EXECUTIVE COMPENSATION
The following table sets forth current and long-term compensation information
for each of the last three fiscal years of the Chief Executive Officer and
each of the other executive officers whose salary and bonus for the fiscal
year 1996 exceeded the disclosure threshold established by the Securities and
Exchange Commission.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Restricted All Other
Stock Compensa-
Name and Principal Position (5) Year Salary($)(1) Bonus($)(2) Awards($)(3) tion($)(4)
- ------------------------------- ---- ------------ ----------- ------------ ----------
Andrew Lozyniak, Chairman of 1996 351,489 -- -- 14,792
the Board and President..............
1995 341,802 -- -- 14,250
1994 333,316 -- 147,500 11,888
Henry V. Kensing, Vice 1996 182,568 10,000 -- 5,831
President, General Counsel,
Secretary and a Director.............
1995 177,536 10,000 -- 5,651
1994 173,123 10,000 110,625 5,405
Patrick J. Dorme, Vice 1996 151,749 10,000 -- 4,571
President-Finance, Chief
Financial Officer and a
Director ............................
1995 147,566 10,000 -- 4,431
1994 143,898 10,000 110,625 4,248
(1) Includes salaries deferred in 1996 under the DCA Savings and
Investment Plan pursuant to Section 401(k) of the Internal Revenue
Code (see Savings and Investment Plan below).
(2) Includes bonuses paid to the executives shown in the table in the
last three years pursuant to the Company's incentive performance
plan. The Board of Directors has determined to continue for 1997 a
policy of awarding bonuses on the basis of results on both an overall
and divisional basis, and on individual performance as described in
the Report of the Compensation Committee included herein.
(3) The number of restricted shares awarded in 1994 under the Plan to the
executives named were as follows: Mr. Lozyniak, 10,000; Mr. Kensing,
7,500; Mr. Dorme, 7,500. The value of the restricted stock awards in
1994 was determined by multiplying the fair market value of the
Company's common stock on the date of grant by the number of shares
awarded. As of December 31, 1996, the number and value of aggregate
restricted stock award holdings were as follows: 6,000 shares
($169,500) by Mr. Lozyniak; 4,500 shares ($127,125) by Mr. Kensing
and 4,500 shares ($127,125) by Mr. Dorme. (Footnotes continued on
following page)
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(Footnotes continued from preceding page)
Restrictions lapse each year after the first year with respect to 20%
of the shares awarded in prior years under the Plan and cash bonuses
are paid to the holders thereof as called for by the Plan. The
aggregate amount of cash compensation paid, in 1996, 1995, and 1994,
for the executives named is as follows:
Mr. Lozyniak........ 1996 $99,000 1995 $95,750 1994 $26,500
Mr. Kensing......... 1996 $62,250 1995 $59,438 1994 $13,250
Mr. Dorme........... 1996 $62,250 1995 $59,438 1994 $13,250
Pursuant to the Plan, regular cash dividends are paid to holders of
restricted stock awarded under the Plan.
This Plan has a change of control provision under which, upon a
change of control of the Company, all restrictions on shares awarded
under the Plan will lapse and cash bonuses will be paid on those
shares.
(4) Includes the amounts contributed under the 401(k) Plan by the Company
and the imputed income value of the term life insurance portion of
the coverage under "split-dollar" life insurance policies.
(5) EMPLOYMENT AGREEMENTS. As of February 1, 1996, the Company entered
into five year employment agreements with Andrew Lozyniak, Henry V.
Kensing and Patrick J. Dorme.
The Board of Directors annually reviews the contributions of Messrs.
Lozyniak, Kensing and Dorme to the Company and may increase their
salary rates in accordance with such contributions. In addition, such
rates will be increased on March 1st of each year by no less than the
annual percentage increase in the consumer price index for the prior
calendar year.
The employment agreements of such individuals may be terminated by
the Company for cause. In the event of disability, each such employee
shall be compensated for up to six months at full salary and up to an
additional six months at no less than one-half the rate in effect at
the time such disability commenced. If such disability continues
beyond twelve months, the Company may terminate said disabled
employee's agreement but shall be obligated to pay Mr. Lozyniak, Mr.
