10-K 1 FORM 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1994 Commission File Number 1-5237 ------------------------ E-SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 75-1183105 (STATE OR OTHER (I.R.S. EMPLOYER JURISDICTION OF IDENTIFICATION INCORPORATION OR NUMBER) ORGANIZATION) 6250 LBJ Freeway, P.O. Box 660248, Dallas, Texas 75266-0248 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (214) 661-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME AND EXCHANGE TITLE OF CLASS ON WHICH REGISTERED ------------------------------------ ----------------------------- Common Stock, $1.00 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 3, 1995. COMMON STOCK $1.00 PAR VALUE, $1,209,232,781 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 3, 1995. COMMON STOCK, $1.00 PAR VALUE -- OUTSTANDING SHARES, 34,129,500 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement dated March 24, 1995 are incorporated by reference into Part III. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS The Company was incorporated in Delaware in 1964. The Company designs, develops and produces advanced electronic systems and products, primarily for sale in defense related markets, and provides various related technical services. The Company's largest business segments are the design, development and production of reconnaissance and surveillance systems and command, control and communications systems which represented approximately 75% of the Company's sales in 1994. The Company also designs, develops and manufactures intelligence collection and processing systems, which through reconnaissance and surveillance activities collect radio frequency signals and images, process that data, correlate it with other information ("fusion"), and communicate the information to users including various decision makers, such as battlefield tactical commanders and the National Command Authority. In addition, the Company produces navigation and control systems, and performs aircraft maintenance and modification and other services. Approximately 91% of the Company's sales in 1994 were made under contracts with the U.S. Government or to prime contractors with the U.S. Government and approximately 6% were to international customers (principally governments). A substantial portion of the Company's business is conducted under contracts which carry governmental security classifications, many of which prohibit the disclosure of any of the information concerning the nature of the work being done. The sales and operating profits of the Company's business segments for the three years ending December 31, 1994, are set forth in tables at page 40 of this Annual Report on Form 10-K. The backlog believed to be firm at December 31, 1994 was $2,631 million compared to $2,133 million at December 31, 1993. Approximately 72% of the backlog is represented by contracts with the U.S. Government and prime contractors, excluding foreign military sales contracted directly with the U.S. Government. The backlog figures consist of the sales value of U.S. Government contracts and subcontracts which have been contractually documented and for which funds have been authorized by the procuring agency and contracting authority, and the aggregate sales price of firm orders for undelivered nongovernment business. Approximately 69% of the backlog at December 31, 1994 is expected to result in sales during 1995, and the remainder is expected to result in sales in subsequent years. Except for the P-3C contract with the Royal Australian Air Force which accounts for 17% of backlog at December 31, 1994, no other single contract accounts for more than 10% of the Company's backlog. RECONNAISSANCE AND SURVEILLANCE The Company believes that it is a leader in design, development and integration of sophisticated reconnaissance and surveillance systems. These systems include signal intelligence systems (i.e., communications and electronic intelligence systems), intrusion detection systems, electronic support measures and automated, remotely controlled reconnaissance systems. A wholly owned subsidiary of the Company, Engineering Research Associates, Inc., headquartered in Vienna, Virginia ("ERA"), designs and develops high frequency surveillance systems. Another wholly owned subsidiary, HRB Systems, Inc., ("HRB") headquartered in State College, Pennsylvania, designs and develops signal collection, processing and analysis systems, which complement the Company's activities in the intelligence and reconnaissance systems market. Strategic reconnaissance and surveillance systems produced by the Company utilize technically advanced sensors, receivers, electro-optical devices, processing equipment, computers and display and communications devices which detect, locate and analyze hostile electromagnetic signals and other data. These systems provide information as to the location and sources of such signals and the functions, operating characteristics and intentions of such sources. The systems consist of various electronic components and other materials manufactured by the Company and others, which are integrated to perform functions specified by customers. Many systems are integrated using complex interconnection and processing equipment such as mini-computers and micro-processors together with related software. 2 These versatile systems are adaptable to meet evolving needs such as arms-control verification, drug interdiction and improved submarine detection. As an example, one program calls for the design, development and production of a transportable ground station integrating multi-sensor processing and dissemination of strategic and tactical imagery. It will provide, for the first time, near real-time imagery intelligence to tactical commanders. Each system will be specifically tailored to the particular branch of the service to which it is assigned and to the commander's unique needs. The Company has developed reconnaissance and surveillance systems which operate in all environments. The Company's activities in the field of airborne reconnaissance and surveillance systems also involve the modification of aircraft, the installation of the systems, flight testing and technical support and maintenance service for the systems. The Company generally engages in the design, development and production of reconnaissance and surveillance systems under a number of separate contracts, each of which involves relatively few units of production. COMMAND, CONTROL AND COMMUNICATIONS The Company develops and produces a broad range of systems and products for instantaneous communication via line-of-sight, satellites or integrated networks. These systems receive information that is gathered by advanced electronic means and conventional measures such as radar, photo reconnaissance and radio. The information is then transmitted to data processing systems and is displayed in a command center in a form which can readily be used to command and control forces and to monitor rapidly changing strategic and tactical events. These systems include communications (both analog and digital), large scale data processing, software, data link terminals, antennas and display equipment. The Commanders Tactical Terminal is a joint service, interoperable system using airborne relays to disseminate and receive intelligence information to widely dispersed field units on a near real-time basis. The Company is developing a high-priority survivable communications integration system for the U.S. Space Command. It uses microwave, satellite, land lines, fiber optics, sensors and processors to provide secure and accurate communications between U.S. early warning stations and The North American Air Defense Command ("NORAD") in Colorado Springs. The Company produces a transportable, interoperable and self-contained signal intelligence system called Celtic, which provides a readily reconfigurable system to support signal acquisition or a combination of signal acquisition and direction finding. Celtic is one of the fundamental building blocks E-Systems is using to expand in the international marketplace. A ground-based system developed by the Company, Vista Flight Net, enhances weather and flight information for the Federal Aviation Administration's Flight Service Stations, making current and accurate information more readily available to the general aviation pilot. The emergence of the so-called "Information Highway", and its opportunities for massive data exchange, is leading to demands for increased levels of integrity and privacy in data systems. E-Systems has a family of products called TeleSecurity-TM- which build on defense security communications systems and have been developed as inexpensive and superior wide area network security systems which control remote access to protected resources. The Company produces a Multi-mission UHF Satcom Transceiver ("MUST"), a full duplex radio, which combines state-of-the-art modem and transceiver functions into a single unit. As the smallest airborne demand assured multiple access and interoperable radio available today, the MUST transceiver supplies upgrades while simplifying existing communication systems. E-Systems has also developed key components of the Government Emergency Telecommunications Service ("GETS"). This service allows priority status for officials and emergency support personnel to establish communication over public telephone networks in times of crisis. 3 E-Systems also designed and furnishes the Data Distribution System, a key element of the United States Navy's Cooperative Engagement Capability, which provides a highly reliable secure data communication link to distribute real time sensor information for ship defense. Threat tracking information is shared interactively between all ships and aircraft in the same battle group. The Company also produces mobile command and control facilities which can be airlifted anywhere in a worldwide command mission area. These shelters are self-contained command centers for the control of airlift operations from tactical airfields which have no other communications facilities in place. They provide secure line-of-sight or satellite data and voice communications. These systems were used during the Iraq-Kuwait war in the Middle East. NAVIGATION AND CONTROLS The Company develops and manufactures automatic control products for aircraft, missile steering and tracking systems, and aircraft navigation aids. Substantially all Boeing commercial jet aircraft, including the 757 and 767 aircraft, flown by domestic and international airlines are equipped with flight controls designed and manufactured by the Company. Flight controls are sold to manufacturers as original equipment and to airlines as replacements. The Company also produces an automatic pilot module for the Boeing 737 and 757. The Company's flight control systems provide the pilot with computer measured responses to stress on aircraft control surfaces or perform other precision control functions. The Company manufactures portable tactical air navigation systems for military use to assist pilots in landing at remote or unimproved locations. AIRCRAFT MAINTENANCE AND MODIFICATION The Company provides maintenance, repair and modification services for commercial, executive and military aircraft of all types. Other similar work by the Company involves U.S. Air Force aircraft which are regularly returned to the Company for maintenance and systems updating. In addition, the Company maintains field teams for servicing and operational support throughout the world. The Company also has designed and installed a number of executive or head-of-state custom interiors in various types of aircraft. The Company and a wholly owned subsidiary, Serv-Air, Inc., performs special services such as facilities operations, logistics and support, electronics repair, computer based training and simulation systems and base management and support services at various military installations in both the continental United States and worldwide. The Company provides worldwide technical and logistics support for the United States Air Force fleet of KC-10 aircraft used for in-flight refueling and cargo transport. Logistics support includes an on-line computerized inventory management system, which supports material procurement, inventory control and specialized repair and overhaul activity for more than 10,000 line items. Serv-Air, at a Government facility in Lexington, Kentucky, converts crash damaged Apache helicopters into training devices. The Company also provides contract field teams on call to modify, maintain or repair aircraft, watercraft, vehicles and heavy support equipment for the U.S. military forces anywhere in the world. The Company has won key contracts to provide extensive modifications for two significant fleets of P-3C "Orion" Maritime Patrol Aircraft. The first such contract provides the Royal Australian Air Force fleet of P-3C aircraft with major upgrades to all mission equipment and cockpit displays, communications and navigation systems and integration of new mission equipment into the aircraft. The second such contract involves manufacture and replacement and/or repair of major structural components along with upgrades to other aircraft systems on the fleet of P-3C aircraft operated by the U.S. Navy. Operating from 17 fixed sites and additional remote sites, E-Systems maintains a fleet of 150 aircraft for the U.S. Customs Service. These aircraft are equipped with sophisticated airborne avionics sensor systems, including downward and forward looking infrared sensors. The Company also performs work for the Federal Aviation Administration on its flight inspection fleet of aircraft used to 4 verify the accuracy and integrity of the country's en route flight guidance system and approach and takeoff airport guidance and control. The Company has a contract to modify four Lear Jet Model 60 aircraft and a Challenger 601-3R aircraft for the Federal Aviation Administration in connection with this program. OTHER PRODUCTS AND SERVICES As the defense budget declines, the Company is devoting many of its resources and competencies into systems suited for non-defense Government and commercial customers using leading edge technologies developed for the Department of Defense. Although none of the current programs contribute a significant amount of sales or profits to the Company, management believes that some of these projects will lead to business areas which may offer growth potential and make contributions to earnings within the not too distant future. Examples of the initiatives throughout the Company include the harnessing of surveillance technology developed for the Department of Defense into products which can provide nondisruptive means to detect traffic incidents and to estimate traffic volume and flow rates. This system, developed in part with a Government grant, is designed to reduce congestion on the public highways and is expected to be part of a national intelligent vehicle highway plan. Other products aimed at the transportation industry uses existing GPS technology to develop real time systems for fleet management, location and status of mass transit vehicles. Several of the Company's divisions are working on initiatives in the medical and health care industry. The Company manufactures teleradiology and in-hospital image distribution systems. Also, the Company's PAC's system (Picture Archiving and Communications System) is the core element of a comprehensive image management and communications system within a major medical center. The Company has joined Lockheed Missiles & Space Co., Inc. in a venture to establish a commercial remote sensing system to provide high resolution satellite images for commercial applications. The Company is performing contracts involving large data handling capabilities to apply this knowledge to the Federal Student Loan program. Designed to detect and locate those who default on student loans, the system provides support for the United States Health, Education and Welfare Department. The Company's INFOSEC systems offers a completely secure information storage and retrieval system to protect both Government and civilian sensitive data. INFOSEC automates information processing through consolidation of data systems using media encryptors and encrypted compact discs. In 1994, the Company established a new subsidiary, EMASS, Inc., to complete development and assure quality control for a commercial product line of complex, computer-based digital data storage systems for easy information retrieval and rapid transmission to the users. Today, the Company's EMASS-Registered Trademark- Data Storage and Retrieval System is being marketed to energy exploration companies and other Government and commercial customers with huge databases to maintain and access. A wholly owned subsidiary of the Company, Serv-Air, Inc., provides base support to four major U.S. Army Commands, maintaining infrastructure, utilities and services equivalent to those required in a large city. Primary functions include facility engineering, utility systems, operations and repair, equipment and vehicle maintenance, audio visual services, supply and inventory control, housing management, transportation and various administrative efforts. GOVERNMENT CONTRACTS Companies engaged primarily in supplying defense related equipment to the Government are subject to certain business risks unique to that industry. Among these are dependence on Government appropriations, changing policies and regulations, complexity of design and rapidly changing technologies and possible cost overruns. Since the Government usually awards or funds contracts for only one 5 year at a time, the Company's business depends primarily upon such relatively short-term contracts, the periodic exercise by the Government of contract options and annual funding of continuing contracts. Approximately 55% of the Company's current Government contracts are firm, fixed price contracts accounting for approximately $1.4 billion of backlog. Under this type of contract, the price paid to the Company is not subject to adjustment by reason of the costs incurred by the Company in the performance of the contract, except for costs incurred due to contract changes ordered by the Government. Multi-year fixed price contracts normally allow for price revision based on U.S. Government price indices. The Company incurs significant work-in-process costs in the performance of United States Government contracts. However, the Company is usually entitled to invoice the U.S. Government for monthly progress payments on fixed price contracts and twice-monthly on some cost reimbursable contracts. The Government reduced the progress payment rate on fixed price contracts from 85% to 75%, increasing the Company's working capital requirements. The Company does not normally acquire inventory in advance of contract award, and the Company does not maintain significant stocks of finished products for sale. Government progress payments affect the amount of working capital necessary for the Company to finance work-in-process costs in the performance of these contracts. The Government does not recognize interest or other costs associated with the use of capital and, therefore, progress payment reductions may have adverse effects on the Company's profitability. The Company also performs work for the Government under cost reimbursable and incentive type contracts. Cost reimbursable contracts provide for reimbursement of costs incurred, to the extent such costs are allowable under Government regulations, plus a fee. Under incentive type contracts, the amount of profit or fee realized varies with the attainment of incentive goals such as costs incurred, delivery schedule, quality and other criteria. Fixed price contracts normally carry a higher profit rate than cost reimbursable and incentive type contracts to compensate for higher business risk. In addition, government law and regulation provides that certain types of costs may not be included in either the directly-billed cost or the indirect overheads for which the government is responsible. Many of these so-called "unallowable" costs include ordinary costs of doing business in a commercial context. These costs must be borne out of the pretax profit of the corporation and, thus, tend to reduce margins on government work. The so called "unallowable costs", which are not recoverable as a cost of business on Government contracts, although they are ordinary and necessary costs of doing business in the commercial context, are spelled out in Government acquisition regulations which do not permit contractors to bill the Government directly or indirectly for specified kinds of costs on Government cost reimbursement contracts, and do not allow these costs to be included in the bidding and pricing structure of negotiated fixed price contracts. The