similar to those applicable to the options
described in paragraph (i) above, as determined by the Board of Directors.
You will receive an advance bonus equal to 20% of your current annual
base salary, payable on January 31, 1987. The amount of this advance bonus will
be deducted from your aggregate bonus which will be payable for the 1987 Fiscal
Year.
In the event that your employment with the Company is terminated without
Cause (as defined in the Stockholders' Agreement dated as of October 15, 1986)
prior to October 31, 1987, you will be eligible to receive all salary, bonuses
and benefits for 24 months from the date of termination. If your employment with
the Company is terminated without Cause on or after October 31, 1987 but before
October 31, 1988, you will be eligible to receive all salary, bonuses and
benefits until October 31, 1989. If your employment with the Company is
terminated without Cause on or after October 31, 1988, you will be eligible to
receive all salary, bonuses and benefits for 12 months from the date of
termination. In all such cases described above, the amount of the salary,
bonuses and benefits to which you will be entitled will be in amounts equal to
the respective amounts or value you received during the 12-month period
immediately preceding such termination.
2. Purchase of Shares
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In light of the complicated nature of the transaction to be consummated,
the Company will pay the verified legal expenses of Spieth, Bell, XxXxxxx &
Xxxxxx, special counsel to the Management Investors, which are incurred in
connection with your purchase of any of the Common Stock of the Company prior to
or at the time of the Closing.
In addition, in connection with your purchase of the Shares, the Company
has agreed to make available to you a loan (the "Loan") in a principal amount
equal to not more than the aggregate purchase price you will pay for the Shares.
The Loan shall bear interest at a rate of 7% per
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annum, payable annually on each January 31st, and shall be secured by a pledge
of the Shares until all Loan obligations are fully paid. The Loan will be
evidenced by a promissory note in form and substance satisfactory to the Company
and the pledge will be evidenced by a Pledge Agreement in form and substance
satisfactory to the Company. All bonus payable by the Company to you on January
31, 1987 as described above shall be applied against the outstanding principal
amount of the Loan. In addition, on January 31, 1987, after giving effect to the
offset of the bonus payable by the Company on such date, you shall prepay the
Loan in an amount (if any) necessary to reduce the outstanding principal amount
of the Loan to a principal amount not exceeding 50% of the original aggregate
purchase price of the Shares. Furthermore, two-thirds of the aggregate amount
(before taxes) of the bonuses payable by the Company with respect to the
Company's fiscal year ending on October 31, 1988, shall be applied against the
outstanding principal amount of the Loan, PROVIDED that you will receive the
amount (if any) by which such bonuses exceed the outstanding amount of the Loan.
Any remaining principal amount of the Loan shall be due and payable on January
31, 1990. Additionally, if your employment with the Company is terminated for
any reason, you must repay the Loan in full within 30 days.
We trust that the above information meets with your approval and we hope
that the level of your performance with and contribution to the Company will be
as great or even greater than that which we have witnessed in your work with
PAD. Should you have any questions or comments, or if we can provide any further
information, please contact us.
Sincerely,
ARGO-TECH CORPORATION
By: /s/ X. Xxxxxx
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Title: President
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