Kensing or Mr. Dorme compensation at the rate of 40% of the regular
compensation in effect at the time of such termination during the
period commencing on the date of such termination and ending on the
earlier of the tenth anniversary thereof or the date the employee
attains age 65. If the employee dies during the employment period,
the Company shall pay to the wife of Mr. Lozyniak the sum of $60,000
and of Mr. Kensing or Mr. Dorme, the sum of $50,000 per year during
the period commencing on the date of the death of the employee and
ending on the earlier of the tenth anniversary thereof or the death
of the wife.
In the event of merger, sale or consolidation in which the Company is
not the surviving entity, or if voting control shall be obtained by
any person, firm or corporation, or group of persons, firms or
corporations, not in control as of February 1, 1996, each of said
employees shall have the right to terminate his employment agreement
upon 30 days' written notice at any time within three months after
the occurrence of such event. Upon such termination, the Company or
the consolidated or surviving entity shall pay the employee
exercising said right, in lieu of any other further compensation, in
a lump sum, undiminished by any excise tax imposed upon the receipt
thereof, on the date of such termination, an amount equal to five
times the sum of (a) two-thirds of the aggregate regular
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compensation called for by said agreement at the rate in effect at
such termination, and (b) two-thirds of the largest amount earned by
the employee as stock and cash bonuses for any of the five fiscal
years preceding that in which termination occurs.
If the Company terminates the agreement other than for cause or
disability of the employee, it shall pay to the employee in a lump
sum, undiminished by any excise tax imposed upon the receipt thereof,
within 30 days of the date of termination, in lieu of any further
regular compensation under the agreement, an amount equal to the sum
of (a) two-thirds of the employee's regular compensation at the rate
in effect at the time of such termination, from the date of such
termination to the last day of the employment period called for by
the agreement and (b) two-thirds of the largest amount earned by the
employee as stock and cash bonuses for any of the five fiscal years
preceding that in which termination occurs multiplied by the number
of years and/or fraction thereof then remaining in the employment
period called for by the agreement.
The Company also agrees not to endanger in any way, during the term
of said agreements, any benefit available to said employees under the
"split-dollar" life insurance policies on their lives and to continue
to pay the premiums thereon during such period and in the event of a
change of control. The agreements also contain provisions calling for
payment of legal fees to said employees if they are required to
enforce the agreements against the Company or a successor and for
reimbursement of premiums for health insurance coverage for said
employees and their spouses and any dependents for up to ten years
after retirement.
The Company also agrees to pay each of the employees supplementary
retirement benefits described below under the captions "Pension
Benefits" and "Savings and Investment Plan." Such benefits shall be
secured over the term of the employment agreements by annual
contributions by the Company to a trust established in 1996 in
compliance with Internal Revenue Service Revenue Procedure 92-64. In
January 1997, 11,000 shares of the common stock of the Company from
its treasury stock were contributed to the trust to secure payment of
benefits accruing for the first two years of the term of the
employment agreements. The amount and kind of assets to be
contributed to the trust shall be determined, and Company common
stock held by the trust shall be voted by the Compensation Committee
of the Board of Directors.
In addition, the executive officers received other non-cash
compensation, not otherwise described in this proxy statement, such
as perquisites, but the aggregate amount thereof did not exceed the
lesser of $50,000 or 10% of the total salary and bonus for each of
the persons named in the Table.
PENSION BENEFITS
The estimated annual benefits payable upon retirement at normal
retirement age and the years of credited service as of January 1, 1997 under
the Company's Retirement Plan for Employees (the "Pension Plan") for the
individuals named in the Executive Summary Compensation Table above and for
all the executive officers of the Company as a group are as follows:
8
Estimated Years of
Annual Credited Service
Retirement As of
Benefits January 1, 1997
---------- ----------------
Andrew Lozyniak ............................ $119,970 35
Patrick J. Dorme ........................... $ 80,500 28
Henry V. Kensing ........................... $ 38,760 12
All executive officers as a group
(consisting of 4 people) .................. $295,255
- ------------
The latest available actuarial present value of normal retirement
benefits for all employees who are participants in the Pension Plan is
$18,003,643.