allowability or unallowability of such costs and other similar costs are covered in detail in the Federal Acquisition Regulations. Examples of such unallowable costs, including costs which are generally regarded as ordinary and necessary business expenses are: public relations and advertising costs; contributions to local civil defense funds and projects; donations; business entertainment; independent research and development costs and bid and proposal costs over a negotiated ceiling; insurance costs to protect from the cost of correcting defects in material and workmanship; interest on borrowings and other financial costs, including costs associated with raising capital; lobbying; organizational costs including pursuit of mergers and acquisitions; patent and intellectual property costs not specifically required by contract; reconversion costs; employee relocation costs (with exceptions); compensation in excess of specific levels and travel and per diem costs in excess of those reimbursed to government employees and certain legal fees. Any Government contract may be terminated for the convenience of the Government at any time the Government believes that such termination would be in its best interests. Under contracts 6 terminated for the convenience of the Government, the Company is entitled to receive payments for its allowable costs and, in general, a proportionate share of its fee or profit for the work actually performed. Recognition of profits is based upon estimates of final performance, which may change as contracts progress. Work may be performed prior to formal authorization or adjustment of contract price for increased work scope, change orders and other funding adjustments. Because of the complexity of Government contracts and applicable regulations, contract disputes with the Government occur in the ordinary course of the Company's business. The resolution of such disputes may affect the profitability of the Company in performing these contracts. The Company believes that adequate provision has been made in its financial statements for these and other normal uncertainties incidental to its Government business. Changes to procurement regulations in recent years, as well as the Government's drive against "fraud, waste and abuse" in defense procurement systems have increased the complexity and cost of doing business with the Government. Some of these changes have redefined the ability to recover various standard business costs which the Government will not allow, in whole or in part, as the cost of doing business on Government contracts. Other legal and regulatory practices have increased the number of auditors, inspectors general and investigators to the point that the Company, like every other major Government contractor, is the constant subject of audits, investigations and inquiries concerning various aspects of its business practices. The Company regards charges of violation of government procurement regulations as extremely serious and recognizes that such charges could have a material adverse effect on the Company. If the Company is determined to be in noncompliance with any of the applicable laws and regulations, the possibility exists of penalties and debarment or suspension from receiving additional Government contracts. INTERNATIONAL SALES The distribution of the Company's international sales is shown on the table set forth on Page 39 of the Company's 1994 Consolidated Financial Statements included herein. These sales are primarily export sales. Reconnaissance and surveillance systems, high altitude platforms and ground-based transportable aircraft navigation systems are the principal source of international sales revenues of the Company. Since most of the Company's export sales involve technologically advanced products, services and expertise, U.S. export control regulations limit the type of products and services that may be offered and the countries and governments to which sales may be made. Consequently, the Company's international sales may be adversely affected by changes in U.S. Government export policy. In addition, the Company's international sales are subject to risks inherent in foreign commerce, including currency fluctuations and devaluations, changes in foreign governments and their policies, differences in foreign laws and difficulties in negotiating and litigating with foreign sovereigns. The Company believes that it has mitigated certain of these risks by obtaining letters of credit and advance payments and by denominating contracts in U.S. dollars where possible. COMPETITION With the recent end of the "Cold War" and substantial reductions in defense budgets for the procurement of military systems and equipment, the Company believes that its niche business in the reconnaissance, surveillance and intelligence market will be funded at a level which is less drastically cut than other elements of the defense budget. Therefore, the Company has found that its business has become even more attractive to competitors and competition has intensified. The Company faces intense competition with respect to all of its products and services. Many of the Company's significant competitors are, or are controlled by, companies which are larger and have substantially greater financial resources than the Company. The Company also competes with small 7 companies operating within a particular business segment. Sales are made principally through competitive proposals in response to requests for bids from U.S. Government agencies and prime contractors. The principal competitive factors are price, technology, service and ability to perform. The Company's business consists largely of projects which involve the production of a relatively small number of units. Due to the diversity and specialized nature of the products produced and the governmental security restrictions applicable to many of the Company's activities, the Company cannot determine its market position in significant areas of its business. However, the Company believes that it is one of the leading manufacturers of reconnaissance and surveillance systems. RESEARCH AND DEVELOPMENT Research and development and the Company's technological expertise have been important factors in the Company's growth. A substantial portion of the Company's business consists of research and development oriented products conducted under cost reimbursable contracts, many of which also result in the production of prototype hardware and systems. It is not possible to estimate separately the value of the research and development portion of these contracts as compared to the preproduction and prototype portion. In 1994, the Company spent approximately $55.4 million on product research, design and development related to U.S. Government contracts (in addition to the activities described in the above paragraph). This compares to approximately $53.2 million in 1993 and $53.9 million in 1992 and includes research, development and engineering and costs incurred to submit bids and proposals for the Company's highly technical products and services to its customers. Most of the expenditures during these periods were recovered by the Company pursuant to independent research and development agreements negotiated with the U.S. Government. These agreements generally provide that the research and development costs up to specified ceiling limits and for specified efforts may be included in the overhead expense charged to certain Government contracts and recovered as part of the contract price. RAW MATERIALS The Company's products require a wide variety of components and materials. The Company has multiple external sources for most of the components and materials it uses in production and produces certain components and materials internally. Although the Company has experienced shortages and long lead times for certain components and materials, such shortages and long lead times have not had a material effect on the Company's business, and the Company believes that the sources and availability of its raw materials are adequate. ENVIRONMENTAL PROTECTION Federal environmental regulation of the electronics manufacturing industry is effected primarily through the Environmental Protection Agency ("EPA"). Regulations promulgated and proposed by the EPA, as well as state and local authorities, contain detailed provisions governing the types and amounts of waste generated from the electronic manufacturing process and the manner of disposal of such waste. Federal "Superfund" legislation mandates the clean-up of toxic waste sites, which may include sites used by the Company and others in the electronics manufacturing industry. See "Item 3. Legal Proceedings, ENVIRONMENTAL MATTERS". EMPLOYEES At December 31, 1994, the Company employed approximately 16,000 persons, approximately 42% of whom are engineers, scientists and highly skilled technicians. Approximately 2,000 of the Company's employees are covered by collective bargaining agreements with various unions. The Company considers its employee relations to be good. 8 PATENTS, TRADEMARKS AND LICENSES The Company is a high technology company and, as such, is a holder of numerous patents. In addition, the Company is a party to various license agreements and has registered trademarks for a number of its products. None of the business segments of the Company are materially dependent upon patents, licenses, or trademarks. ITEM 2. PROPERTIES. The Company occupies buildings which contain approximately 7,615,000 square feet of floor space. Approximately 1,900,000 square feet are owned by the Company and the remaining 5,715,000 square feet are leased. Approximately 49,000 square feet of space are leased (or subleased) to non-affiliated persons. The principal plants and offices are located as follows:
APPROXIMATE SQUARE FEET LOCATION FLOOR SPACE DESCRIPTION ---------------------------------- --------------- ------------------------------------------------------------ Greenville, Texas 2,936,000 Offices, engineering, research and development, production: airborne electronic systems installation, aircraft overhaul and maintenance. Garland, Texas 1,407,000(a) Offices, engineering, research and development, production: radiation laboratory, electronic components, high powered transmitters, radar antennas and other products. St. Petersburg, Fla. 583,000(b) Offices, engineering, research and development, electronic assembly, production: communication systems and equipment and electronic data handling systems. Loudoun County, Falls Church and 808,000(c) Offices, engineering, research and development, production: Fairfax County, Va. electronic warfare and electronics. Salt Lake City, Utah 180,000 Offices, engineering research and development, production: electro-mechanical, navigation and automatic controls. State College, Penn. 327,000 Offices, engineering, research and development, production: electronic warfare. Dallas, Texas 80,000(d) Corporate offices. Other Properties 1,243,000(e) Offices, production and depot maintenance of electronic equipment and systems. ------------------------ (a) Approximately 977,000 square feet are owned by the Company. (b) Approximately 559,000 square feet are owned by the Company. (c) Approximately 205,000 square feet are owned by the Company. (d) Owned by the Company. (e) This includes approximately 899,000 square feet at various locations owned by the United States Government and operated by the Company.
The plant located at Greenville, Texas, is held under a lease, which expires as of October 1, 2017. A portion of the Garland, Texas, facilities of the Company is held under a lease which expires June 1, 2001, with options to renew for seven successive five-year periods. The Falls Church, Virginia, facility is held under a lease which expires in December 2005, with an option to extend for five years. The plant located at Salt Lake City, Utah, is held under a lease which expires in October 1999, with options to renew the lease for two successive five-year periods. 9 The facilities located at State College, Pennsylvania are held under various leases expiring from June 1992 to December 2005 with options to renew, ranging from ten years to multiple five-year periods. All real property and buildings are suitable for the Company's business and are generally fully utilized. The plants, machinery and equipment owned and leased by the Company are well maintained and suitable for its operations. ITEM 3. LEGAL PROCEEDINGS. ENVIRONMENTAL MATTERS ORANGE COUNTY, FLORIDA. An administrative proceeding was instituted in 1984 by the EPA and the Florida Department of Environmental Regulation against approximately 150 entities, including the Company, for disposal of hazardous waste at the City Chemical Company, Inc. hazardous waste recycling plant in Orange County, Florida. The extent of the Company's contribution of hazardous waste to that plant was estimated at 6.55% of the total waste deposited at the site. In conjunction with other Potentially Responsible Parties ("PRP's"), the Company conducted a Remedial Investigation/Feasibility Study to define the parameters of needed remedial action. Based upon that study, a Record of Decision was issued by the EPA on March 29, 1990. In that decision the capital cost of the selected remedial measure was estimated at $1,516,725. Estimated operations and maintenance expenditures over a ten year period at the site are approximately $3,000,000. The EPA entered into a settlement agreement with the Company and approximately 130 other PRP's to finance the remedial program. A Consent Decree to effect that program was entered at the U. S. District Court for the Middle District of Florida on December 9, 1991. The design of the remedial program was completed in 1992. A contract for implementation of that design was awarded on January 20, 1993 with construction completion expected in early 1995. Since the date of the initial Consent Decree, a substantial number of PRP's have exercised their right to buy-out of their liability at this site by paying a substantial premium above their volumetric contribution. As a result of those payments, no payment by the Company has been required to implement the construction of the remedial program; however, at the 80% construction completion point, the EPA demanded, pursuant to the Consent Decree, that the PRP's replenish the trust account by funding it to 120% of the initial program cost estimate. This required the Company to make a payment of approximately $110,000 in 1994. The trust account will be used for annual operations and maintenance expenditures. Should overruns occur, they will be funded at approximately 11% by the Company. However, the Company currently anticipates no further liability at this site. PINELLAS COUNTY, FLORIDA. During a preliminary environmental audit of the Pinellas Trail (jogging trail) in St. Petersburg, Florida, soil samples taken adjacent to the Company facilities revealed contamination levels which are expected to require remediation. An environmental consultant performed a site characterization analysis to define the extent of the contamination. While the characterization study has not been completed, preliminary findings indicate that contamination has migrated approximately 475 feet downstream from its source and has been detected at a depth of approximately 60 feet. A pump and treat system is expected to remediate the contamination plume. Initial cost estimates provided by the Company's environmental consultant, indicate that remedial system installation should cost approximately $500,000 with annual recurring operations and maintenance expenditures of approximately $35,000. SIMPSONVILLE, SOUTH CAROLINA. An Administrative Proceeding was instituted in 1987 by the EPA against the Company, along with other entities, for environmental response costs at the Golden Strip Septic Tank National Priority List (NPL) Site in Simpsonville, South Carolina. The EPA alleges that the Company and its predecessor corporation, LTV, disposed of hazardous waste at this site at various times prior to 1975. Documents relating to these allegations have been destroyed due to the significant lapse of time between the cessation of operations of the Golden Strip Site in 1975 and the notification to the Company from the EPA in 1987. The Company and other Potentially Responsible Parties 10 formed a group to conduct a Remedial Investigation/Feasibility Study. That study developed and analyzed several alternative remedial programs. A Record of Decision was executed by the EPA on September 12, 1991 selecting a remedial program estimated to cost approximately $4,000,000 with recurring annual operations and maintenance costs of approximately $75,000. A Consent Decree negotiated between the EPA and the PRP's was lodged in October, 1992. That Decree approved and authorized implementation of the remedial program selected by the EPA. The environmental consulting firm of RMT, Inc. then completed a detailed design for the selected remedy. The remedial program is currently being constructed by Heritage Environmental Services. The four major PRP's have executed an agreement allocating liability for the remedial costs. Under the terms of the agreement, the Company is responsible for 19.25% of remedial program costs. Two additional companies will participate to the extent of their very limited resources. As the remedial program construction should be completed in 1995, the 1995 aggregate expenditures for the site are estimated at $3,700,000 with the Company's share being approximately $710,000. Following completion of the remedial program, annual operations and maintenance expenditures are estimated at $75,000 with the Company's portion being approximately $14,500. SALT LAKE CITY, UTAH. The Company entered into a Consent Agreement with the State of Utah, Division of Solid and Hazardous Waste on May 16, 1991 based upon preliminary data which indicated that soil and groundwater contamination existed immediately adjacent to a former underground storage tank located at the Montek Division. The Company has identified the lateral extent of the contamination and has proposed a remedial program consisting of limited soil removal, an impervious barrier around the contamination and a groundwater pump and treat system. The remedial program was approved by the State of Utah. Construction of the remedial program began in January, 1995. The estimated cost for this program is not expected to exceed $950,000. The aggregate of the anticipated costs to be incurred by the Company to clean-up the sites where the Company has been named a "Potentially Responsible Party" is not expected to have a material adverse effect on the Company's financial condition. The Company is engaged in an industry which uses relatively insignificant quantities and varieties of hazardous chemicals. However, the current state of the law provides for liability without fault for companies dealing with hazardous waste materials. The federal courts have held that a single company may be held liable for the entire clean-up costs at a given site. Therefore, the Company may be sued for the total cost of cleaning up any of the sites where the Company's waste has been deposited. Should the Government institute such an action, the Company will vigorously oppose any attempt to impose liability beyond its volumetric share of waste sent to the site. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 11 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, offices held and other information with respect to each of the executive officers of the Company as of February 24, 1995 are as follows:
OFFICER SINCE NAME AGE OFFICE DATE(1) ---------------------- --- ----------------------------------------------------------------- ------------------ A. Lowell Lawson 57 Chairman of the Board and Chief Executive Officer November 30, 1975 Brian D. Cullen 54 Senior Vice President April 21, 1987 J. Robert Collins 53 Vice President -- Strategic Planning and Development September 22, 1993 John R. Copple 40 Vice President -- Financial Operations (principal accounting June 22, 1994 officer) Alan J. Doshier 46 Vice President January 25, 1995 Michael C. Eberhardt 47 Vice President, Secretary and General Counsel January 25, 1995 Terry W. Heil 57 Senior Vice President October 12, 1988 Art Hobbs 47 Vice President -- Corporate Relations and Administration April 1, 1991 Peter A. Marino 53 Senior Vice-President October 14, 1991 James W. Pope 51 Vice President -- Finance and Chief Financial Officer January 27, 1982 Harry L. Thurmon 53 Vice President -- New Business Development November 1, 1971 Marshall D. Williamson 53 Vice President July 28, 1993 ------------------------ (1) Each of the executive officers has been elected to his position until the next annual meeting of the stockholders of the Company, April 26, 1995, or until his successor be duly elected and qualified.
