LYNCH CORPORATION
PRINCIPAL EXECUTIVE BONUS PLAN
The purpose of this Plan is to provide the Chief Executive Officer of
the Lynch Corporation (the "Company") and certain other designated key
employees with an Annual Bonus (as defined below) that qualifies as
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor section and the
Treasury regulations promulgated thereunder ("Section 162(m) of the Code").
Under the Plan, the Chief Executive Officer and designated key employees of
the Company may participate in the Annual Bonus Pool (as defined below) if
certain preestablished performance goals are attained. This Plan is
effective as of January 1, 1997, subject to approval by the shareholders of
the Company in accordance with the laws of the State of Indiana.
i. Definitions. The following terms, as used herein,
shall have the following meanings:
(i) "Annual Bonus" shall mean, with
respect to each Participant, the
product of the Participant's
Individual Bonus Pool Percentage
and the achieved Annual Bonus Pool
for any Plan Year.
(ii) "Annual Bonus Pool" shall mean,
with respect to each Plan Year,
that amount determined pursuant to
an objective formula or standard
that is based on the attainment of
preestablished performance goals
specified by the Committee in
accordance with Section 4 hereof.
(iii) "Board" shall mean the Board of
Directors of the Company.
(iv) "Committee" shall mean the
Executive Compensation and Benefits
Committee of the Board, or such
other committee of the Board
comprised solely of two (2) or more
members who qualify as "outside
directors" within the meaning of
Section 162(m) of the Code.
(v) "Individual Bonus Pool Percentage"
shall mean, with respect to each
Participant, that percentage of the
achieved Annual Bonus Pool, as
specified by the Committee in
accordance with Section 4(b)
hereof, used to determine the
Participant's Annual Bonus for any
Plan Year.
(v) "Participant" shall mean the Chief Executive Officer of the
Company and any other key employee of the Company
(including subsidiaries) selected, in accordance with
Section 3 hereof, to participate in the Plan.
(vi) "Plan Year" shall mean each
calendar year during which the Plan
is in effect.
(vi) "Pre-Tax Profits" shall mean the Company's income before
income taxes, (excluding any provision for annual bonuses
under the Plan and under the Bonus Plan applicable to other
corporate employees), minority interest (if any),
extraordinary items (if any), cumulative changes in
accounting (if any) and discontinued operations (if any)
contained in the Statement of Consolidated Income in the
Company's annual financial statements adjusted by (i) the
minority interest effects on such pre-tax profits, and
(ii) the pre-tax effect of income or loss associated with
discontinued operation net of minority interest effects.
(vi) "Shareholders Equity" shall mean (i) with respect to the
1997 Plan Year, shareholders equity at the beginning of the
Plan Year, (ii) with respect to the 1998 Plan Year, the
average of shareholders equity at the beginning of the 1998
Plan Year and the beginning of the 1997 Plan Year and (iii)
with respect to the 1999 and subsequent Plan Years, the
average of shareholders equity at the beginning of the Plan
Year and at the beginning of the two preceding Plan Years,
in each case as reported in the Company's consolidated
balance sheet in its annual financial statements.
ii. Administration of the Plan. The Plan shall be
administered by the Committee. The Committee shall have
exclusive and final authority in all determinations and
decisions affecting the Plan and each Participant. The
Committee shall also have the sole authority to interpret
the Plan, to designate eligible Participants in the Plan
(other than the Chief Executive Officer of the Company), to
establish and revise rules and regulations relating to the
Plan, to delegate such responsibilities or duties as it
deems desirable, and to make any other determination that
it believes necessary or advisable for the administration
of the Plan including, but not limited to: (i) setting the
performance criteria and the Individual Bonus Pool
Percentages within the Plan guidelines, and (ii) certifying
attainment of performance goals and other material terms.
The Committee shall have the authority in its sole
discretion, subject to and not inconsistent with the
express provisions of the Plan, to incorporate provisions
in the performance goals allowing for adjustments in
recognition of unusual or non-recurring events affecting
the Company or the financial statements of the Company, or
in response to changes in applicable laws, regulations, or
accounting principles; provided, that the Committee shall
have such authority solely to the extent permitted by
Section 162(m) of the Code. To the extent any provision of
the Plan creates impermissible discretion under Section
162(m) of the Code or would otherwise violate Section
162(m) of the Code, such provision shall have no force or
effect.
iii. Eligibility and Participation.
(i) For each Plan Year, the Committee,
in its sole discretion, may select
the employees of the Company (other
than the Chief Executive Officer of
the Company) who are to participate
in the Plan from among the key
employees of the Company.
(ii) No person (except the Chief
Executive Officer of the Company)
shall be entitled to an Annual
Bonus under this Plan for any Plan
Year unless he or she is so
designated as a Participant for
that Plan Year. The Committee may
add or delete individuals from the
list of designated Participants at
any time and from time to time, in
its sole discretion, subject to any
limitations required to comply with
Section 162(m) of the Code.
iv. Payment.
