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Exhibit 11(c)(3)
DN ACQUISITION CORPORATION
January 7, 1999
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▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc., (the "COMPANY") and to the letter
agreements dated February 28, 1992 and July 2, 1996 between you and the Chairman
of the Board and the Chairman of the Company's Compensation Committee,
respectively, attached hereto and incorporated herein as ATTACHMENTS A AND B
(collectively the "POLICY"). Under applicable law, all rights, duties, assets,
obligations and liabilities of both the Purchaser and the Company will be vested
in the Company following the consummation of the tender offer and the merger as
contemplated by the Merger Agreement. Following the consummation of the tender
offer and/or the merger as contemplated by the Merger Agreement you may be
entitled to receive certain benefits pursuant to the Policy. In order to clarify
these and certain other rights and obligations, we have set forth such rights
and obligations in this letter. All obligations imposed on you and the Company
under the Policy, including without limitation your obligation to consult and
not to compete, shall remain in effect. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy or the Defiance,
Inc. Change of Control Policy, dated July 24, 1998 ("Company Policy"), Purchaser
agrees to cause the Company to continue and the Company agrees to continue your
salary, bonuses and all current benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you and the Company agrees to pay you a pro-rata share
of your Company annual incentive bonus, which shall equal or exceed $158,408,
based upon the number of months and days completed in the current Company fiscal
year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states as of January 1, 1999: (i) your base
salary at the highest rate paid during the twelve months preceding January 1,
1999, (ii) the average monthly amount of the bonuses awarded during the three
years preceding January 1, 1999 and (iii) the other benefits
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provided to you by the Company on January 1, 1999 (such other benefits, the
"CURRENT BENEFITS").
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy or the Company Policy, the
Purchaser agrees to cause the Company to pay you and the Company agrees to pay
you your base salary at its highest rate during the twelve (12) months preceding
your termination date in monthly installments, plus the average monthly amount
of the bonuses awarded to you during the three (3) years preceding termination
and all Current Benefits for a period of two (2) years, which shall commence
once your twelve (12) month post termination obligation to consult (set forth at
SECTION 4 below) has been satisfied. A precondition of the Purchaser's and the
Company's obligations hereunder is the fulfillment of your obligations in the
Policy.
4. TERMINATION OF EMPLOYMENT FOR OTHER THAN VOLUNTARY RESIGNATION OR
CAUSE. If your employment with the Company is terminated other than for cause
under the Policy or your voluntary resignation, you agree to enter into a
post-termination obligation to consult to the Company and a post-termination
obligation not to compete with the Company each as described in the Policy for a
period of twelve months from the date of your termination of employment with the
Company. Purchaser and Company agree that during this twelve (12) month period
you will receive all Current Benefits and be paid in monthly installments an
amount equal to the monthly amount of base compensation at the highest rate paid
to you during the twelve (12) month period preceding your termination plus the
average monthly amount of the bonuses awarded to you during the three (3) years
preceding your termination of employment. Purchaser and Company also agree that
your consulting services to be provided to the Company shall not require you to
expend more that 20 hours per month. In addition, such consulting services will
be provided by you from whatever location you are then located. If you incur any
travel or other reasonable expense, the Company will reimburse you for such
expenses.
5. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
6. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own
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account or the account of any other Person with which you shall become
associated in any capacity or in which you shall have any ownership interest,
(i) solicit for employment, offer to employ or employ any Person who, at any
time during the preceding twelve (12) months, is or was employed by the Company
or any of its affiliates, regardless of whether such employment is direct or
through an entity with which such Person is employed or associated, or otherwise
intentionally interfere with the relationship of the Company or any of its
affiliates with any Person who or which is at the time employed by or otherwise
engaged to perform services for the Company or any such affiliate or (ii) induce
any employee of the Company or any of its affiliates to engage in any activity
which you are prohibited from engaging in under this Agreement or to terminate
his or her employment with the Company or such affiliate.
7. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or its affiliates
(as the case may be). In the event of the termination of your employment for any
reason, you will deliver promptly to the Company all materials, records, files,
notes, plans, memoranda, drawings, designs, papers, customer lists, sketches,
documents and data of any nature pertaining to your work with the Company and
its affiliates, and you will not retain any documents or data of any description
or any reproduction thereof, or any documents containing or pertaining to any
Proprietary Information. You shall certify to the Company that any such data in
machine readable form has been removed from any computer personally owned by you
and all back up copies made by you have been destroyed.
8. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 5, 6 AND 7 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting
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that position, and (b) the name of the person(s) who will represent that party
and the name of any other person who will accompany the representative(s).
