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AUGAT INC.
89 Forbes Boulevard
Mansfield, Massachusetts 02048
As of July 17, 1996
Mr. John N. Lemasters
45 Fairway Drive
Toxaway, North Carolina 28747
Dear John:
Augat Inc. (the "Company") considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel. In this connection, the Board of Directors of the Company (the
"Board") recognizes that, as is the case with many corporations, the possibility
of a change in control may exist and that such possibility, and the uncertainty
and questions which it may raise among key personnel, may result in the
departure or distraction of key personnel to the detriment of the Company, its
stockholders and its customers.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of the Company's
key personnel, including yourself, to their assigned duties without distraction
in the face of potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below). This Agreement supersedes any other agreements with
the Company providing for the payment of severance, benefits or other
compensation upon a change in control of the Company.
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1. Term of the Agreement.
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The term of this Agreement (the "Term") shall commence as of July 17,
1996 and shall continue in effect through July 17, 1997; provided that, if a
Change in Control of the Company shall have occurred during the Term, this
Agreement shall continue in effect for a period of not less than 36 months
beyond the month in which such Change in Control occurred.
2. Change in Control.
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(a) No benefits shall be payable under Section 4 of this Agreement unless
there has been a Change in Control of the Company during the Term.
(b) For purposes of this Agreement, a "CHANGE IN CONTROL" shall occur or be
deemed to have occurred only if any of the following events occur: (i) any
"person," as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities; (ii) individuals who, as of the
date hereof, constitute the Board (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders
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of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
3. Employment Status; Termination Following Change in Control.
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(a) You acknowledge that this Agreement does not constitute a contract
of employment or impose on the Company any obligation to retain you as an
employee and this Agreement does not prevent you from terminating your
employment at any time. If your employment with the Company terminates or is not
renewed for any reason pursuant to your employment agreement of even date
herewith (the "Employment Agreement") and subsequently a Change in Control shall
have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you or a failure to renew
the Employment Agreement, in each case pursuant to the Employment Agreement,
during the Term following a Change in Control of the Company (any such
termination or non-renewal being herewith referred to as a "Termination of
Employment") shall be communicated by written notice of termination or ("Notice
of Termination") to the other party hereto in accordance with Section 6. The
"Date of Termination" shall mean the effective date of such termination or
non-renewal as specified in the Notice of Termination (provided that no such
Notice of Termination shall specify an effective date more than 180 days after
the date of such Notice of Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 4 only if a Change in Control shall
have occurred during the Term and the Termination of Employment occurs within 36
months after such Change in Control, unless such termination is (1) because of
your death, (2) by the Company for Disability (as defined in Section 3(b)(i)) or
Cause (as defined in Section 3(b)(ii)), or (3) by you other than for Good Reason
(as defined in Section 3(b)(iii)).
(i) DISABILITY. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six consecutive months and, within 30 days
after written notice of termination is given to you, you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Any termination for Disability under this Agreement shall not
affect any rights you may otherwise have under any applicable benefit plans of
the Company in effect from time to time.
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(ii) CAUSE. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination by
you for Good Reason as defined in Section 3(b)(iii)), provided that a written
demand for substantial performance has been delivered to you by the Company
specifically identifying the manner in which the Company believes that you have
not substantially performed your duties and you have not cured such failure
within 30 days after such demand, (B) if you shall have violated any provision
of any confidentiality, invention and non-disclosure, non-competition or similar
agreement entered into by you in connection with your employment by the Company
or (C) if you shall have been found guilty of any act or acts of dishonesty
constituting a felony. For purposes of this subsection, no act or failure to act
on your part shall be deemed "willful" unless done or omitted to be done by you
not in good faith and without reasonable belief that your action or omission was
in the best interest of the Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the case
of paragraphs (A) or (C), such circumstances are fully corrected prior to the
Date of Termination (as defined in Section 3(a)) specified in the Notice of
Termination (as defined in Section 3(a)) given in respect thereof:
(A) any significant diminution in your position or
responsibilities as in effect immediately prior to a Change in Control;
(B) any reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time during the Term;
(C) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform the Agreement, as contemplated
in Section 5; or
(D) any purported Termination of Employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 6,
which purported termination shall not be effective for purposes of this
Agreement.
4. COMPENSATION UPON TERMINATION. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
disability, or upon a Termination of Employment, as the case may be, provided
that such period or termination occurs during the Term:
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(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive base salary and all other earned compensation at
the rate in effect at the commencement of any such period (offset by all
compensation payable to you under the Company's disability plan or program or
other similar plan during such period) until your employment is terminated
pursuant to Section 3(b)(i) hereof. Thereafter, or in the event your Termination
of Employment occurs by reason of death, your benefits shall be determined under
the Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) If the Termination of Employment is (i) by the Company for Cause
or (ii) by you other than for Good Reason at any time following a Change in
Control, the Company shall pay you your full base salary and all other
compensation through the Date of Termination at the rate in effect at the time
the Notice of Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due, and the Company shall have no further obligations to you under this
Agreement.