Under the Pension Plan, the retirement benefit, payable at normal
retirement or current age, is equal to the sum of (A) and (B) below:
(A) Past Service Benefit--equal to .7% of 1975 earnings up
to $7,800 plus 1.4% of the excess multiplied by credited service
prior to December 31, 1975.
(B) Future Service Benefit
(i) equal to 1% of annual earnings up to the Social
Security Wage Base plus 2% of the excess, for each year of
credited service after January 1, 1976 and prior to December
31, 1988.
(ii) equal to 1.1% of annual earnings up to the
Social Security Wage Base plus 1.45% of the excess, for each
year of credited service after December 31, 1988, or
(iii) equal to 1.45% of annual earnings up to the
Social Security Wage Base plus 1.80% of the excess (in lieu
of the benefit under (ii) above) for up to ten years of
credited service in excess of 25 years (but such higher
benefit to be earned no earlier than in the plan year ended
December 31, 1989).
For purposes of the Pension Plan, covered earnings for the named
Executive Officers are essentially equivalent to the amount reported as salary
in the Annual Compensation section of the Summary Compensation Table above.
The minimum annual benefit for Greenwich office employees who have
completed 20 or more years of service is 50% of the three-year average salary,
not including bonuses, for the years immediately preceding a participant's
actual retirement date. The maximum annual retirement benefit for 1996 under
the Pension Plan is $120,000 ($125,000 for 1997). The Pension Plan has been
amended and restated to comply with the requirements of the Tax Reform Act of
1986. Such amendments, which are retroactive to January 1, 1989, have reduced
retirement benefits earned by the executive officers of the Company for
service after that date and have also eliminated the minimum annual Greenwich
office benefit for such executive officers as of that date. In addition, the
estimated annual retirement benefits reflect the additional requirements of
the 1993 Tax Act limiting to $150,000 ($160,000 for 1997) the amount of
compensation which may be taken into account in calculating benefits under the
Plan.
The February 1, 1996 employment agreements provide for supplemental
retirement benefits for Messrs. Lozyniak, Dorme and Kensing to restore
benefits generally available to employees in the Greenwich office of the
Company under the Pension Plan and the Savings and Investment Plan referred to
below but which are not available to them because of the above mentioned tax
law changes and limitations. Under the
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employment agreements, the Company will provide additional retirement
benefits, payable in an actuarially determined lump sum at retirement, equal
to the difference between the benefits the executives will receive under the
Pension Plan and the benefits they would have received thereunder but for the
tax law changes and limitations. The estimated annual benefits under the
retirement benefit restoration provision of the employment agreements, when
added to the benefits under the Pension Plan referred to on page 8, and
assuming the executives were to retire at the end of the term of the
agreements, produce the following total annual estimated retirement benefits
for the executives:
Andrew Lozyniak..................................................... $175,744
Patrick J. Dorme.................................................... $ 80,642
Henry V. Kensing.................................................... $ 80,027
SAVINGS AND INVESTMENT PLAN
Effective January 1, 1985, the Company implemented a Savings and
Investment Plan for all employees not covered by collective bargaining
agreements which qualified as a profit sharing plan under Section 401(k) of
the Internal Revenue Code ("401K Plan"). The 401K Plan allows eligible
employees to defer up to 18% of their pay until retirement, death, disability
or the occurrence of certain other events. Under the 401K Plan, the Company
makes basic matching contributions, in cash (in which the employee is
immediately fully vested), of $1.00 for every $1.00 of pay deferred up to 2%
of pay, and also may match, in cash or in shares of the Company's common
stock, at the Company's option, all or part of additional deferrals of pay up
to 6% of pay, depending on the Company's current results of operations and
forecasted business conditions. Since inception of the Plan through October
31, 1991, the Company decided in each plan year to match 50% of deferrals
above 2% of pay up to 6% of pay in Company shares. Such additional matching
contributions vest if and when the employee completes five (5) years of
service with the Company.
Under the Tax Reform Act of 1986, the amount of pay employees may
defer under the Plan must be limited to $9,500 in 1996 and $9,500 in 1997 for
the Plan to retain its tax-qualified status. The tax laws have also imposed a
limit of $150,000 ($160,000 in 1997) on pay available for deferral and
matching by the Company under the 401K Plan. The employment agreements with
Messrs. Lozyniak, Dorme and Kensing provide for payment to each of the
executives at retirement of an amount equal to 2% of the excess of his base
salary over $150,000 ($160,000 in 1997) in each year of the term of the
agreements, together with interest at 8% on these amounts.