12 Each of the executive officers has been employed as indicated in the table above for more than five years except as indicated below: A. LOWELL LAWSON -- Mr. Lawson was elected Chief Executive Officer on January 26, 1994 and Chairman of the Board on August 24, 1994. He has held the position of President since April 25, 1989. Previously he served as Executive Vice President from April 21, 1987 to April 25, 1989 and Senior Vice President and Group Executive since November 1, 1983. J. ROBERT COLLINS -- Dr. Collins was Vice President of Business Development of the Garland Division, Garland, Texas, from March 16, 1992 to September 22, 1993 when he was elected to his current position. Prior to that, he was Division Vice President of the Garland Division from May 20, 1985 to March 16, 1992. JOHN R. COPPLE -- Prior to being elected to his current position, Mr. Copple was Vice President-Finance of the Garland Division, Garland, Texas from August 19, 1991 until June 22, 1994. He served as Garland Division controller from October 4, 1988 until August, 1991. Prior to joining the Company in 1988 he was Executive Director, Financial Operations at Tracor, Inc., a defense contractor that provides a broad range of electronic hardware and software products and systems, as well as related management and technical support and services from January 1987 until October 1988. From 1978 until 1987 he held various accounting positions with Tracor, Inc. BRIAN D. CULLEN -- Mr. Cullen was elected Senior Vice President of the Company on January 26, 1994. He served as Vice President of the Company from April 27, 1987 to January 26, 1994. ALAN J. DOSHIER -- Mr. Doshier is Vice President and General Manager of the Greenville Division, Greenville, Texas, the largest operating division of the Company. From September 1, 1994 until January 25, 1995 he served as Assistant General Manager and was Vice President of the Greenville Division from June 4, 1990 until August 31, 1994. Prior to that he held various managerial positions since joining the Company in 1976. MICHAEL C. EBERHARDT -- Mr. Eberhardt was elected Vice President, Secretary and General Counsel on January 25, 1995. Prior to joining the Company he was a partner in the Washington, D.C. law firm of Crowell and Moring from 1987 to 1994. Previously, he was counsel to special committees in the U.S. Senate and U.S. House of Representatives, and from 1982 to 1987 he served as Assistant Inspector General at the U.S. Department of Defense. From 1972 to 1977, Mr. Eberhardt served as a Special Attorney with the U.S. Department of Justice in New York and Washington, D.C. ART HOBBS -- Prior to his current position, Mr. Hobbs was the Vice President of Human Resources of the Greenville Division, Greenville, Texas, the largest operating division of the Company. He had served in such capacity since 1982, having previously been Director of Employee Relations for three years. PETER A. MARINO -- From July 1991 until October 1991, Mr. Marino was Executive Vice President and Chief Operating Officer of Fairchild Corporation. From September 1989 to July 1991, Mr. Marino was President and Chief Operating Officer of Fairchild Industries, Inc., a high-technology company engaged in spacecraft and space subsystems, military avionics, defense communications, telecommunications, aerospace fasteners and capital equipment for the plastics molding industry. Between October 1988 and September 1989, he was Senior Vice President of Fairchild Industries, Inc. From October 1986 to September 1988, Mr. Marino was, first, Executive Vice President and then, President and Chief Operating Officer of Lockheed Electronics Company, Inc. and a Vice President of the parent, Lockheed Corporation. Prior to that time, Mr. Marino had been with the United States Central Intelligence Agency from 1970 to 1986, serving in various technical and managerial positions. MARSHALL D. WILLIAMSON -- From February 1, 1993 until being elected to his current position, Mr. Williamson was Vice President and Assistant General Manager of the Garland Division, Garland, Texas. He served as Vice President of the Garland Division from May 20, 1985 until February 1, 1993 previously having held various managerial positions since joining the Company in 1975. 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange and principally traded in that market. The table below shows the high and low sales prices of the Company's common stock on the New York Stock Exchange, as reported in the WALL STREET JOURNAL, and the cash dividends declared per share for each quarter during the past two years.
QUARTER 1ST 2ND 3RD 4TH ------------------------------------------------------------------------------------------------------- Stock Prices: 1994 High............................................. 46 3/4 45 1/8 44 7/8 42 1/2 Low.............................................. 40 36 3/8 37 1/4 36 1/2 1993 High............................................. 44 1/4 43 48 7/8 46 1/4 Low.............................................. 36 1/4 39 5/8 41 3/4 41 5/8 Dividends Declared: 1994.................................................. $ .30 $ .30 $ .30 $ .30 1993.................................................. $ .275 $ .275 $ .275 $ .275
HOLDERS OF RECORD: At March 3, 1995, there were 9,936 holders of record of the Company's common stock. 14 ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY OF OPERATIONS AND FINANCIAL CONDITION YEARS ENDED DECEMBER 31 (IN THOUSANDS EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS: 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------------------------------------------------- Net sales.................................. $ 2,028,300 $ 2,097,114 $ 2,094,913 $ 1,991,284 $ 1,810,172 Operating costs and expenses............... 1,850,334 1,916,458 1,924,177 1,824,238 1,663,939 Special Charges............................ (24,495) -- -- -- -- ------------- ------------- ------------- ------------- ------------- Profit from continuing operations.......... 153,471 180,656 170,736 167,046 146,233 Other income (expense) -- net.............. (9,370) 5,830 (600) 264 879 Interest expense........................... (2,412) (6,211) (7,664) (8,559) (10,515) ------------- ------------- ------------- ------------- ------------- Income from continuing operations before federal income taxes and the cumulative effect of a change in accounting principle................................. 141,689 180,275 162,472 158,751 136,597 Federal income taxes....................... 46,049 58,409 53,453 49,213 42,345 ------------- ------------- ------------- ------------- ------------- Income from continuing operations before the cumulative effect of a change in accounting principle...................... 95,640 121,866 109,019 109,538 94,252 Loss from discontinued operations.......... -- -- -- -- (8,632) ------------- ------------- ------------- ------------- ------------- Income before cumulative effect of a change in accounting principle................... 95,640 121,866 109,019 109,538 85,620 Cumulative effect of a change in accounting principle................................. -- -- (178,510) -- -- ------------- ------------- ------------- ------------- ------------- Net income (loss).......................... $ 95,640 $ 121,866 $ (69,491) $ 109,538 $ 85,620 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings (loss) per share: Continuing operations.................... $ 2.79 $ 3.58 $ 3.31 $ 3.35 $ 3.02 Discontinued operations.................. -- -- -- -- (.28) Cumulative effect of a change in accounting principle.................... -- -- (5.42) -- -- ------------- ------------- ------------- ------------- ------------- Total.................................. $ 2.79 $ 3.58 $ (2.11) $ 3.35 $ 2.74 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Cash dividends declared per common share... $ 1.20 $ 1.10 $ 1.00 $ .75 $ .75 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ---------------------------------------------------------------------------------------------------------------------- YEAR-END FINANCIAL POSITION: Bookings................................... $ 2,526,567 $ 1,910,532 $ 1,905,319 $ 2,013,431 $ 1,791,724 Backlog.................................... $ 2,631,308 $ 2,133,041 $ 2,319,623 $ 2,509,217 $ 2,487,070 Current ratio.............................. 3.97 4.44 3.01 3.51 3.12 Total assets............................... $ 1,374,167 $ 1,279,173 $ 1,253,573 $ 1,075,441 $ 967,178 Long-term debt............................. $ 10,115 $ 7,873 $ 34,119 $ 84,897 $ 118,706 Total debt................................. $ 19,632 $ 33,129 $ 103,920 $ 90,462 $ 127,671 Stockholders' equity at year-end........... $ 836,629 $ 769,996 $ 660,000 $ 750,063 $ 625,960 Total debt to equity ratio................. .02 .04 .16 .12 .20 Return on average stockholders' equity..... 11.9% 17.0% (9.9%) 15.9% 14.5% Employees at year-end...................... 15,760 16,703 18,590 18,622 18,435 Stockholders of record at year-end......... 9,610 10,097 10,810 11,228 12,035 Year-end closing stock price............... 41 5/8 43 3/8 41 1/8 37 7/8 34 3/8
15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SOURCES OF LIQUIDITY AND CAPITAL RESOURCES -- Net working capital increased slightly from the prior year-end to $584 million. Net cash provided by operating activities was $137 million for 1994 compared to $96 million for 1993. This change was primarily due to collections of accounts receivable. Cash and cash equivalents at the beginning of the year and funds provided by operations were used to finance capital expenditures of $44 million, pay dividends of $40 million, pay-off $26 million in long-term debt and installment lease obligations, and fund acquisitions made in 1994 of $44 million. The ratio of total debt to equity was .02 at December 31, 1994 which is down from the total debt to equity ratio at December 31, 1993 of .04. This decrease is primarily due to the $24 million pay-off of the ESOP line of credit in December 1994. The ratio of current assets to current liabilities was 4.0 at December 31, 1994 compared to 4.4 at December 31, 1993. Return on equity decreased to 12 percent in 1994 compared to 17 percent in 1993. Current financing agreements provide lines of credit up to $360 million of which $9 million was borrowed at December 31, 1994. Management believes these lines of credit and internally generated funds will be more than adequate to meet increased working capital requirements, capital expansion projects, dividend payments to shareholders, and satisfy payment of the Company's debt obligations as they mature. ACQUISITIONS -- During 1994, the Company completed seven acquisitions. The acquired businesses are involved in developing storage software, manufacturing automated tape libraries, high-frequency communications, Global Positioning System based automatic vehicle location systems, missile subassemblies and components, teleradiology systems and in-hospital image distribution systems. These seven acquisitions were purchased for approximately $44 million in cash. The excess of the aggregate purchase price over fair market value of net assets acquired for these acquisitions of approximately $35 million was recognized as goodwill and is being amortized over periods from 10 to 30 years. The operating results of all acquisitions are included in the Company's results of operations from the dates of acquisition. BUSINESS ENVIRONMENT -- Congress and the President will continue to express substantially divergent views on the ability of the Department of Defense to respond to two nearly simultaneous major regional conflicts. These concerns are finding a resonance not only with the majority party, in the current Congress, but a growing number of centrists in the minority party. Yet, despite these fears the fiscal year 1996 budget submitted is approximately six percent lower than the preceding year. Measured in terms of inflation, adjusted purchasing power, the 1996 request is 39 percent smaller than the 1985 defense budget (which was the largest since the Korean War). In formulating the 1996 budget, the administration accorded the highest priority to preserving force readiness. The Defense Department has also begun a "recapitalization" of our forces to meet the challenge of fewer personnel to carry out broader missions. However, the requested amount for new procurement in 1996 reflects a decline of 71 percent from FY 1985. Yet, the department felt that some systems are reaching the end of their service life and others have not benefited from advances in electronics, lasers, materials and other technologies. The "recapitalization" is expected to focus on upgrading the capabilities of some existing weapons, platforms and supporting systems. Finally, the FY96 research and development request is a six percent decline from last year's budget. This reduction is critical to our efforts to maintain technological superiority over the long term and impacts our continuing development of key technologies. The number of political and military hot spots throughout the world continues to grow as illustrated by the international peacekeeping missions that our government has supported. The singular nature of peacekeeping and the uncertainty of the conflict's parameters mandates extensive reliance on our unique collection systems. The ongoing Bosnian conflict and the uncertainty that continues to exist in Russia, North Korea, China, Iraq, Iran and the former Soviet Republics all 16 appreciably add to world-wide instability. A top priority of the U.S. Government is to prevent the re-emergence of the nuclear threat that was an integral part of the cold war. Specifically, there are approximately 25,000 nuclear weapons in Russia and three other former Soviet Republics. Preventing nuclear proliferation remains a paramount objective. We must also ensure that hostile nations do not threaten our security with ballistic missile threats against our forces or the allies we currently support. The huge increase in expectations for war with minimal casualties also drives a need for precision weapon systems and expert command and control capabilities. That in turn sets a high value on the collection and distribution of precise and timely intelligence information. The administration has also identified terrorism, drug trafficking and international crime as newer post-cold war threats that need timely, accurate intelligence. The Company is a developer and producer of high technology electronic systems and services, consisting principally of systems design, development, production, integration and operation of sophisticated intelligence collection, processing, analysis and dissemination systems. The Company offers integration of sophisticated and complex systems incorporating diverse components in flexible and open architecture. This capability remains in demand in friendly and allied nations around the world. The growing use of commercial equipment improves exportability to this market, and encourages us to raise our target for the international component of our booking goals. We are now applying our technical and business strengths to markets which will continue to expand our customer base. In 1994, for example, we targeted the Navy aircraft market and were successful in booking the U.S. Navy's P-3C sustained readiness program and the Government of Australia's P-3C upgrade program with a potential combined value in excess of $1 billion. This provides an opening to markets for additional P-3 upgrades as other countries extend their platform service life. In addition, our efforts to expand into the federal civilian marketplace resulted in booking the Hurricane Tracker Aircraft for the National Oceanic and Atmospheric Administration (NOAA) in the Department of Commerce. New opportunities in the Department of Education to supplement our earlier guaranteed student loan and national student loan data systems (NSLDS) wins will be pursued to expand our core base in the federal information systems marketplace. In 1994 we succeeded in bringing NSLDS on line and are storing and managing more than 65 million loans for 26 million students, resulting in one of the largest, realtime-accessible data bases in the Federal Government. With this system the U.S. Government will be able to monitor and revise outstanding loans for duplication, errors and even potential fraud, saving millions of dollars each year. EMASS information storage retrieval products and the associated technology were established as a new Company in 1994. Our continuing thrust into medical image processing and information systems is expected to provide significant business for the organization within the next several years, both within the military services and in the civilian world. Consider the problem with our U.S. Navy, for instance, with thousands of sailors on ships in distant locations - with no medical professionals on board to treat the inevitable illnesses that develop. We are currently operating a preproduction version of one of our medical systems aboard a deployed aircraft carrier in a foreign location linking the medical images electronically to the Bethesda Naval Hospital in suburban Washington where many experienced doctors are located. With our equipment the doctors at Bethesda can diagnose, prescribe and even coach surgical procedures on patients many miles distant at substantial medication, evacuation, an pre-operative cost savings. With the world's geopolitical changes, the international market for our products and systems is taking on a new look. During the cold war our allies looked to the United States to provide a lions share of the communications, surveillance and analysis functions which would be needed in hostilities. They now want to - and believe they need to - provide these capabilities for themselves. But there are very few nations with domestic companies capable of complex systems integration. That is perhaps the core strength of E-Systems appeal - it gives potential to compete and win in the international defense market. 17 The Company continues to grow as a developer and producer of high technology electronic systems and services, consisting principally of systems design, integration, hardware modification and development for the United States Government or other prime government contractors. The Company's business base consists of both cost-type and fixed-price contracts with 60 percent being cost- type. The profitability of cost-type contracts is contingent upon several factors: customer's evaluation of performance on contracts, costs actually incurred, delivery schedule, quality and incentive or award fee arrangements. Given this determination of profitability, contract costs and related margins are not readily explainable in typical manufacturing terms. Also, due to the nature of the products or services provided by the Company, many contracts are highly sensitive and classified under relevant U.S. Government regulations. 