Within twenty (20) days after delivery of the Response, the representatives of
both parties shall meet at a mutually acceptable time and place, and thereafter
as often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not more than fifteen (15) days. If the dispute, except as provided
below, has not been resolved by the negotiation procedure as provided herein
within sixty (60) days of the delivery date of the Dispute Notice, then the
dispute shall be settled by arbitration in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration hearing shall be held in Cuyahoga County, Ohio. A sole neutral
arbitrator will preside if the amount in controversy is less than One Hundred
Thousand and 00/100 Dollars ($100,000.00) or by three independent and impartial
arbitrators if the amount in controversy exceeds One Hundred Thousand and 00/100
Dollars ($100,000.00). The arbitrator or arbitrators will be agreed upon between
the parties within three (3) weeks of the date upon which the arbitration is
initiated. If the parties cannot agree upon an arbitrator or arbitrators within
that time period, then, within three (3) weeks, the CPR Institute for Dispute
Resolution will be asked by the sender of the Dispute Notice to select an
arbitrator or arbitrators, and the arbitration will then take place within sixty
(60) days of the appointment of the arbitrator or arbitrators. The parties agree
to fully exchange all applicable documents and exhibits three (3) weeks prior to
the arbitration hearing and to limit discovery to two (2) depositions per party,
unless a deposition is necessary to perpetuate testimony of unavailable
witnesses, in which case there will be no limitation. Should either party fail
to participate in the Negotiations, the other party may initiate arbitration
before the expiration of the sixty (60) day period noted above. All judgments of
the arbitrator or arbitrators shall be final and binding and may be entered by
any court having jurisdiction thereof. Each party hereby waives any right to
punitive, exemplary or treble damages. The party which prevails in the
arbitration or any action, suit or other proceedings to enforce the covenants of
this Agreement or to obtain money damages for the breach thereof or any document
executed in conjunction with this Agreement shall be entitled to reimbursement
from the other party for all expenses, including, without limitation, reasonable
attorneys fees and disbursements actually and reasonably incurred in connection
with the Negotiation and the arbitration.
10. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the third
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
11. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 5, 6 OR 7 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section
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enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
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Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President / Chief Financial Officer
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Attachment A
February 28, 1992
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
As Chairman of the Board of Directors of Defiance, Inc. (Defiance), I am pleased
to offer you a position with Defiance as Executive Vice President and Chief
Operating Officer. It is Defiance's intent that you will serve in this capacity
for a brief transitional period after which you will assume the position of
President and Chief Executive Officer.
Based upon the fulfillment of your existing contractual commitment, it is
Defiance's understanding that you will join the Company at the earliest possible
date, but not later than June 1, 1992. You will, however, be considered an
officer of Defiance commencing upon the date of your acceptance of this offer.
Commencing upon your employment, your base salary will be at the rate of
$200,000 per annum, payable monthly. Your base salary will be reviewed upon your
appointment as President and Chief Executive Officer and annually thereafter.
However, in no event will your base salary be reduced below the annual rate of
$200,000.
Upon your acceptance of this offer, you will be granted 300,000 stock options
under Defiance, Inc.'s 1989 Stock Option Plan (the Plan). These options will
consist of a combination of Non-qualified Stock Options and Incentive Stock
Options. The latter will be utilized to the maximum extent statutorily
permissible.
You will become vested in the options, based upon the following schedule:
# OF OPTIONS TIMING OF VESTING
- - - - - - - - - - - - - - -
100,000 At time of grant
100,000 1 year after grant date
100,000 2 years after grant date
Vesting will, however, be accelerated upon your death or becoming disabled, as
described in Section 6 of the Plan. In addition, vesting will be accelerated
upon a change in control as defined herein, or upon your termination by Defiance
for other than "cause", as defined herein.
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Page Two
As one of your initial projects, it will be your responsibility to develop a
formalized Executive Compensation and Benefits Program (Program) for submission
to Defiance's Board Compensation Committee for their review and approval. This
Program will include an annual incentive/bonus plan, deferred compensation
arrangement, supplemental life and disability benefits and ongoing stock option
grant guidelines. You will be a participant in the Program, which Defiance
intends to implement as of the fiscal year commencing July 1, 1992.
In addition to your participation in the compensation arrangements summarized in
this letter, as well as the benefits outlined in Defiance's employee handbook,
you will be provided with severance benefits. The following summarizes the
severance benefits, if any, which you would receive under various forms of
termination:
FORM OF TERMINATION SEVERANCE BENEFIT
- - - - - - - - - - - - - - - - - - -
For Cause All compensation and benefit payments, except
any to which you have a vested right, will
cease as of the date of termination.
Voluntary Resignation Upon the conclusion of the required 90 day
notice period, all compensation and benefit
payments will cease, except those in which
you have a vested right. If the voluntary
resignation is the result of Defiance's
failure to promote you to the position of
President and Chief Executive Officer within
six months from your employment date, then
you will be entitled to the severance
benefits outlined under "Termination by
Defiance for other than cause or COC".