(i) With respect to each Participant,
payment under the Plan will be made
in cash in an amount equal to the
achieved Annual Bonus, as
determined by the Committee in its
sole discretion for each Plan Year.
Payment with respect to a Plan Year
shall be made only if and to the
extent the applicable performance
goals upon which the Annual Bonus
Pool is based are attained.
Notwithstanding anything else
herein, the Committee may, in its
sole discretion, elect to pay any
Participant an amount that is less
than (but in no event more than)
his or her Annual Bonus regardless
of the degree of attainment of the
performance goals with respect to
the Annual Bonus Pool.
(ii) Not later than ninety (90) days
after the commencement of each Plan
Year (or, in the event the period
of service to which the performance
goal relates is shorter than a Plan
Year, during such time period
required by Section 162(m) of the
Code), the Committee shall
establish in writing all
performance goals with respect to
the Annual Bonus Pool and the
Individual Bonus Pool Percentages
for each Participant for such Plan
Year. At the time the performance
goals are established, the
Committee shall prescribe an
objective formula or standard to
determine the amount of the Annual
Bonus Pool which may be payable
based upon the degree of attainment
of the performance goals during the
Plan Year. In no event may the
total of the Individual Bonus Pool
Percentages for all Participants
exceed one hundred percent (100%)
of the Annual Bonus Pool for any
Plan Year.
(iii) The performance goals with respect
to the Annual Bonus Pool shall be
based on the attainment of certain
target levels of, or a percentage
increase in, Pre-Tax Profits in
excess of certain target levels or
percentages of Shareholders Equity.
Notwithstanding the preceding
sentence, in no event shall any
Participant's Annual Bonus for any
Plan Year exceed: (i) in the case
of the Chief Executive Officer of
the Company, eighty percent (80%)
of an amount equal to twenty
percent (20%) of the excess of (a)
Pre-Tax Profits for such Plan Year
less (b) twenty-five percent (25%)
of Shareholders Equity; or (ii) in
the case of any Participant other
than the Chief Executive Officer,
twenty percent (20%) of an amount
equal to twenty percent (20%) of
the excess of (a) Pre-Tax Profits
for such Plan Year less (b) twenty-
five percent (25%) of Shareholders
Equity (the "Maximum Annual
Bonus"). Subject to Section 2 of
the Plan regarding certain
adjustments, in connection with the
establishment of the performance
goals, the performance criteria
listed above for the Company shall
be determined in accordance with
generally accepted accounting
principles consistently applied by
the Company, but before
consideration of payments to be
made pursuant to this Plan.
(iv) Unless otherwise
determined by the
Committee in its sole
discretion, each
Participant shall, to
the extent the
applicable performance
goals with respect to
the Annual Bonus Pool
are attained at the end
of a Plan Year, have
the right to receive
payment of a prorated
portion of such
Participant's Annual
Bonus under the Plan
for any Plan Year
during which the
Participant's
employment with the
Company is terminated
for any reason other
than for "cause" (as
determined by the
Committee in its sole
discretion).
v. Time of Payment. Subject to Section 4 hereof, each
Participant's Annual Bonus under this Plan will be paid
within a reasonable period after performance goal
achievements for the Plan Year have been finalized,
reviewed, approved, and certified in writing by the
Committee.
vi. Miscellaneous Provisions.
(i) Each Participant's rights and
interests under the Plan may not be
sold, assigned, transferred,
pledged or alienated.
(ii) In the case of any Participant's
death, payment, if any, under the
Plan shall be made to his
designated beneficiary, or in the
event no beneficiary is designated
or surviving, to the Participant's
estate.
(iii) Neither this Plan nor any action
taken hereunder shall be construed
as giving any Participant the right
to continue his employment with of
the Company.
(iv) The Company shall have the right to
make such provisions as it deems
necessary or appropriate to satisfy
any obligations it may have to
withhold federal, state or local
income or other taxes incurred by
reason of payments made pursuant to
the Plan.
(v) The Plan and any amendments thereto
shall be construed, administered
and governed in all respects in
accordance with the laws of the
State of Indiana (regardless of the
law that might otherwise govern
under applicable principles of
conflicts of law).
(vi) The Plan is designed and intended
to comply with Section 162(m) of
the Code with regard to awards made
to each Participant and all
provisions hereof shall be limited,
construed and interpreted in a
manner to so comply.
(vii) The Board or the Committee may at
any time and from time to time
alter, amend, suspend or terminate
the Plan in whole or in part;
provided, that no amendment shall,
without the prior approval of the
shareholders of the Company in
accordance with the laws of the
State of Indiana to the extent
required under Code Section 162(m):
(i) materially alter the
performance goals as set forth in
Section 4(c) hereof, (ii) increase
the Maximum Annual Bonus for any
Plan Year, (iii) change the class
of employees eligible to
participate in this Plan, or
(iv) implement any change to a
provision of the Plan requiring
shareholder approval in order for
the Plan to continue to comply with
the requirements of Code Section
162(m). Notwithstanding the
foregoing, no amendment shall
affect adversely any of the rights
of any Participant, without such
Participant's consent, under the
award theretofore granted under the
Plan.