1994 COMPARED TO 1993 NET SALES -- Net sales for 1994 totaled $2,028 million compared to $2,097 million in 1993. Net sales in the Reconnaissance and Surveillance product segment decreased 11 percent to $1,125 million. The decline in this product segment is due primarily to booking delays. The decrease in the Reconnaissance and Surveillance segment was offset by a $35 million, or 12 percent, increase in the Aircraft Maintenance and Modification product segment and a $44 million, or 52 percent, increase in the Other Products and Services product segment. The increase in the Aircraft Maintenance and Modification product segment is primarily attributable to the maturing of the Company's technical and logistics support program with the U.S. Air Force which was in the start-up phase in the prior year. The increase in the Other Products and Services segment is primarily attributable to increased activity on the Company's National Student Loan program and in the Company's mass storage and retrieval systems through its EMASS subsidiary. COST AND EXPENSES -- Operating profits in 1994, of $153 million, were down 15 percent from the prior year operating profits of $181 million. The Company experienced a decrease in operating profits in its Aircraft Maintenance and Modification product segment of $2.3 million, or 11 percent due to the lower than normal profit margin on the one-time purchase and delivery of aircraft on certain programs. The Other Products and Services product segment declined $23.8 million from operating income of $2.1 million in 1993 to an operating loss of $21.7 million in 1994. This decrease was primarily due to special charges totaling $18.3 million which represents write-downs in several nontraditional business areas such as, commercial mass storage and medical technology. See Note M for further discussion of the special charges. Other income totaled $5.1 million for 1994 compared to $10.8 million for the same period in 1993. The decrease is primarily attributable to interest associated with a one-time gain from a favorable tax settlement coupled with unusually high capital gains earned on the Company's Supplemental Executive Retirement Plan investments in 1993. INCOME -- Net income decreased in the current year by $26 million from $122 million in 1993 to $96 million in 1994. This decrease was primarily due to the special charges discussed above and in Note M to the consolidated financial statements. 1993 COMPARED TO 1992 NET SALES -- Net sales for 1993 totaled $2,097 million compared to $2,095 million in 1992. Net sales in the Reconnaissance and Surveillance product segment decreased nine percent to $1,260 million. The decline is attributable to the absence of the German reconnaissance and surveillance program which was canceled in January of 1993. COSTS AND EXPENSES -- Operating profits increased six percent in 1993. This increase was primarily due to increased sales in the Aircraft Maintenance and Modification product segment and improved margins in the Command, Control and Communications product segment. Operating profits for the Reconnaissance and Surveillance product segment were $111 million, down $4 million when compared to the same period in 1992. Operating profits in the Command, Control and Communications 18 product segment increased $6 million, or 23 percent, to $33 million in 1993. Operating profits in the Aircraft Maintenance and Modification product segment were $21 million, up 43 percent, or $6 million in 1993. Other income totaled $10.8 million for 1993 compared to $3.8 million for the same period in 1992. This increase was primarily due to interest associated with a one-time gain from a favorable tax settlement coupled with an increase in capital gains earned on the Company's Supplemental Executive Retirement Plan investments. INCOME -- Excluding the cumulative effect of adopting SFAS 106 in 1992, net income increased 12 percent in 1993 to $121 million compared to $109 million in 1992. This increase was due to improved margins discussed above. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The index to Consolidated Financial Statements is found on page 22. The Company's Financial Statements and Notes to Consolidated Financial Statements follow the index. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth in the Company's proxy statement dated March 24, 1995 at pages 4 through 7 in the section entitled "Election of Directors," and is incorporated herein by reference. Reference is made to the section entitled "Executive Officers of the Registrant" under Part I. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company's proxy statement, dated March 24, 1995, at pages 9 through 18, under the sections entitled "Executive Compensation, Salaried Retirement Plan, Supplemental Executive Retirement Plan and Employment Agreements," and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" on pages 2 and 3 of the Company's proxy statement dated March 24, 1995, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Inapplicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report. 1. Financial Statements The financial statements filed as a part of this report are listed in the "Index to Consolidated Financial Statements" on page 22. The index and financial statements are incorporated herein by reference. All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 19 3. Exhibits required by Item 601 of Regulation S-K. A list of the exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Index to Exhibits on pages 41 and 42, which immediately precedes such exhibits. (b) Reports on Form 8-K. Form 8-K was filed electronically on October 20, 1994 reporting the adoption of a Stockholder Rights Plan by the Board of Directors on September 28, 1994. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. E-SYSTEMS, INC. /s/ A. LOWELL LAWSON -------------------------------------- A. Lowell Lawson DIRECTOR, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER March 22, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE ------------------------------------------------------ ------------------------------------- ------------------ /s/ E. GENE KEIFFER Director ------------------------------------------- E. Gene Keiffer /s/ JAMES A. BITONTI Director ------------------------------------------- James A. Bitonti /s/ E. F. BUEHRING Director ------------------------------------------- E. F. Buehring /s/ CHARLES A. GABRIEL Director ------------------------------------------- Charles A. Gabriel /s/ C. ROLAND HADEN Director ------------------------------------------- C. Roland Haden /s/ MARTIN R. HOFFMANN Director ------------------------------------------- Martin R. Hoffmann March 22, 1995 /s/ S. LEE KLING Director ------------------------------------------- S. Lee Kling /s/ FRANCINE I. NEFF Director ------------------------------------------- Francine I. Neff /s/ DAVID R. TACKE Director ------------------------------------------- David R. Tacke /s/ JAMES W. POPE Vice President -- Finance ------------------------------------------- and Chief Financial Officer James W. Pope /s/ JOHN R. COPPLE Vice President -- Financial ------------------------------------------- Operations (Principal Accounting John R. Copple Officer)
21 E-SYSTEMS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE Report of Ernst & Young LLP, Independent Auditors..................................................................... 23 Statements of Consolidated Operations -- Years ended December 31, 1994, 1993 and 1992............................................. 24 Consolidated Balance Sheets at December 31, 1994 and 1993............................................................... 25 Statements of Consolidated Cash Flows -- Years ended December 31, 1994, 1993 and 1992......................................................... 26 Statements of Consolidated Stockholders' Equity -- Years ended December 31, 1994, 1993, and 1992............................................ 27 Notes to Consolidated Financial Statements................................................ 28-40
22 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors of E-Systems, Inc. We have audited the consolidated balance sheets of E-Systems, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of E-Systems, Inc. and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note J, in 1992 the method of accounting for retiree health care and life insurance benefits was changed. ERNST & YOUNG LLP Dallas, Texas January 26, 1995 23 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS THREE YEARS ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1993 1992 ------------------------------------------------------------------------------------------------------------------ Revenues: Net sales.......................................................... $ 2,028,300 $ 2,097,114 $ 2,094,913 Other income -- net................................................ 5,053 10,775 3,753 ------------- ------------- ------------- 2,033,353 2,107,889 2,098,666 ------------------------------------------------------------------------------------------------------------------ Costs and Expenses: Contract and manufacturing costs................................... 1,691,677 1,759,533 1,776,037 Selling, general and administrative expenses....................... 173,080 161,870 152,493 Special charges -- Note M.......................................... 24,495 -- -- Interest expense................................................... 2,412 6,211 7,664 ------------- ------------- ------------- 1,891,664 1,927,614 1,936,194 ------------- ------------- ------------- Income Before Federal Income Taxes and the Cumulative Effect of a Change in Accounting Principle.................................. 141,689 180,275 162,472 ------------------------------------------------------------------------------------------------------------------ Federal Income Taxes (Note E): Current............................................................ 55,411 62,893 51,266 Deferred........................................................... (9,362) (4,484) 2,187 ------------- ------------- ------------- 46,049 58,409 53,453 ------------- ------------- ------------- Income before the Cumulative Effect of a Change in Accounting Principle....................................................... 95,640 121,866 109,019 ------------------------------------------------------------------------------------------------------------------ Cumulative Effect of a Change in Accounting Principle (Note J): Retiree health care and life insurance benefits -- net of tax benefit of $91,960................................................ -- -- (178,510) ------------- ------------- ------------- Net Income (Loss)................................................ $ 95,640 $ 121,866 $ (69,491) ------------- ------------- ------------- ------------- ------------- ------------- ------------------------------------------------------------------------------------------------------------------ Net Income (Loss) Per Share (Note A): Income before the cumulative effect of a change in accounting principle......................................................... $ 2.79 $ 3.58 $ 3.31 Cumulative effect of a change in accounting principle.............. -- -- (5.42) ------------- ------------- ------------- Earnings (Loss) Per Share........................................ $ 2.79 $ 3.58 $ (2.11) ------------- ------------- ------------- ------------- ------------- -------------
See "Notes to Consolidated Financial Statements." 24 E-SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (IN THOUSANDS) ASSETS
1994 1993 ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents........................................................... $ 24,401 $ 32,638 Accounts receivable (Note B)........................................................ 438,205 426,404 Unreimbursed costs and fees under cost-plus-fee contracts (Note B).................. 186,855 207,519 Fixed-price contracts: Fixed-priced contracts in progress (Note C)....................................... 83,903 54,644 Less progress and advance payments................................................ 11,802 21,580 ------------ ------------ 72,101 33,064 Raw materials and purchased parts................................................... 40,272 11,714 Prepaid expenses and other assets................................................... 18,877 38,623 ------------ ------------ Total Current Assets.............................................................. 780,711 749,962 ------------------------------------------------------------------------------------------------------------------ Other Assets: Prepaid pension costs (Note I)...................................................... 34,485 36,489 Deferred charges and other (Note K)................................................. 69,022 56,653 Deferred federal income taxes (Note E).............................................. 72,160 65,544 Costs in excess of net assets acquired (Note A)..................................... 101,962 62,401 ------------ ------------ 277,629 221,087 ------------------------------------------------------------------------------------------------------------------ Property, Plant and Equipment (Notes A and H): Land................................................................................ 7,871 7,279 Buildings........................................................................... 100,244 94,731 Machinery and equipment............................................................. 334,156 306,915 Leasehold improvements -- net....................................................... 72,793 75,572 Construction in progress............................................................ 16,506 13,957 ------------ ------------ 531,570 498,454 Less allowances for depreciation.................................................... 215,743 190,330 ------------ ------------ 315,827 308,124 ------------ ------------ $ 1,374,167 $ 1,279,173 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------------------------------------------------------------------------------------ Current Liabilities: Accounts payable.................................................................... $ 95,316 $ 70,313 Accrued liabilities (Note F)........................................................ 92,065 73,495 Short-term obligations and current portion of long-term debt (Note D)............... 9,517 25,256 ------------ ------------ Total Current Liabilities..................................................... 196,898 169,064 ------------------------------------------------------------------------------------------------------------------ Long-Term Debt: Long-term debt (Note D)............................................................. 3,769 738 Installment lease obligations (Note H).............................................. 6,346 7,135 ------------ ------------ 10,115 7,873 ------------------------------------------------------------------------------------------------------------------ Deferred Items: Retiree health care and life insurance benefits (Note J)............................ 284,227 290,795 Other deferred items................................................................ 46,298 41,445 ------------ ------------ 330,525 332,240 ------------------------------------------------------------------------------------------------------------------ Stockholders' Equity (Note G): Common stock, par value $1.00....................................................... 34,071 33,885 Additional capital.................................................................. 178,810 172,300 Retained earnings................................................................... 623,748 563,811 ------------ ------------ 836,629 769,996 ------------------------------------------------------------------------------------------------------------------ Commitments and Contingencies (Notes H and L) ------------ ------------ $ 1,374,167 $ 1,279,173 ------------ ------------ ------------ ------------
See "Notes to Consolidated Financial Statements." 25 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS THREE YEARS ENDED DECEMBER 31, 1994 (IN THOUSANDS)
1994 1993 1992 ------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net Income (Loss)....................................................... $ 95,640 $ 121,866 $ (69,491) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of a change in accounting principle................. -- -- 178,510 Depreciation and amortization......................................... 54,674 54,858 53,583 (Benefit) provision for deferred income taxes......................... (9,362) (4,484) 2,187 Gain on sale of investment securities................................. (1,032) (2,205) (453) Changes in operating assets and liabilities, net of effects from Acquisitions: Accounts receivable................................................... 98,069 84,794 20,813 Unreimbursed costs and fees under cost-plus-fee contracts............................................................ 20,664 (21,448) (30,505) Fixed-price contracts in progress..................................... (28,814) 17,002 5,340 Progress and advance payments......................................... (105,531) (91,600) (47,050) Prepaid pension costs................................................. 2,004 (6,631) 8,995 Accounts payable...................................................... 18,631 (25,223) 16,937 Accrued liabilities................................................... 6,074 (9,596) (16,318) Other assets and liabilities.......................................... (14,196) (21,520) 502 ------------ ----------- ----------- Net Cash Provided By Operating Activities........................... 136,821 95,813 123,050 ------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities Purchases of property, plant and equipment.............................. (43,547) (52,063) (90,837) Proceeds from disposals of property, plant and equipment................ 1,560 942 992 Acquisitions, net of cash acquired...................................... (43,513) -- (9,959) ------------ ----------- ----------- Net Cash Used In Investing Activities............................... (85,500) (51,121) (99,804) ------------------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities Net (payments) borrowings under short-term line-of-credit agreements.... (23) (19,533) 19,533 Principal payments on long-term debt and installment lease obligations............................................................ (26,340) (51,693) (8,855) Proceeds from exercise of stock options................................. 6,696 32,655 15,692 Dividends paid.......................................................... (39,891) (35,723) (30,445) ------------ ----------- ----------- Net Cash Used in Financing Activities............................... (59,558) (74,294) (4,075) ------------ ----------- ----------- Net (Decrease) Increase in Cash and Cash Equivalents...................... (8,237) (29,602) 19,171 Cash and cash equivalents at beginning of year............................ 32,638 62,240 43,069 ------------ ----------- ----------- Cash and Cash Equivalents at End of Year.................................. $ 24,401 $ 32,638 $ 62,240 ------------ ----------- ----------- ------------ ----------- -----------