(c) If the Termination of Employment is by the Company (other than for
Cause, Disability or your death) or by you for Good Reason within 36 months
after a Change in Control, then you shall be entitled to the benefits below:
(i) the Company shall pay to you your full base salary and all
other compensation through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and, in lieu of further salary payments for periods subsequent to the
Date of Termination, the Company will pay you a lump sum cash payment as
severance pay (together with the payments provided in subsections (ii) and (iii)
below, the "Severance Payments") in an amount equal to the higher of (1) your
annual base salary as in effect on the Date of Termination or (2) your annual
base salary as in effect immediately prior to the Change in Control.
(ii) All shares of capital stock of the Company purchased by you,
and all options to purchase shares of capital stock of the Company granted to
you, under any benefit plan or arrangement, shall immediately vest and/or their
exercisability shall be accelerated, as the case may be, and all such shares
shall no longer be subject to repurchase by the Company and all such options
shall thereupon become immediately exercisable in full by you without any right
of repurchase in favor of the Company.
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(iii) For a 12-month period after the Date of Termination, the
Company shall arrange to provide you with life, disability, accident and group
health insurance benefits substantially similar to those which you were
receiving immediately prior to the Notice of Termination and at the same cost to
you (if any) as in effect immediately prior to the Date of Termination.
Notwithstanding the foregoing, the Company shall not provide any benefit
otherwise receivable by you pursuant to this paragraph (iii) if an equivalent
benefit is actually received by you from another employer during the 12-month
period following your termination, and any such benefit actually received by you
shall be reported to the Company.
(d) The payments provided for in Subsections 4(b) and (c) shall be
made not later than the tenth day following the Date of Termination; provided,
however, that, if the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
amended (the "Code")) as soon as the amount thereof can be determined but in no
event later than the 30th day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to you,
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).
(e) Except as provided in the second sentence of Subsection 4(c)(iii)
hereof, you shall not be required to mitigate the amount of any payment provided
for in this Section 4 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in this Section 4 be reduced by
any compensation earned by you as a result of employment by another employer, by
retirement benefits or by offset against any amount claimed to be owed by you to
the Company or otherwise.
(f) Severance Payments under this Section 4 shall be made without
regard to whether the deductibility of such payments (or any other "parachute
payments," as that term is defined in Section 280G of the Code, to or for your
benefit) would be limited or precluded by Section 280G and without regard to
whether such payments (or any other "parachute payments" as so defined) would
subject you to the federal excise tax levied on certain "excess parachute
payments" under Section 4999 of the Code; provided that if the total of all
"parachute payments" to you or for your benefit, after reduction for all federal
taxes (including the tax described in Section 4999 of the Code, if applicable)
with respect to such payments (the "Total After-Tax Payments"), would be
increased by the limitation or elimination of any payment under this Section 4,
amounts payable under this Section 4 shall be reduced to the
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extent, and only to the extent, necessary to maximize the Total After-Tax
Payments. The determination as to whether and to what extent payments under this
Section 4 are required to be reduced in accordance with the preceding sentence
shall be made at the Company's expense by Deloitte & Touche LLP, or by such
other certified public accounting firm as the Board may designate prior to a
Change in Control of the Company. In the event of any underpayment or
overpayment under this Section 4 as determined by Deloitte & Touche LLP (or such
other firm as may have been designated in accordance with the preceding
sentence), the amount of such underpayment or overpayment shall forthwith be
paid to you or refunded to the Company, as the case may be, with interest at the
applicable federal rate provided for in Section 1274(b)(2)(13) of the Code.
(g) The Company shall reimburse you for all reasonable and documented
legal fees and expenses incurred by you in seeking to obtain or enforce any
right or benefit provided by this Agreement.
5. Successors; Binding Agreement.
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(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement prior to the effectiveness of
any succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled hereunder if you had terminated your employment for Good
Reason immediately after a Change in Control of the Company, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as defined above and any successor
to its business or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or if there
is no such designee, to your estate.
6. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly
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given when delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the Chief
Executive Officer of the Company, at 89 Forbes Boulevard, Mansfield,
Massachusetts 02048, and to you at the address shown above or to such other
address as either the Company or you may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
7. Miscellaneous.
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(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance with,
any provision of this Agreement to be performed by the Company shall be deemed a
waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled. The parties hereto acknowledge that the Employment Agreement of
even date herewith shall survive the execution hereof and remain in full force
and effect.
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject, effective as of the day and
date first set forth above.
Sincerely,
AUGAT INC.
By: /s/ F. Gordon Bitter
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Title: Vice President Finance
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Agreed to this day of , 1996
/s/ John N. Lemasters
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(Signature)
John N. Lemasters
45 Fairway Drive
Toxaway, North Carolina 28747
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