Under the Plan, all contributions of employees and all Company
matching contributions which are made in cash are invested either in
guaranteed investment contracts issued by insurance companies or other
financial institutions and/or in mutual funds, in accordance with the choice
of the contributing employee.
1980 RESTRICTED STOCK AND CASH BONUS PLAN
All officers and directors who are employees of the Company are also
eligible to participate in the 1980 Restricted Stock and Cash Bonus Plan (the
"Restricted Stock Plan"). The Restricted Stock Plan, as approved by the
shareholders on May 1, 1981, and as amended by them on May 6, 1988 to
replenish the 148,567 shares granted from 1981 to 1988, provides for the award
or sale of so-called "restricted stock", which is governed by Section 83 of
the Internal Revenue Code, to key executive personnel of the Company or any
subsidiary. The total number of shares of Common Stock which may be subject to
the Restricted Stock Plan may not exceed 400,000 shares (subject to adjustment
in certain events as described below).
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The Restricted Stock Plan is administered by the Compensation
Committee elected by the Board of Directors, presently consisting of four
directors of the Company, each of whom shall be ineligible to participate in
the Restricted Stock Plan and shall be a "non-employee director" as that term
is defined in Rule 16b-3 under the Securities Exchange Act of 1934.
In accordance with the terms of the Restricted Stock Plan, the
Committee shall select participants from among those officers and key
management executives who are full-time employees of the Company or any
subsidiary. Criteria for selection include: level of responsibility,
performance, potential, salary, bonuses, prior grants of stock options, and
similar considerations. Having selected eligible participants the Committee
will offer such persons the right to acquire by award or purchase a certain
number of shares of Common Stock on such terms and at such price, if any, as
it deems appropriate. Shares acquired by offerees pursuant to the Restricted
Stock Plan are subject to the restriction that, during the period of five
years after the date of acquisition, the participant may not sell, transfer,
or otherwise dispose of such shares as to which the restrictions shall not
have lapsed unless he or she shall first have offered such shares to the
Company for repurchase. The restrictions lapse as to 20% of the shares
acquired pursuant to the Restricted Stock Plan in each year following the
acquisition of the shares after the first year. In addition, within five years
following the date shares were acquired, upon termination of the participant's
employment for any reason, including the participant's death or disability,
the Company is required to repurchase and the participant is required to sell,
at no cost to the Company if the shares were awarded or at their original
purchase price if the shares were purchased, all shares as to which the
restrictions shall not have lapsed. In the event of a change in control of the
Company not approved by the directors in office prior to such change in
control, all restrictions upon the transfer of such shares shall lapse.
As soon as practicable after the restrictions as to any shares have
lapsed, the Company shall pay a cash bonus to the participant equal to the
fair market value of such shares as of the date of such lapse if such shares
were awarded or equal to the excess of the fair market value thereof as of the
date of such lapse over the original purchase price of such shares if such
shares were purchased. The cash bonus is intended to defray the federal income
tax payable at the time restrictions on transfer lapse. The Company may pay up
to five such cash bonuses to any participant, but in no event shall the
aggregate of such cash bonuses payable to any participant be greater than a
sum equal to twice the fair market value of such shares on the date they were
originally acquired.
In the event of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of shares for other
securities, the Restricted Stock Plan provides for appropriate adjustment by
the Committee of the total number of shares which may be offered for award or
purchase under the Plan and in the price, if any, paid for shares under the
Plan.
The Restricted Stock Plan terminates upon the award or sale of all of
the shares available under the Plan. The Board of Directors may terminate or
amend the Restricted Stock Plan but may not, without approval by vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy at a meeting of shareholders duly called, increase the number of shares
reserved for the Plan.
There is no limit to the number of shares that may be granted to any
individual or to the officers and directors of the Company as a group. Each
participant will be required to give a representation in writing that he or
she is acquiring the shares of Common Stock under the Restricted Stock Plan
for his or her own
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account as an investment and not with a view to, or for sale in connection
with, any distribution thereof. The approximate number of key employees which
it is estimated will participate in the Restricted Stock Plan at any one time
is no more than 35.