See "Notes to Consolidated Financial Statements." 26 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ------------------------ ADDITIONAL RETAINED SHARES AMOUNT CAPITAL EARNINGS ----------------------------------------------------------------------------------------------------------------- Balance January 1, 1992...................................... 32,417,150 $ 32,417 $ 125,421 $ 592,225 Net loss..................................................... (69,491) Exercise of stock options, net of stock tendered (including tax benefit of $1,501)...................................... 474,965 475 15,217 Adjustment for minimum pension liability (net of tax effect of $1,910).................................................. (3,708) Cash dividends on commom stock ($1.00 per share)........................................... (32,556) ------------- --------- ----------- ----------- Balance December 31, 1992.................................... 32,892,115 32,892 140,638 486,470 Net income................................................... 121,866 Exercise of stock options, net of stock tendered (including tax effect of $5,850)....................................... 992,682 993 31,662 Adjustment for minimum pension liability (net of tax benefit of $4,133).................................................. (7,676) Cash dividends on common stock ($1.10 per share)............. (36,849) ------------- --------- ----------- ----------- Balance December 31, 1993.................................... 33,884,797 33,885 172,300 563,811 Net income................................................... 95,640 Exercise of stock options, net of stock tendered (including tax benefit of $986)........................................ 186,316 186 6,510 Adjustment for minimum pension liability (net of tax effect of $2,475).................................................. 4,597 Unrealized gain on available-for-sale securities reported at market value (net of tax effect of $151).................................................... 280 Foreign currency translation adjustment...................... 216 Cash dividends on common stock ($1.20 per share)............. (40,796) ------------- --------- ----------- ----------- Balance December 31, 1994................................ 34,071,113 $ 34,071 $ 178,810 $ 623,748 ------------- --------- ----------- ----------- ------------- --------- ----------- -----------
See "Notes to Consolidated Financial Statements." 27 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The accounts of all subsidiaries have been included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. REVENUE AND PROFIT DETERMINATION -- Sales and costs of sales (including general and administrative expenses) on long-term fixed-price contracts and sales (costs and fees) on cost reimbursable contracts are generally recorded under the percentage-of-completion method of accounting as costs are incurred. Sales and costs of sales (including general and administrative expenses) on fixed-price production contracts with substantial quantities are recorded when units are delivered, based on the profit rates anticipated on the contracts at completion. Profits expected to be realized on contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts and adjustments to profits resulting from such revisions are made cumulative to the date of change. Amounts in excess of agreed upon contract price for customer-caused delays, errors in specification and design, unapproved change orders or other causes of unanticipated additonal costs are recognized in contract value if it is probable that the claim will result in additional revenue and the amount can be reasonably estimated (See Note C). Losses on contracts are recorded in full as they are identified. FIXED-PRICE CONTRACTS AND RAW MATERIALS -- Costs incurred in advance of contractual coverage receive an allocated portion of general and administrative expenses and are valued at the lower of cost incurred or market. Raw materials and purchased parts are valued at average cost not in excess of market. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Capitalized leases are recorded at the present value of the net fixed minimum lease commitments (See Note H). Provisions for depreciation are computed on both accelerated and straight-line methods using rates calculated to amortize the cost of the assets over their estimated useful lives and include amortization of capitalized leases. Leasehold improvements are amortized over the life of the lease and renewal options which are expected to be exercised. The Company's policy is to remove the amounts related to fully-depreciated assets from the financial records. EARNINGS PER SHARE -- Earnings per share are computed based on the sum of the average outstanding common shares and common equivalent shares (1994 -- 34,335,000; 1993 -- 34,041,000; 1992 -- 32,941,000). Common equivalent shares assume the exercise of all dilutive stock options. Primary and fully diluted earnings per share are essentially the same. STATEMENT OF CASH FLOWS -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. COSTS IN EXCESS OF NET ASSETS ACQUIRED -- The costs in excess of net assets acquired (goodwill) are being amortized using the straight-line method over a period of 10 to 40 years. The increase in costs in excess of net assets acquired during 1994 was due to seven acquisitions during the year and to contingent consideration made related to prior year acquisitions. Accumulated amortization was $9,346,000 and $6,557,000 at December 31, 1994 and 1993, respectively. FINANCIAL INSTRUMENTS AND RISK CONCENTRATION -- Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash equivalents, billed accounts receivable and unreimbursed costs and fees under cost-plus-fee contracts. The Company's cash equivalents consist principally of U.S. Government securities and Eurodollar accounts with high credit quality financial institutions. Generally, the investments mature within 90 days and therefore are subject to 28 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) minimal risk. Billed accounts receivable and unreimbursed costs and fees under cost-plus-fee contracts result primarily from contracts with the U.S. Government or prime contractors with the U.S. Government and some international customers (principally governments). Contracts involving the U.S. Government do not require collateral or other security. The Company conducts ongoing credit evaluations of domestic non-U.S. Government customers and generally does not require collateral or other security from these customers. Generally international customers are required to furnish letters of credit or make advance payments in amounts sufficient to limit the Company's credit risk to a minimal level. Historically, no significant credit-related losses have been incurred. NOTE B -- RECEIVABLES Accounts Receivable and Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts by major classification are as follows:
(IN THOUSANDS) 1994 1993 -------------------------------------------------------------------------------------------------------- Accounts Receivable Billed: U.S. Government............................................................. $ 98,420 $ 54,305 Commercial and International................................................ 25,169 20,169 Other....................................................................... 10,792 9,790 Accrued recoverable costs and profits (primarily U.S. Government).................................................. 303,824 342,140 ----------- ----------- Total..................................................................... $ 438,205 $ 426,404 ----------- ----------- ----------- ----------- Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts to the U.S. Government: Billed...................................................................... $ 66,261 $ 91,872 Accrued costs and fees (including fee retentions of $8,168 and $7,756, respectively).............................................................. 120,594 115,647 ----------- ----------- Total..................................................................... $ 186,855 $ 207,519 ----------- ----------- ----------- -----------
Accrued recoverable costs and profits and accrued costs and fees under customer contracts represent revenue earned under the percentage-of-completion method but not yet billable under the terms of the contracts. These amounts are billable based on the terms of the contract which include shipments of the product, achievement of milestones or completion of the contract. Substantially all of the accrued recoverable costs and profits and accrued costs and fees at December 31, 1994 are to be billed during 1995. Offset against accrued recoverable costs and profits are unliquidated progress payments of $374,851,000 for 1994 and $470,604,000 for 1993. 29 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE C -- FIXED-PRICE CONTRACTS Cost elements included in Fixed-Price Contracts in Progress are as follows:
(IN THOUSANDS) 1994 1993 ------------------------------------------------------------------------------------------------------- Production costs consisting of material, labor, and overhead: Currently in process........................................................... $ 37,097 $ 31,002 Produced in advance of contractual coverage.................................... 7,732 497 Claim recovery recorded, requests for equitable adjustment and unnegotiated change orders in dispute...................................................... 23,496 10,984 General and administrative costs............................................... 15,578 12,161 --------- --------- $ 83,903 $ 54,644 --------- --------- --------- ---------
Substantially all of the costs incurred in advance of negotiated contracts at December 31, 1994 are expected to receive firm contractual coverage in 1995. NOTE D -- DEBT Long-term debt at December 31 is summarized as follows:
(IN THOUSANDS) 1994 1993 ------------------------------------------------------------------------------------------------------- Line of credit, at 78 percent of the bank's prime rate or 91 percent of the bank's certificate of deposit rate at the Company's option...................... $ -- $ 24,000 Other............................................................................ 13,286 1,994 --------- --------- Total.......................................................................... 13,286 25,994 Less current maturities.......................................................... 9,517 25,256 --------- --------- $ 3,769 $ 738 --------- --------- --------- ---------
As of December 31, 1994, the maturities of long-term debt were as follows: 1995............................................................... $ 9,517 1996............................................................... 704 1997............................................................... 679 1998............................................................... 323 1999............................................................... 323 Thereafter......................................................... 1,740
The Company has one line of credit dated October 19, 1994, with total credit available of $250 million. This credit agreement terminates October 19, 1998. This agreement, with a group of seven banks, provides for a floating interest rate based upon competitive bids from the member banks and repayment terms negotiated at the time of each borrowing. The credit agreement provides for a facility fee of .13 percent of the committed amount and requires that the Company maintain a specified debt to equity ratio. The Company had no borrowings under this line in 1994. The Company has total lines of credit available under short-term borrowing agreements of $110 million of which $9,195,000 and none were borrowed at December 31, 1994 and 1993, respectively. The lines of credit provide for interest at each bank's offered rate at the date of the advance. The short-term average borrowing rate under these lines of credit was 4.9 percent and 6.5 percent in 1994 and 1993, respectively. 30 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE D -- DEBT (CONTINUED) The Company made interest payments in 1994, 1993, and 1992, of $1,613,000, $7,027,000, and $6,817,000, respectively. NOTE E -- INCOME TAXES A reconciliation of the provision for taxes on income to the U.S. statutory rate follows:
(IN THOUSANDS) 1994 1993 1992 ------------------------------------------------------------------------------------------------------ Federal income tax...................... $ 49,591 35% $ 63,096 35% $ 55,240 34% ESOP dividends.......................... (1,847) (1) (1,695) (1) (1,512) (1) Tax settlements......................... (2,804) (2) (1,532) (1) -- -- Effect of tax rate change on net deferred tax assets................................. -- -- (1,857) (1) -- -- Other................................... 1,109 1 397 -- (275) -- -------- ----- -------- ----- -------- ----- $ 46,049 33% $ 58,409 32% $ 53,453 33% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities at December 31, 1994 and 1993 are as follows:
ASSETS 1994 1993 -------------------------------------------------------------- Retiree health care benefits............ $101,612 $103,077 Supplemental executive retirement plan................................... 8,149 7,569 Pension plan minimum liabilities........ 5,095 7,571 Other................................... 10,799 5,954 -------- -------- Gross Deferred Tax Assets............... $125,655 $124,171 -------- -------- LIABILITIES -------------------------------------------------------------- Depreciation............................ $ 21,441 $ 21,489 Pension................................. 13,778 13,778 Safe harbor lease....................... 7,395 7,963 Other................................... 8,956 13,592 -------- -------- Gross Deferred Tax Liabilities.......... $ 51,570 $ 56,822 -------- -------- Net Asset............................... $ 74,085 $ 67,349 -------- -------- -------- --------
A valuation allowance has not been recorded for the deferred federal income tax benefits as the Company believes it will generate sufficient taxable income in the future to realize all of the recorded benefits. Included in operating costs and expenses are state income and franchise taxes of $6,595,000, $6,688,000, and $6,575,000 in 1994, 1993, and 1992, respectively. The Company made federal income tax payments in 1994, 1993, and 1992 of $53,650,000, $55,450,000, and $62,027,000, respectively. 31 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE F -- ACCRUED LIABILITIES
(IN THOUSANDS) 1994 1993 ------------------------------------------------------------ Accrued liabilities include the following: Compensation.......................... $27,679 $25,162 Advances from customers............... 7,451 1,088 Insurance............................. 9,436 8,559 Taxes, other than income.............. 7,776 8,511 Dividends............................. 10,171 9,269 Other accrued items................... 29,552 20,906 ------- ------- $92,065 $73,495 ------- ------- ------- -------
NOTE G -- STOCKHOLDERS' EQUITY At December 31, 1994, there were 50,000,000 authorized shares of common stock and 185,000 shares of authorized but undesignated preferred stock, par value $20. During 1994, the Board of Directors adopted a Stockholder Rights Plan to distribute under certain circumstances, rights for each outstanding share of the Company's common stock which entitles the shareholder to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock for $130, subject to adjustment. The Rights will be exercisable if an acquiring person or group has acquired 15 percent or more of the Company's common stock or commences a tender offer which would result in beneficial ownership of 15 percent or more of the Company's common stock. The Rights expire on October 17, 2004 and may be redeemed by the Company for $0.01 per right at any time until 10 days following a public announcement that a 15 percent position has been acquired. If a person or group acquires 15 percent or more of the outstanding common stock of the Company without the consent of the Board of Directors, the holder of each Right not owned by the 15 percent or more shareholder would be entitled to purchase, at the Right's then current exercise price, shares of the Company's common stock having a value of twice the Right's then current exercise price. The exercise price is the purchase price times the number of shares of common stock associated with each Right (initially one). In the event the Company is not the surviving corporation in a merger or other business combination, or more than 50 percent of the Company's assets or earnings power is sold or transferred, each holder of a Right will have the right to receive upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. 32 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE G -- STOCKHOLDERS' EQUITY (CONTINUED) Stock option plans, which include both "nonqualified" and incentive stock options, provide for options to be granted to key employees at prices equal to, greater than or less than market value at the date of grant and for terms not to exceed ten years. The options outstanding under the plans expire at various dates through 2004. Information on stock options is as follows:
1994 1993 --------------------------------------------------------------------------------------------- NUMBER NUMBER OF AGGREGATE OF AGGREGATE SHARES PRICES PER SHARE OPTION PRICES SHARES PRICES PER SHARE OPTION PRICES ----------------------------------------------------------------------------------------------------------------------------- Options outstanding at be- ginning of year.............. 2,649,890 $ 24.74 to $46.13 $ 95,248,300 3,133,152 $ 24.75 to $40.25 $ 99,670,400 Options granted............... 74,000 36.75 to 44.25 2,855,100 869,050 39.94 to 46.13 37,698,400 Options exercised............. (202,222) 24.75 to 45.44 (6,411,400) (1,336,949) 24.75 to 40.25 (41,568,000) Options expired or cancelled.................... (40,515) 33.57 to 43.38 (1,432,000) (15,363) 24.75 to 34.00 (552,500) ------------ ------------- --------- ------------- Options oustanding at end of year......................... 2,481,153* $ 24.75 to $46.13 $ 90,260,000 2,649,890 $ 24.75 to $46.13 $ 95,248,300 ------------ ------------- --------- ------------- ------------ ------------- --------- ------------- Shares reserved for future op- tions........................ 63,363* ------------ ------------ Shares exercisable at Decem- ber 31, 1994................. 1,752,661 ------------ ------------ 1992 NUMBER OF AGGREGATE SHARES PRICES PER SHARE OPTION PRICES ------------------------------ Options outstanding at be- ginning of year.............. 3,629,432 $ 18.00 to $40.25 $ 114,403,800 Options granted............... 51,000 32.00 to 37.32 1,854,500 Options exercised............. (498,546) 18.00 to 34.63 (15,038,700) Options expired or cancelled.................... (48,734) 24.75 to 34.00 (1,549,200) ----------- ------------- Options oustanding at end of year......................... 3,133,152 $ 24.75 to $40.25 $ 99,670,400 ----------- ------------- ----------- ------------- Shares reserved for future op- tions........................ Shares exercisable at Decem- ber 31, 1994................. * Total common shares reserved for exercise of stock options at December 31, 1994 were 2,544,516.