Termination Due to a Your base salary, bonus and benefits will be
Change of Control (COC) continued for a period of three years from
such termination. In addition, your medical
benefits will be continued until your
attainment of age 60.
Termination by Defiance During the required 90 day notice period,
for Other Than Cause and for 12 months thereafter, you will
or COC continue to receive your base salary,
benefits, pro rata bonus and accrued vacation
days.
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Page Three
"Termination for cause" shall be defined as "gross misconduct or the commission
of illegalities other than misdemeanors, such as minor traffic violations".
A "change of control" shall be deemed to have taken place if as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination of the foregoing transactions, the persons who were
directors as of the date of this letter shall cease to constitute a majority of
the Board of Directors of the Company or any parent of or successor to the
Company. Termination due to a change in control would occur if your employment
is terminated, your responsibilities are materially reduced or you are required
to relocate within two years after a COC.
▇▇▇▇▇, as we have discussed, the other members of Defiance's Board of Directors
and I are excited about the prospects of your Joining the Company. We are
confident you will do an excellent Job of increasing the shareholder's value. In
this regard, we believe we have structured a compensation package which will
reward you for such success.
Sincerely,
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman of the Board
Defiance, Inc.
THR/tap
ACCEPTED: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
DATE: March 2, 1992
---------------------
IN ORDER TO DOCUMENT YOUR ACCEPTANCE OF OUR OFFER OF EMPLOYMENT, PLEASE SIGN AND
RETURN THE ENCLOSED "ACCEPTANCE COPY" OF THIS LETTER.
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Attachment B
July 2, 1996
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▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
This letter responds to recent inquiries regarding the Compensation
Committee's discretion with respect to whether retirement under Section 5.1 of
the Defiance, Inc. Limited Supplemental Executive Retirement Plan (the "Plan")
has occurred and is intended to clarify the criteria required by the Committee.
This letter also addresses your current severance package and the discussions we
have had related thereto.
It is the policy of the Compensation Committee to deem the CEO to be
retired if, upon termination without cause, the executive has attained age
fifty-five (55), completed five (5) years of service, and entered into an
agreement not to compete with the Company. The non-competition agreement must be
for a period of at least one (1) year. Furthermore, an executive who is
considered to have retired under this criteria is encouraged to enter into a
post-termination consulting agreement with the Company.
You have expressed a concern that your current severance package may have
unfavorable tax consequences. The Compensation Committee, on the other hand, has
expressed an interest in retaining your valued services, and has requested that,
in the event of your involuntary termination without cause, you make yourself
available to consult, as needed, with your successor. Given the recognized value
of your services, and recognizing your expressed concerns, the following
modifications to the severance benefits described in your letter of employment,
dated February 28, 1992 are offered:
1. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation to consult to the Company. As a
consultant, you may be called upon to assist your successor in a
transitional role, and act as an advisor to your successor or the
Board of Directors, as requested. Your duties in this capacity
will be satisfied once the twelve (12) month period expires.
2. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation not to compete with the
Company. Competition means the rendering of professional services
with respect to products which are identical and/or similar to
products of the Company ("Products"), other than in your capacity
as the Company's consultant, to any person or organization that
purchased Products or Product services from the Company, or that
provided similar Products or Product services in the same
geographical area as the Company, during the period of your
employment with the Company.
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July 2, 1996
3. No severance shall be provided in the event of your termination by
Defiance for Other Than Cause. Additionally, in the event of your
Termination Due to a Change of Control, your base salary, at the
highest rate during the twelve (12) months preceding your
termination date, plus the average monthly amount of the bonuses
awarded during the three (3) years preceding termination, and
benefits shall be provided for a period of two (2) years, and this
period shall commence once the post-termination obligation to
consult has been satisfied.
4. As compensation for your services during the post-termination
obligation to consult, and the post-termination obligation not to
compete, you will receive all current benefits and be paid in
monthly installments throughout the twelve (12) months following
your termination. The amount of each installment will equal the
monthly amount of base compensation at the highest rate during the
twelve (12) months preceding your termination date, plus the
average monthly amount of the bonuses awarded during the three (3)
years preceding termination.
5. The Company acknowledges and guarantees its obligations to pay to
you all consideration incident to your aforementioned
post-termination obligations to consult, not to compete, as well
as the Change of Control, unless and until those payments are
actually received by you from third parties. A precondition of the
Company's obligation is the executive's fulfillment of the
aforementioned obligations.
▇▇▇▇▇, I hope that this letter resolves the questions you had regarding
your benefits under the Plan and the concerns you raised with regards to your
severance package. If you would like to accept the arrangements outlined above,
please sign and return the enclosed "acceptance copy" of this letter.
Very truly yours,
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
Chairman Compensation Committee
ACCEPTED: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
DATE: July 11, 1996