No shares were awarded in 1996 under the Restricted Stock Plan.
In 1996, restrictions lapsed with respect to 20% of the shares
awarded in prior years under the Restricted Stock Plan and cash bonuses were
paid to the holders thereof as called for by the Plan.
------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors, comprised of
Russell H. Knisel (Chairman), Harold Cohan, Frank A. Gunther and Saul Sperber,
submits this report on Executive Compensation to the Company's stockholders.
The Compensation Committee of the Board of Directors believes it has
implemented programs of executive compensation established to achieve the
following objectives:
1. Attract and retain key executives and managers;
2. Align the financial interests of those key
executives and managers with those of the
stockholders of the Company; and
3. Reward individual performance commensurate with
Corporate performance.
These objectives are achieved through a combination of compensation
arrangements including base salary, annual cash incentive compensation and
long-term incentive compensation through restricted stock and cash bonus
awards, in addition to medical, pension and other benefits available to
employees in general. The three principal components of Executive Officer
compensation at the Company are base salary, the Incentive Performance Plan
and the 1980 Restricted Stock and Cash Bonus Plan.
The Compensation Committee each year reviews the recommendations of
the Chief Executive Officer as to the amount of his proposed base salary, cash
incentive and long term compensation, if any, and that for the Company's other
executive officers. Factors considered by the Chief Executive Officer in
making his recommendations are typically subjective, such as his perception of
the individual's performance, any planned change in functional responsibility
and unusual contributions to the Company, as well as the objective criterion
of the Company's financial performance. Each of the members of the
Compensation Committee has many years of experience in business, industry and
financial and corporate affairs and utilizes that experience and his knowledge
of the Company's several lines of business in considering the recommendations
of the Chief Executive Officer and in making the final determinations on
executive compensation.
12
BASE SALARY
The base salaries of the named Executive Officers of the Company are
as set forth above in the Summary Compensation Table and in the outline of
their Employment Agreements dated as of February 1, 1996. Since commencement
of the terms of the predecessor Employment Agreements on February 1, 1991, the
compensation rates for the named Executives, including the Chief Executive
Officer, have been increased each year only to the extent of the annual
percentage increase in the consumer price index for the prior calendar year.
INCENTIVE PERFORMANCE PLAN
The Board of Directors has a policy of awarding bonuses on the basis
of results on both an overall and divisional basis plus individual
performance. As indicated in the above Summary Compensation Table, no bonus
was awarded to the Chief Executive Officer during the last three years under
the Incentive Performance Plan. The Chief Financial Officer and the General
Counsel were awarded bonuses under the Plan in 1994, 1995 and 1996. The
principal criterion for a bonus award under that Plan is financial
performance, although the Plan by its terms does not limit itself to that
criterion.
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RESTRICTED STOCK AND CASH BONUS PLAN
The 1980 Restricted Stock and Cash Bonus Plan is outlined in detail
above. The Plan provides for equity participation as a key part of the
Company's executive compensation program for motivating and rewarding
executives and managers over the long term. Awards of restricted stock have
provided an important link between the executives and the stockholders of the
Company. The key employees selected for share awards under the Plan in 1994
were those who have contributed to the success of the Company and are expected
to contribute materially to its success in the future. The number of shares
awarded in 1994 to the named Executive Officers, their market value, vesting
and related cash bonuses paid are set forth in the above Summary Compensation
Table and footnote (3) thereto. The awards to the named Executive Officers in
1994 were in recognition of their effective performance, particularly in
connection with the favorable settlement of a portion of the Fermont
Division's claim against the Government for an equitable adjustment under its
3KW generator set contract. There were no awards of restricted stock to the
named Executive Officers under the Plan in 1995 and 1996.
Respectfully submitted,
Dynamics Corporation of America
Compensation Committee
/s/ Russell H. Knisel
Russell H. Knisel, Chairman
/s/ Harold Cohan
Harold Cohan
/s/ Frank A. Gunther
Frank A. Gunther
/s/ Saul Sperber
Saul Sperber
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