NOTE H -- LEASE COMMITMENTS Certain plant facilities are leased under agreements expiring at various dates through 2017. Substantially all of the leases for plant facilities may be renewed for up to seven years after the initial term of the lease. The capitalized value of leases amounted to $15,140,000 and $17,461,000 at December 31, 1994 and 1993, respectively, and net book value amounted to approximately $8,158,000 and $9,765,000 at December 31, 1994 and 1993, respectively. Future minimum payments as of December 31, 1994 under the capital leases and noncancelable operating leases with initial or remaining terms of one year or more follow:
CAPITAL OPERATING (IN THOUSANDS) LEASES LEASES ------------------------------------------------------------------------------------------------------------------ 1995...................................................................................... $ 1,363 $ 18,890 1996...................................................................................... 1,215 15,722 1997...................................................................................... 1,245 12,593 1998...................................................................................... 1,165 9,982 1999...................................................................................... 1,205 9,292 Thereafter................................................................................ 3,583 44,502 --------- ----------- Total minimum lease payments.............................................................. 9,776 $ 110,981 ----------- ----------- Amounts representing interest............................................................. (2,607) --------- Present value of net minimum lease payments............................................... $ 7,169 --------- ---------
Lease expense on plant facilities, machinery and equipment amounted to $18,380,000, $18,890,000, and $22,616,000 in 1994, 1993, and 1992, respectively. 33 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 1994 NOTE I -- EMPLOYEE BENEFITS The Company has several noncontributory defined benefit pension plans covering substantially all employees. Plans covering salaried and non-union employees provide pension benefits that are based on the highest consecutive 60 months of an employee's compensation. Plans covering employees governed by collective bargaining agreements generally provide pension benefits of stated amounts for each year of service and provide for supplemental benefits for employees who retire with 20 years of service before age 62. The Company's funding policy for all plans is to make annual contributions generally equal to the amounts accrued for pension expense, up to the maximum amount that can be deducted for federal income tax purposes. A summary of the components of net periodic expense for the Company's defined benefit plans and Supplemental Executive Retirement Program (SERP), follows:
(IN THOUSANDS) 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------ Service cost -- benefits earned during this period............................ $ 37,221 $ 31,985 $ 29,655 Interest cost on projected benefit obligation................................. 54,954 48,762 44,015 Actual loss (return) on plan assets........................................... 22,198 (19,027) (8,135) Net amortization and deferral................................................. (66,598) (29,634) (42,644) ---------- ---------- ---------- Net periodic pension expense.................................................. $ 47,775 $ 32,086 $ 22,891 ---------- ---------- ---------- ---------- ---------- ---------- Assumptions used in the accounting for the plans were as follows: ------------------------------------------------------------------------------------------------------------------ Weighted-average discount rate................................................ 8.5% 7.45% 8.25% Rates of increase in compensation levels -- defined benefit plans............. 5.0% 5.75% 5.75% Rates of increase in compensation levels -- SERP.............................. 7.0% 7.0% 7.0% Expected long-term rate of return on assets................................... 10.0% 10.0% 10.0%
The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the Company's defined benefit pension plans, excluding the SERP:
1994 1993 --------------------------------- --------------------------------- ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED (IN THOUSANDS) ASSETS BENEFITS ASSETS BENEFITS ----------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation............... $ (63,742) $ (448,904) $ (68,428) $ (446,254) -------- -------------- -------- -------------- -------- -------------- -------- -------------- Accumulated benefit obligation.......... $ (69,680) $ (480,261) $ (76,626) $ (497,263) -------- -------------- -------- -------------- -------- -------------- -------- -------------- Projected benefit obligation............ $ (71,066) $ (576,217) $ (81,133) $ (644,950) Plan assets at fair value................. 56,050 497,240 60,122 501,410 -------- -------------- -------- -------------- Plan assets less than projected benefit obligation............................... (15,016) (78,977) (21,011) (143,540) Unrecognized net loss..................... 17,383 202,706 25,186 258,796 Prior service cost (credit) not yet recognized in net periodic pension cost..................................... 11,372 (22,908) 13,506 (1,556) Unrecognized net asset at January 1, 1986, net of amortization...................... (7,888) (66,336) (9,202) (77,211) Adjustment to recognize minimum liability................................ (20,132) -- (24,982) -- -------- -------------- -------- -------------- (Accrued) Prepaid Pension Cost............ $ (14,281) $ 34,485 $ (16,503) $ 36,489 -------- -------------- -------- -------------- -------- -------------- -------- --------------
34 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE I -- EMPLOYEE BENEFITS (CONTINUED) Approximately 53 percent of the defined benefit plans' assets at December 31, 1994 are invested in mutual funds, commercial paper, common stocks and other assets, and 47 percent of the plans' assets are invested in real estate. The market value of the Company's common stock held by the plans was $61,380,000 at December 31, 1994. The SERP, which is a nonqualified plan, provides certain officers with defined pension benefits in excess of limits imposed by federal tax laws. See Note K for discussion of the Trust established to fund pension benefits under the SERP. The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the Company's SERP:
(IN THOUSANDS) 1994 1993 ---------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation................................... $(15,284) $(17,767) -------- -------- -------- -------- Accumulated benefit obligation.............................. $(20,640) $(22,515) -------- -------- -------- -------- Projected benefit obligation................................ $(23,397) $(25,449) Unrecognized net loss......................................... 4,131 8,578 Prior service cost not yet recognized in net periodic pension cost......................................................... 520 318 Unrecognized net obligation at January 1, 1986, net of amortization................................................. 2,153 2,512 Adjustment required to recognize minimum liability............ (4,047) (8,474) -------- -------- Net pension liability of the SERP............................. $(20,640) $(22,515) -------- -------- -------- --------
An Employee Stock Ownership Plan (ESOP), which includes substantially all employees, provides for voluntary annual contributions in amounts determined by the Board of Directors. The contributions may be in cash, common stock, securities or other property. The annual contributions are to be at least sufficient to discharge any current obligations of the Employee Stock Ownership Trust. Contributions to the Trust are accrued quarterly and for 1994, 1993, and 1992 were $10,949,000, $11,709,000, and $13,045,000, respectively. Certain subsidiaries sponsor separate 401(k) savings plans which provide for voluntary annual contributions at the discretion of management. Contributions of $6,250,000 $4,202,000, and $2,480,000 were made to the plans in 1994, 1993, and 1992, respectively. During 1987, the Board of Directors approved a retirement policy for its outside directors which provides for post retirement remuneration and death benefits. The expense of the plan is being amortized over the anticipated remaining terms of the directors. NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS Certain health care and life insurance benefits are provided for retired employees. Employees retiring between the ages of 55 and 65 with at least 10 years of service or who age vest under the E-Systems, Inc. Salaried Retirement Plan are eligible for these benefits. Election to participate must be made as of the date of retirement, and the retiree may elect to cover qualifying dependents. If the retiree elects no medical coverage, it may not be added at a later date. Prior to 1992, the costs for providing retiree health care and life insurance benefits were recognized as an expense as claims were paid. In 1992, the company began to recognize the projected future 35 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) cost of providing postretirement benefits, such as health care and life insurance, as an expense during the employee's vesting service. Upon implementation of this change, as of January 1, 1992, an accumulated postretirement benefit obligation (APBO) of $270.5 million was recognized. A summary of the components of net periodic retiree health care and life insurance benefits cost follows:
(IN THOUSANDS) 1994 1993 1992 ----------------------------------------------------------------------------------------------- Service cost......................................................... $ 7,665 $ 6,546 $6,962 Interest cost........................................................ 19,232 21,068 21,931 Actual loss (return) on plan assets.................................. 562 (1,930) -- Net amortization and deferral........................................ (4,499) 1,275 -- ------- ------- ------ Net periodic postretirement benefits cost............................ $22,960 $26,959 $28,893 ------- ------- ------ ------- ------- ------
In 1993, the Company began contributing to a Voluntary Employees' Beneficiary Association trust and a 401(h) trust that will be used to partially fund health care benefits for retirees. Benefits are funded to the extent contributions are tax-deductible, which under current legislation is limited. In general, retiree health care benefits are paid as covered expenses are incurred. Plan assets consist of listed mutual funds, and the expected long-term rate of return on plan assets is 9 percent. The funded status and amounts recognized in the Consolidated Balance Sheets for the company's retiree health care and life insurance plans are:
(IN THOUSANDS) 1994 1993 ----------------------------------------------------------------------------------- Discount Rate.................................................. 8.5% 7.45% Accumulated postretirement benefit obligation (APBO): Retirees....................................................... $178,905 $164,354 Fully eligible active employees................................ 12,740 15,137 Active employees not yet eligible.............................. 74,606 86,655 Less fair value of plan assets................................. (27,605) (13,614) -------- -------- Excess of APBO over assets..................................... 238,646 252,532 Unrecognized prior service cost................................ 12,547 13,383 Unrecognized net gain.......................................... 33,034 24,880 -------- -------- Accrued retiree health care and life insurance benefits liability..................................................... $284,227 $290,795 -------- -------- -------- --------
The health care cost trend rates, used to calculate both net periodic cost and the APBO, are as follows:
COST TREND YEARS ENDING DECEMBER 31 RATES ------------------------------------------------------------------------- 1995-1996......................................................... 7.6% 1997-1998......................................................... 7.7% 1999.............................................................. 7.8% 2000 and beyond................................................... 5.8%
36 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 1994 NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) Increasing the assumed health care cost trend rates by one percentage point in each year would increase the APBO as of December 31, 1994 by $25,352,000 and the net periodic benefit cost for the year ended December 31, 1994 by $3,042,000. NOTE K -- INVESTMENTS A trust was established to fund the payment of pension benefits under the Supplemental Executive Retirement Program (SERP) (See Note I). Trust assets totaled $45,000,000 and $42,134,000 at December 31, 1994 and 1993, respectively, and are included in Deferred Charges and Other. The assets of the Trust are invested at the discretion of the outside trustee, and at December 31, 1994, consisted primarily of listed common stock, convertible securities, and fixed-income investments. The Trust became irrevocable in 1988 subject only to the claims of creditors in the event of insolvency of the Company. In the first quarter of 1994, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" was adopted. This Statement defines the accounting treatment for marketable equity and debt securities by their classification as either held-to-maturity, trading or available-for-sale securities. Trust investments are considered available-for-sale and are stated at fair value, based on quoted market prices as determined by an outside trustee, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. In 1993, the marketable equity securities held by the Trust were carried at the lower of cost or market. At December 31, 1993, the outside trustee estimated the market value of the trust assets to be $46,119,000. Interest, dividends and realized gains and losses of the Trust are included in other income. The cost of securities sold is based on the average cost method. The following is a summary of trust investments at December 31, 1994:
GROSS GROSS UNREALIZED UNREALIZED ESTIMATED (IN THOUSANDS) COST GAINS LOSSES FAIR VALUE ---------------------------------------------------------------------------------------------------------- U.S. corporate securities............................... $ 3,532 $ 21 $ 314 $ 3,239 Other debt securities................................... 18,226 480 404 18,302 --------- ----------- ----------- ----------- Total debt securities............................... 21,758 501 718 21,541 Equity securities....................................... 22,811 2,244 1,596 23,459 --------- ----------- ----------- ----------- $ 44,569 $ 2,745 $ 2,314 $ 45,000 --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
The gross realized gains on sales of available-for-sale securities totaled $1,361,000 and gross realized losses totaled $329,000 for the year-ended December 31, 1994. 37 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE K -- INVESTMENTS (CONTINUED) The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 1994, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
ESTIMATED (IN THOUSANDS) COST FAIR VALUE ----------------------------------------------------------------------------------------------- Due in one to three years.............................................. $ 4,344 $ 4,342 Due after three years.................................................. 17,414 17,199 --------- ----------- 21,758 21,541 Equity securities...................................................... 22,811 23,459 --------- ----------- $ 44,569 $ 45,000 --------- ----------- --------- -----------
NOTE L -- COMMITMENTS AND CONTINGENCIES Changes to procurement regulations in recent years, as well as the Government's drive against "fraud, waste and abuse" in defense procurement systems have increased the complexity and cost of doing business with the Government. Some of these changes have redefined the ability to recover various standard business costs which the Government will not allow, in whole or in part, as the cost of doing business on Government contracts. Other legal and regulatory practices have increased the number of auditors, inspectors general and investigators to the point that the Company, like every other major Government contractor, is the constant subject of audits, investigations and inquiries concerning various aspects of its business practices. The Company regards charges of violation of government procurement regulations as extremely serious and recognizes that such charges could have a material adverse effect on the Company. If the Company is determined to be in noncompliance with any of the applicable laws and regulations, the possibility exists of penalties and debarment or suspension from receiving additional Government contracts. The Company has become aware through press reports of the filing of a civil lawsuit, by a former employee, in the United States District Court for the Southern District of Texas (Galveston), brought under the so-called QUI TAM provisions of the False Claims Act, which permit an individual to bring suit in the name of the Government and share in any recovery received by the Government. This lawsuit is currently under seal while the Justice Department conducts an investigation to determine whether it should intervene in the prosecution of the case. The Company is cooperating in that investigation. Although the Company is unaware of the specific nature of the allegations in the sealed lawsuit, the Company is also unaware of any conduct which it believes would support a QUI TAM recovery under the False Claims Act. The Company is involved in other disagreements which are in the ordinary course of the Company's business activities that are not expected to have a material adverse effect on the Company's financial position. In addition, the Company is involved in certain environmental investigation matters with governmental agencies, and pending or threatened lawsuits and claims of current and former employees alleging various age, race, sex and disability discrimination or retaliatory discharge. Management believes that if there is any impact of the foregoing matters on the Company's financial condition it will not be material. 38 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE L -- COMMITMENTS AND CONTINGENCIES (CONTINUED) In the normal course of its business activities, the Company is required under certain contracts to provide letters of credit which may be drawn down in the event the Company fails to perform under the contracts. At December 31, 1994, letters of credit outstanding amounted to $55.6 million. NOTE M -- SPECIAL CHARGES Special charges reflect adjustments to the net realizable value of investments in several nontraditional business areas such as mass storage, medical technology and others. The charges of $24.5 million as they impacted each business area are as follows: mass storage, $15.6 million; medical technology, $7.1 million; and other areas, $1.8 million. NOTE N -- OPERATIONS BY PRODUCT CATEGORY The Company has five significant product segments. The Reconnaissance and Surveillance category includes strategic systems for intelligence, reconnaissance and surveillance applications and tactical systems relating to electronic countermeasures and jamming and deception devices. The Command, Control and Communications category includes communications equipment and command and control systems which process data for ready analysis and decision making. In the Navigation and Controls category, automatic control products for aircraft, missile steering and tracking systems, and aircraft navigation aids are developed and manufactured. The Company provides maintenance, repair and modification services for aircraft of all types and other maintenance services through its Aircraft Maintenance and Modification product segment. In 1994, a determination was made to remove the Other Products and Services from the Aircraft Maintenance and Modification segment; accordingly, the segment information for 1993 and 1992 has been reclassified to conform to the 1994 presentation. Included in the Other Products and Services category is the mass storage and retrieval product line (EMASS), medical technology capabilities, data handling, depot maintenance and language processing capabilities. Also included is the Company's transportation technology business which provides for real-time location and status of mass transit vehicles. Product category information is reported herein by product type since each category involves several divisions. There are no sales between product categories. Identifiable assets by product category include both assets specifically identified with those operations and an allocable share of jointly used assets. Corporate assets consist primarily of cash, deferred federal income taxes, miscellaneous receivables, investments and fixed assets. Sales to the United States Government from all categories amounted to $1,848,326,000, $1,865,069,000, and $1,867,043,000, in 1994, 1993, and 1992, respectively. International sales which are primarily export sales to foreign governments and from all categories are summarized by geographic area as follows:
(IN THOUSANDS) 1994 1993 1992 ------------------------------------------------------------------------- Middle East............................. $ 20,989 $ 63,610 $ 68,309 Europe.................................. 59,160 76,722 77,129 Australia and Pacific................... 20,156 19,436 22,921 Other regions........................... 28,023 18,990 12,371 -------- -------- -------- $128,328 $178,758 $180,730 -------- -------- -------- -------- -------- --------
39 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 NOTE N -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED) Financial information by product category (in thousands) is summarized as follows:
UNAUDITED DEPRECIATION ------------------------ INCOME AND CAPITAL 1994 BOOKINGS BACKLOG NET SALES BEFORE TAX ASSETS AMORTIZATION EXPENDITURES ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 1,060,557 $ 1,106,724 $ 1,125,025 $ 110,157 $ 630,844 $ 32,515 $ 26,587 Command, Control and Communications.................. 548,993 593,227 385,599 37,005 152,092 8,653 6,397 Navigation and Controls.......... 22,117 82,856 55,000 9,138 40,889 1,966 2,256 Aircraft Maintenance & Modification.................... 760,726 763,364 335,531 18,830 160,432 5,334 4,890 Other Products and Services...... 134,174 85,137 127,145 (21,659) 171,693 3,177 3,168 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 2,526,567 2,631,308 2,028,300 153,471 1,155,950 51,645 43,298 Corporate........................ (9,370) 218,217 3,029 375 Interest expense................. (2,412) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 2,526,567 $ 2,631,308 $ 2,028,300 $ 141,689 $ 1,374,167 $ 54,674 $ 43,673 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ 1993 ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 996,875 $ 1,171,192 $ 1,259,651 $ 110,611 $ 648,277 $ 33,710 $ 33,085 Command, Control and Communications.................. 344,001 429,833 389,852 32,805 160,408 9,992 8,619 Navigation and Controls.......... 30,202 115,739 63,518 14,093 27,344 2,431 1,958 Aircraft Maintenance & Modification.................... 433,328 338,169 300,621 21,081 145,125 4,924 5,127 Other Products and Services...... 106,126 78,108 83,472 2,066 48,135 825 2,856 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 1,910,532 2,133,041 2,097,114 180,656 1,029,289 51,882 51,645 Corporate........................ 5,830 249,884 2,976 441 Interest expense................. (6,211) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 1,910,532 $ 2,133,041 $ 2,097,114 $ 180,275 $ 1,279,173 $ 54,858 $ 52,086 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ 1992 ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 1,144,397 $ 1,433,968 $ 1,379,019 $ 114,339 $ 664,773 $ 34,889 $ 70,571 Command, Control and Communications.................. 407,472 475,684 340,632 26,698 163,852 9,924 11,931 Navigation and Controls.......... 51,810 149,055 57,351 11,673 30,987 2,313 2,038 Aircraft Maintenance & Modification.................... 224,525 205,462 252,841 14,704 117,625 3,683 5,220 Other Products and Services...... 77,115 55,454 65,070 3,322 36,444 223 319 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 1,905,319 2,319,623 2,094,913 170,736 1,013,681 51,032 90,079 Corporate........................ (600) 239,892 2,551 911 Interest expense................. (7,664) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 1,905,319 $ 2,319,623 $ 2,094,913 $ 162,472 $ 1,253,573 $ 53,583 $ 90,990 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------
40 INDEX OF EXHIBITS Securities Exchange Act of 1934 PAGE IN FORM EXHIBIT NO. ITEM 10-K ------------------------------------------------------------------------------ 3(i) Composite Articles of Incorporation as Amended April 21, 1987. X 3(ii) Bylaws as Amended and Restated January 26, 1994. X 4(a) Rights Agreement dated October 7, 1994 between E-Systems, Inc. and Society National Bank, Rights Agent (filed electronically as Exhibit 4 to Form 8A12B on October 12, 1994, incorporated herein by reference). 10(b)* Employment Agreement of A. Lowell Lawson dated September 27, 1989 including Amendment No. One dated January 26, 1994 (filed electronically as Exhibit 10(b) to Annual Report on Form 10-K for the fiscal year ended December 31, 1993, incorporated herein by reference). 10(c)* Employment Agreement of Terry W. Heil dated as of December 19, 1990 including Amendment No. One dated November 22, 1993 and Amendment No. Two dated April 27, 1994. X 10(d)* Employment Agreement of Peter A. Marino dated October 14, 1991 including Amendment No. One dated November 22, 1993 and Amendment No. Two dated April 27, 1994. X 10(e)* Employment Agreement of Brian D. Cullen dated October 14, 1991 including Amendment No. One dated November 22, 1993 and Amendment No. Two dated April 27, 1994. X 10(f)* Employment Agreement of James W. Crowley as Restated June 1, 1982. X 10(g)* Form of Amended and Restated Indemnification Agreement with Officers and Directors X 10(h)* E-Systems, Inc. 1982 Incentive Stock Option Plan, as amended January 24, 1994. X 10(i)* E-Systems, Inc. 1980 Stock Option Plan X 10(j)* Form of Stock Option Agreement X 10(k)* Form of Restricted Stock Award Agreement X 10(l) Lease Agreement between City of Greenville and E-Systems, Inc. dated October 1, 1977, as amended by Amendments No. 1 and 2 dated October 15, 1980; Amendment No. 3 dated October 1, 1981; Amendment No. 4 dated July 15, 1990 and Amendment No. 5 dated December 11, 1990 (filed electronically as Exhibit 10I on Form 10-K for the fiscal year ended December 31, 1993, incorporated herein by reference). PAGE IN FORM EXHIBIT NO. ITEM 10-K ------------------------------------------------------------------------------ 10(m)* Executive Supplemental Retirement Plan effective June 1, 1982, as amended through November 18, 1986 X 10(n)* E-Systems, Inc. 1988 Employee Stock Option Plan, as amended (filed electronically as Exhibit 10(n) on Form 10-K for the fiscal year ended December 31, 1993, incorporated herein by reference). 10(o)* Trust Agreement dated June 23, 1987 between E-Systems, Inc. and AmeriTrust Company, National Association, Trustee, including First Amendment dated September 23, 1987 and Second Amendment dated February 4, 1988 X 10(p)* Trust Agreement dated May 19, 1994 between E-Systems, Inc. and Society National Bank, National Association, Trustee. X 10(q)* E-Systems, Inc. 1995 Directors' Stock Option Plan (filed electronically as Exhibit 1 to the E-Systems, Inc. 1995 Proxy Statement dated March 24, 1995, incorporated herein by reference). 10(r)* 1994 Employee Stock Option Plan (filed electronically as Exhibit 1 to the E-Systems, Inc. 1994 Proxy Statement dated March 25, 1994, incorporated herein by reference). 11 Statement re computation of per share earnings X 21 Subsidiaries of Resgistrant. X 23 Consent of Independent Auditors X 27 Financial Data Schedule X 99 Additional Exhibits (Annual Report on Form 11-K for the fiscal year ended December 31, 1994, for the E-Systems Tax Advantaged Capital Accumulation Plan: to be filed by amendment). _______________________ * Each of these exhibits is a "management contract or compensatory plan, contract, or arrangement". EX-3.(I) 2 COMP. ART. OF INC. CERTIFICATE AUTHORIZING THE FILING OF COMPOSITE CERTIFICATE OF INCORPORATION E-SYSTEMS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY. That the filing and recording of the Composite Certificate of Incorporation of E-SYSTEMS, INC., a true and correct copy of which is attached hereto, was duly authorized by the Company's Board of Directors at a meeting duly called and held on November 24, 1987. IN WITNESS WHEREOF, said E-SYSTEMS, INC. has caused this certificate to be signed by JAMES W. CROWLEY, its Vice President and attested by LUTHER B. TERRY, its Assistant Secretary this 16th day of March, 1988. By: James W. Crowley Vice President ATTEST: By: Luther B. Terry Assistant Secretary COMPOSITE CERTIFICATE OF INCORPORATION OF E-SYSTEMS, INC. FIRST. The name of the corporation is E-SYSTEMS, INC. SECOND. The corporation's principal office in the State of Delaware is located at No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Company, No. 100 West Tenth Street, Wilmington 99, Delaware. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. This corporation is authorized to issue 50,185,000 shares of capital stock. Fifty million (50,000,000) of the authorized shares shall be Common Stock, One Dollar ($1.00) par value each; and One Hundred Eighty-five Thousand (185,000) of the authorized shares shall be preferred stock, Twenty Dollars ($20.00) par value each. Shares of preferred stock may be issued from time to time in one or more series to have such distinctive designation and title as may be fixed by the Board of Directors prior to the issuance of any shares thereof. Each such series shall have such preferences and relative, participating, optional or other special rights, with such qualifications, limitations, or restrictions of such preferences and/or rights as shall be stated in the resolution or resolutions providing for the issue of such series of preferred stock, as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof, in accordance with the laws of the State of Delaware. Each share of any series of preferred stock shall be identical with all other shares of such series, except as to the date from which accumulated preferred dividends, if any, shall be cumulative. FIFTH. Cumulative voting for the election of directors shall not be permitted. SIXTH. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000). SEVENTH. The names and places of residence of the incorporators are as follows: Names Residences A. D. Atwell Wilmington, Delaware F. J. Obara, Jr. Wilmington, Delaware A. D. Grier Wilmington, Delaware EIGHTH: The corporation is to have perpetual existence. NINTH. The private property of the stockholders shall not be subject to the payment of the corporate debts or any extent whatever. TENTH. The following provisions are adopted for the management of the business and for the conduct of the affairs of the corporation, and for creating, defining, limiting and regulating the powers of the corporation, its directors, and stockholders: (a) The business of the corporation shall be managed by its Board of Directors and the Board of Directors shall have power to exercise all the powers of the corporation, including (but without limiting the generality hereof)the power to create mortgages upon the whole or any part of the property of the corporation, real or personal, without any action of or by the stockholders, except as otherwise provided by statute or by the By-Laws. (b) The number of directors which shall constitute the whole Board of Directors shall be such as is from time to time fixed in the manner provided in the By-Laws, but in no case shall the number be less than three (3). (c) (1) The directors (other than any directors which may be elected by the class vote of any series of the preferred stock of the corporation pursuant to the terms thereof, which directors shall be elected at the time and serve for the term specified in the resolutions providing for the issue of such series of preferred stock) shall be divided into three classes, each consisting of one-third of such directors as nearly as may be. (2) At the annual meeting of stockholders in 1972, one class of such directors shall be elected for a one- year term, one class for a two-year term and one class for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires in that year shall be elected for a three-year term. If the number of such directors is changed, any increase or decrease in such directors shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible, and any additional director to any class shall hold office for a term which shall coincide with the term of such class. (3) A director shall hold office until the annual meeting for the year in which his term expires or his successor is elected and qualified; subject however, to prior resignation, death or removal of any director, the term of his successor shall be the same term as that of the director who has so resigned, died or been removed. At each election the persons receiving the greatest number of votes shall be the directors. (d) The Board of Directors shall have power to make, alter or repeal By-Laws, subject to such restrictions upon the exercise of such power as may be imposed by the stockholders in any By-Laws adopted by them from time to time. (e) The Board of Directors shall have power in its discretion to fix, determine, and vary form time to time the amount to be retained as surplus, and the amount or amounts to be set apart out of any of the funds of the corporation available for dividends, as working capital, or a reserve or reserves for any proper purpose, and to abolish any such reserve in the manner in which it was created. (f) The Board of Directors shall have power in its discretion from time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the books and accounts of the corporation, or any of them, other than the stock ledger shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by law or authorized by resolution of the directors of the stockholders. (g) Upon any sale, exchange or other disposal of the property and/or assets of the corporation, payment therefore may be made either to the corporation or directly to the stockholders in proportion to their interests, upon the surrender of their respective stock certificates, or otherwise, as the Board of Directors may determine. (h) The Board of Directors shall have the power, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors, to appoint one or more committees, including, but not limited to, an executive committee, each committee to consist of two or more of the directors of the corporation. Any such committee or committees, to the extent provided in the resolution or in the By-Laws or in the laws of the State of Delaware and subject thereto, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation. (i) A special meeting of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. (j) Notice of each meeting of stockholders, whether annual or special, shall, at least ten days before the day on which the meeting is to be held, be given to each stockholder of record entitled to vote by delivering a written or printed notice thereof to him personally, or by mailing such notice in a postage paid envelope addressed to him at his address as it appears on the stock books of the corporation; provided, that no notice of any character of any meeting of stockholders need be given to any stockholder to whom the delivery, mailing or other giving of such notice would be unlawful (either absolutely or without official license or consent) pursuant to the provisions of any law of the United States or any rule, regulation, proclamation or executive order issued pursuant thereto. Except as otherwise required by statute, no publication of any notice of a meeting of stockholders shall be required. Every notice of a special meeting of stockholders, besides stating the time and place of the meeting, shall state briefly the purposes thereof. (k) (1) Except as otherwise provided in this certificate of incorporation, the affirmative vote of the holders of at least a majority of the outstanding capital stock of the corporation entitled to vote shall be required to authorize, adopt or approve any of the following: A. The merger or consolidation of this corporation with or into any other corporation or corporations organized under the laws of the State of Delaware or any other state or country in the manner now or hereafter permitted by law, except to the extent the vote of the stockholders is not required under Sections 251 (f), 252 (e) or 253 of the General Corporation Law of the State of Delaware or similar provisions of any succeeding legislation; or B. The sale, exchange, lease, transfer or other disposition of all or substantially all the property or assets of this corporation including its good will in a manner now or hereafter permitted by law, and in connection therewith the winding up of its affairs and its dissolution. (2) The affirmative vote of the holders of at least 80% of the outstanding capital stock of the corporation entitled to vote shall be required to authorize, adopt or approve any of the following: A. The sale, exchange, lease, transfer or other disposition by the corporation of all or substantially all of its property or assets to a related corporation or an affiliate of a related corporation; or B. The consolidation of the corporation or its merger with or into a related corporation or an affiliate of a related corporation; or C. The merger into the corporation of a related corporation or an affiliate of a related corporation; or D. Any issuance or delivery of capital stock or other securities of the corporation in exchange or payment for any properties or assets of any related corporation or any affiliate of a related corporation in a transaction for which the approval of stockholders of the corporation is required by law or by any agreement between the corporation and any national securities exchange; or E. An agreement, contract or other arrangement with a related corporation providing for any of the transactions described in the foregoing clauses of this paragraph (2). For the purpose of this paragraph (k), a 'related corporation' in respect of a given transaction shall mean any corporation (other than the corporation) which, together with affiliated and associated persons, owns of record or beneficially, directly or indirectly, shares of the corporation representing more than 5% of the total voting power of outstanding capital stock entitled to vote upon such transaction as of the record date used to determine the stockholders of the corporation entitled to vote on such transaction; an 'affiliate' of a related corporation shall mean any individual, joint venture, trust, partnership or corporation which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the related corporation; and an 'associated person' of a related corporation shall mean any officer or director or any beneficial owner directly or indirectly of 10% or more of any class of equity security of such related corporation or any affiliate. The determination of the Board of Directors of the corporation, based on information known to the Board of Directors and made in good faith, shall be conclusive as to whether any corporation is a related corporation as defined in this paragraph (k). (1) No action of the holders of the Common Stock of the corporation may be taken by consent in lieu of a meeting. ELEVENTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code, or the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders, or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. TWELFTH. No contract or other transaction between the corporation and any other corporation, firm or invididual shall be affected or invalidated by the fact that any one or more of the directors or officers of this corporation is or are interested in or is a director or officer of such other corporation, or a member of such firm, and any director or officer, individually or jointly, may be a party to or may be interested in any contract, or transaction, of this corporation or in which this corporation is interested, and no contract, act or transaction of this corporation with any person or persons, firms for corporations, shall be affected or invalidated by the fact that any director or officer of this corporation is a party to or interested in such contract, act or transaction, or in any way connected with such person or persons, firms or corporations, and each and every person who may become a director or officer of this corporation is hereby relieved from any liability that might otherwise exist from contracting with the corporation for the benefit of himself or any firm or corporation in which he may be in anywise interested. THIRTEENTH. Meetings of stockholders may be held outside the State of Delaware, if the By-Laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws. Elections of directors need not be by ballot unless the By-Laws shall so provide. FOURTEENTH. To the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect, no Director of the corporation shall be personally liable to the corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a Director of the corporation. No amendment to or repeal of this Article Fourteenth shall apply to or have any effect on the liability or alleged liability of any Director of the corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment. FIFTEENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. We, the undersigned, being each of the incorporators hereinbefore named, for the purposed of forming a corporation pursuant to the General Corporation law of the State of Delaware, do make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set our hands and seals this 28th day of December, A.D. 1964. A. D. ATWELL (L.S.) F. J. OBARA, JR (L.S.) A. D. GRIER (L.S.) STATE OF DELAWARE ) ) COUNTY OF NEW CASTLE ) BE IT REMEMBERED that on this 28th day of December, 1964, personally came before me, a Notary Public for the State of Delaware, A. D. Atwell, F. J. Obara, Jr. and A. D. Grier, all of the parties to the foregoing certificate of incorporation, known to me personally to be such, and severally acknowledged the said certificate to be the act and deed of the signers respectively and that the facts therein stated are truly set forth. GIVEN UNDER MY HAND AND SEAL of office the day and HOWARD K. WEBB NOTARY PUBLIC APPOINTED JUNE 27, 1964 STATE OF DELAWARE TERM 2 YEARS HOWARD K. WEBB Notary Public EX-3.(II) 3 BYLAWS (AMENDED) AS AMENDED AND RESTATED JANUARY 26, 1994 BYLAWS OF E-SYSTEMS, INC. ARTICLE I OFFICES Section 1. The principal office shall be in the city of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Annual or special meetings of the stockholders shall be held at such place within the United States of America as may be fixed by the board of directors, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held such day and at such time as may be fixed by the board of directors at which they shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting shall be given to each stockholder entitled to vote thereat at least ten days before the date of the meeting. Section 4. A complete list of the stockholders entitled to vote at any election of directors, arranged in alphabetical order and showing the address of each stockholder and the number of voting shares held by each, shall be prepared by the officer in charge of the stock ledger and shall be filed at the place where the election is to be held or at another place within the city, town or village where the election is to be held (which place, if other than the meeting place, shall be specified in the notice of the meeting) at least ten (10) days before such election and shall at all times prior to the election during the usual hours for business, and during the whole time of said election, be open to examination and inspection of any stockholder. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman of the Board or by the Chief Executive Officer or the President and shall be called by the Chief Executive Officer, the President or the Secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting of stockholders, stating the time, place and object thereof, shall be given to each stockholder entitled to vote thereat, at least ten days before the date fixed for the meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period; and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election of directors. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the certificate of incorporation, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken. ARTICLE III DIRECTORS Section 1. The number of directors shall be the number fixed from time to time by resolutions of the board of directors; provided that the number shall be not less than three (3) nor more than fifteen (15). Unless otherwise provided in the certificate of incorporation, the directors shall be elected annually and each director shall continue in office until a successor shall have been elected and qualified, or until death, or until he or she shall resign, or shall have been removed for adequate cause. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum; and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. Section 3. The business of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 4. There shall be the position of "Chairman Emeritus" of the board of directors, which shall be an honorary title which is bestowed on such person or persons as the board may from time to time designate and shall carry with it such rights, privileges, and perquisites as the board may establish. MEETINGS OF THE BOARD OF DIRECTORS Section 5. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. The first meeting of each newly elected board of directors shall be held immediately following the meeting of stockholders at which such directors were elected, or be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held immediately following the annual meeting, or at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 7. Regular meetings of the board of directors shall be held without special notice at such time and at such place as shall from time to time be determined by the board. Section 8. Special meetings of the board of directors may be called by the Chairman of the Board or by the President, or, on the written request of two directors, by the Secretary on twenty-four hours' notice to each director either personally or by mail or telegram. Section 9. At any stated or special meeting of the board of directors a majority of the directors at the time in office (but not less than one-third of the whole board) shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors except as may be otherwise specifically provided by statute or by the certificate of incorporation. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. No notice of any adjourned meeting need be given. COMMITTEES OF DIRECTORS Section 10. The board of directors may, by resolution adopted by affirmative vote of a majority of the whole board, appoint one or more committees, including, but not limited to, an executive committee, each committee to consist of two or more of the directors of the corporation. At any meeting of the committees a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee. Any such committee or committees, other than the executive committee, appointed by the board of directors shall have and may exercise only the power of recommending action to the board of directors and of carrying out and implementing any instructions or any policies, plans and programs theretofore approved and adopted by the board of directors. The executive committee shall, during the intervals between meetings of the board of directors, have and may exercise all of the powers of the board of directors in the management of the business and affairs of the corporation, including the election or appointment of officers of the corporation (other than the President, Secretary and Treasurer), the declaration of dividends upon the capital stock of the corporation subject to the provisions of these Bylaws, and may authorize the seal of the corporation be affixed to all papers which may require it; provided, however, that the executive committee may not rescind any action previously taken by the board of directors. Meetings of the executive committee may be called and notices given in the same manner as calling and giving notice of special meetings of the board of directors. Section 11. The committee shall keep regular minutes of their proceedings and report the same to the board of directors, when required. COMPENSATION OF DIRECTORS Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may, if authorized by the board of directors, be paid a fixed sum for attendance at each meeting of the board of directors, a stated salary as a director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 13. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the board or committees. ARTICLE IV NOTICES Section 1. Notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed given at the time when the same shall be mailed. Notice to directors may also be given personally and by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The elected officers of the corporation shall be a Chairman of the Board, a Chief Executive Officer (each of whom shall be a director), a President and one or more Vice Presidents, with or without such descriptive titles and designations as the board of directors shall deem appropriate, a Vice President - Finance and Chief Financial Officer, a Vice President - Financial Operations, a Treasurer, and a Secretary. The board of directors by resolution may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents as from time to time may appear to be necessary or advisable in the conduct of the affairs of the corporation. Any two or more offices may be held by the same person except as noted herein the Chairman of the Board, Chief Executive Officer or President shall not hold the office of Secretary; and the offices of Treasurer and Vice President - Financial Operations may not be held by the same person. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall elect and appoint the officers to fill the positions designated in Section 1 of this Article V. Section 3. The salaries of all elected officers of the corporation shall be fixed by the board of directors. Section 4. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the board of directors. CHAIRMAN OF THE BOARD Section 5. The Chairman of the Board shall preside at all meetings of stockholders, except as otherwise may be provided by statute, and at all meetings of the board of directors. The Chairman of the Board shall perform such other duties as the board of directors may from time to time designate. CHIEF EXECUTIVE OFFICER Section 6. The Chief Executive Officer shall be the chief executive officer of the corporation, and, subject to the provisions of these Bylaws, shall be responsible for general management of the affairs of the corporation. The Chief Executive Officer shall preside in the absence of the Chairman of the Board at all meetings of stockholders, except as otherwise be provided by statute, and at all meetings of the board of directors. The Chief Executive Officer shall have general authority to execute all bonds, deeds, contracts, agreements and instruments in the name of the corporation and to cause the corporate seal to be affixed thereto; and to delegate any such authority to any other elected officer of the corporation. The Chief Executive Officer shall have general authority to cause the employment or appointment of employees and agents of the corporation and to fix their compensation; and to remove or suspend any employee or agent who shall have been employed or appointed pursuant to this authority or under authority of an officer subordinate to the Chief Executive Officer. The Chief Executive Officer shall direct and supervise the corporate staff, including corporate staff officers, who shall report to the Chief Executive Officer; and shall have the power to remove or suspend for cause any subordinate officer to the Chief Executive Officer, pending final action by the authority which elected or appointed such officer. In general, the Chief Executive Officer is authorized to exercise all powers usually appertaining to the office of the chief executive of a corporation under applicable corporate law; and shall be primarily responsible for implementing the policy of the board of directors towards achieving objectives established for growth, profitability, corporate conduct and image. In the absence of the Chief Executive Officer, such duties shall be performed and such powers may be exercised by the President, or by such other officer as the Chief Executive Officer may designate in writing, subject to review and superseding action by the board of directors. PRESIDENT Section 7. The President shall be the chief operating officer of the corporation and, subject to the general supervision and direction of the Chairman of the Board and Chief Executive Officer, shall be responsible for the business and operations of the corporation. The President shall have authority to execute contracts, agreements and instruments in the name of the corporation in the ordinary course of business and to cause the corporate seal to be affixed thereto; and to delegate any such authority to any subordinate elected officer of the corporation. The President shall have general authority to cause the employment of employees and agents for the business and operations of the corporation and to fix their compensation and to remove or suspend any employee or agent who shall have been employed under the President's authority or under authority of a subordinate officer. The President shall direct and supervise the operating officers and group executives, who shall report to the President; and shall have the power to remove or suspend for cause any subordinate officer pending final action by the authority which elected or appointed such officer. In general, the President is authorized to exercise all powers usually necessary to conduct the everyday business and operations of the corporation towards achieving corporate goals and objectives. In the absence of the President, the duties and powers of the office shall be performed and be exercised by such other officer as the President shall designate in writing, subject to review and superseding action by the Chief Executive Officer or the board of directors. VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER Section 8. The Vice President - Finance and Chief Financial Officer shall be chief accounting and financial officer of the corporation and shall have active control of and shall be responsible for all matters pertaining to the accounts and finances of the corporation; and all decisions affecting either accounts or finances shall be subject to approval or concurrence by this officer. The Vice President - Finance and Chief Financial Officer shall be responsible for maintaining liaison with all government and other regulatory bodies and shall establish comprehensive budget and cost control programs; internal audit and operational analysis of overhead functions and approve all major financial aspects of all contractual arrangements. The Vice President - Finance and Chief Financial Officer shall be responsible for all financial planning for the corporation on both a long-term and short-term basis and the disposition of investments held by the corporation as authorized by the board of directors or executive committee. The Vice President - Finance and Chief Financial Officer shall direct the Treasurer and the Vice President - Financial Operations in the performance of their duties. The Vice President - Finance and Chief Financial Officer shall audit all payrolls and vouchers of the corporation and shall direct the manner of certifying the same; shall supervise the manner of keeping all vouchers for payment by the corporation and all other documents relating to such payment; shall receive, audit and consolidate all operating and financial statements of the corporation and its various subsidiaries and divisions and shall have supervision of the books of account of the corporation, its various subsidiaries and divisions, their arrangement and classification; shall supervise the accounting and auditing practices of the corporation, and shall have charge of all matters relating to insurance and taxation. The Vice President - Finance and Chief Financial Officer may assign to the Treasurer and the Vice President - Financial Operations or to one or more Assistant Treasurers and Assistant Controllers such duties as may be deemed necessary or advisable. VICE PRESIDENTS Section 9. The several Vice Presidents shall perform duties and services as shall be assigned to or required of them from time to time by the board of directors or the officer to whom they report. Except as otherwise provided in these Bylaws, the staff Vice Presidents shall report to and be under the supervision and direction of the Chief Executive Officer, and the operating Vice Presidents (including group executives) shall report to and be under the supervision and direction of the President. Each Vice President shall have authority to execute contracts, agreements and instruments in the name of the corporation in the ordinary course of business and to cause the corporate seal to be affixed thereto, subject to such limitations or restrictions as the officer to whom such Vice President reports may direct. SECRETARY AND ASSISTANT SECRETARIES Section 10. The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all proceedings of the meetings of the stockholders of the corporation and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the board of directors. The Secretary shall be under the supervision of the Chairman of the Board and the Chief Executive Officer and shall perform such other duties as may be prescribed by either the Chairman of the Board or the Chief Executive Officer. The Secretary shall have charge of the seal of the corporation and have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the Secretary's signature or by the signature of the Treasurer or an Assistant Secretary, which may be facsimile. The Secretary shall keep and account for all books, documents, papers and records of the corporation except those for which some other officer or agent is properly accountable. The Secretary shall have authority to sign stock certificates, and shall generally perform all the duties usually appertaining to the office of the secretary of a corporation. Assistant Secretaries in the order of their seniority, unless otherwise determined by the board of directors, shall assist the Secretary, and in the absence or disability of the Secretary perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. TREASURER AND ASSISTANT TREASURERS Section 11. Under the general direction of the Vice President - Finance and Chief Financial Officer of the corporation, the Treasurer shall be responsible for all matters pertaining to the finances of the corporation and its subsidiaries. The Treasurer shall have charge of all matters pertaining to taxation and insurance. The Treasurer shall have the care and custody of all monies, funds and securities of the corporation and shall deposit all monies and other valuable effects in the name of and to the credit of the corporation in such depositories as may be designated by the board of directors. The Treasurer shall cause to be recorded a statement of all receipts and disbursements of the corporation in order that proper entries may be made in the books of account. The Treasurer shall have the power to sign stock certificates, to endorse for deposit or collection, or otherwise, all checks, drafts, notes, bills of exchange, or other commercial paper payable to the corporation, and to give proper receipts or discharges for all payments to the corporation. The Treasurer shall be responsible for all terms of credit granted by the corporation and for the collection of all its accounts. The Treasurer shall perform such other duties as may be prescribed by the Vice President - Finance and Chief Financial Officer. If required by the board of directors, the Treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office and for the restoration to the corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under control of the Treasurer belonging to the corporation. In the absence of disability of the Treasurer, the duties of the office shall be performed by an Assistant Treasurer or other designated person. VICE PRESIDENT - FINANCIAL OPERATIONS Section 12. Under the general direction of the Vice President - Finance and Chief Financial Officer, the Vice President - Financial Operations shall be responsible for all matters pertaining to the accounts of the corporation, its subsidiaries and divisions, with the supervision of the books of account, their installation, arrangement, and classification. The Vice President - Financial Operations shall maintain adequate records of all assets, liabilities, and transactions; shall audit all payrolls and vouchers for payment by the corporation and all documents pertaining to such vouchers; coordinate the efforts of the company's independent public accountants in its external audit program; receive, review, and consolidate all operating and financial statements of the corporation and its various departments and subsidiaries; and prepare financial statements, reports and analyses; supervising the accounting practices of the corporation and of each subsidiary and division of the corporation, and prescribing the duties and powers of the chief accounting personnel of the subsidiaries and divisions. The Vice President - Financial Operations shall cause to be maintained an adequate system of financial control through a program of budgets, financial planning and interpretive reports; and shall initiate and enforce measures and procedures whereby the business of the corporation and its subsidiaries and divisions shall be conducted with the maximum integrity, efficiency, and economy. The Vice President - Financial Operations shall perform such other duties as may be prescribed by the Vice President - Finance and Chief Financial Officer. ASSISTANT CONTROLLERS Section 13. One or more Assistant Controllers may be designated to perform such functions under the supervision of the Vice President - Financial Operations as may be delegated or prescribed; and in the absence or disability of the Vice President - Financial Operations, the duties of such office shall be performed by the Assistant Controllers, in order of their seniority, unless otherwise determined by the Board of Directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS Section 1. Each person who is or was or had agreed to become a director or officer of the corporation, or each such person who is or was serving or had agreed to serve at the request of the board of directors or an officer of the corporation as an employee or agent of the corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality or effect of the foregoing, the corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article. No amendment or repeal of this Article VI shall apply to or have any effect on the right to indemnity permitted or authorized hereunder for or with respect to claims asserted before or after such amendment or repeal arising from acts or omissions occurring in whole or in part before the effective date of such amendment or repeal. ARTICLE VII CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chief Executive Officer, the President or Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock, the designation, preferences and relative, participating, optional or other special rights of each class and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of stock; provided, however, except as otherwise provided in Section 194 of the General Corporation Law of Delaware, 1953, in lieu of the foregoing requirements, there may be set forth on the face or the back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or shares thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Where a certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employees, any other signature on the certificate may be a facsimile, engraved, stamped or printed. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. RECORD DATE Section 5. The board of directors shall fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments, a person registered on its books as the owner of shares, and shall not be bound to recognize an equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. STOCK OPTIONS AND AGREEMENTS Section 7. Any stockholder of this corporation may enter into agreements giving to any other stockholder or stockholders or any third party an option to purchase any of his or her stock in the corporation; and such shares of stock shall thereupon be subject to such agreement and transferable only upon proof of compliance therewith; provided, however, that a copy of such agreement be filed with the corporation and reference thereto placed upon the certificates representing said shares of stock. ARTICLE VIII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors or by the executive committee of the board of directors at any regular or special meeting thereof, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation; and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX AMENDMENTS Section 1. These Bylaws may be altered or repealed at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration or repeal be contained in the notice of such special meeting. EX-10.(C) 4 E.A. HEIL EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and TERRY W. HEIL December 19, 1990 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 19th day of December, 1990 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Terry W. Heil (hereinafter referred to as "Employee"). RECITALS WHEREAS, ESY and Employee have previously entered into an Employment Agreement dated as of October 12, 1988, which the parties desire to replace in order to provide for various matters as set forth in this Agreement; WHEREAS, Employee is an executive officer of ESY and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's contributions to the growth and success of ESY during his employment and desires to recognize such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's employment shall continue hereunder through February 24, 1995, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing February 25, 1995, and ending February 24, 2000, unless either the Board of Directors or the Employee shall, not less than 120 days prior to February 25, 1995, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. An additional automatic renewal period shall extend from February 25, 2000, to February 24, 2003; provided that the first renewal shall have occurred and that neither party has given notice not less than 120 days prior to February 25, 2000, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $275,000, or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (l) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent (55 percent if the Agreement is extended to February 24, 2000, as provided above and Employee retires on or after February 24, 2000; 65 percent if the Agreement is extended to February 24, 2003, as provided above and Employee retires on or after February 24, 2003) of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Employee may retire at any time after February 24, 1998, upon providing the company with reasonable notice. Notwithstanding Section 5.1 of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 10 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(l) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until February 24, 1998, Employee's rights to benefits under the Executive Plan shall become nonforfeitable, and Employee may retire at any time after February 24, 1998, and commence receiving his Normal Retirement Benefit. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after February 24, 1998, at Employee's election. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two- thirds of that amount specified in Section 2(c)(l) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 10, and 19 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence as of the date hereof without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. MITIGATION. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 10 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. INDEMNIFICATION. If an amount paid hereunder is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto, ESY shall pay to Employee an additional amount in cash equal to the amount necessary to cause the aggregate remuneration received by Employee under this Agreement, including such additional cash payment (net of all federal, state, and local income taxes and all taxes payable as the result of the application of Sections 280G and 4999 of the Code or any successor provision thereto) to be equal to the aggregate remuneration Employee would have received under this Agreement, excluding such additional payment (net of all federal, state, and local income taxes), as if Sections 280G and 4999 (and any successors thereto) had not been enacted into law. 10. (a) TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); and any such act shall have been materially harmful to ESY; provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. (b) EFFECT ON PRIOR VESTED BENEFITS. It is specifically agreed that, although restated herein, all the Vested Benefits under the Prior Agreement shall remain fully vested and that termination of this Agreement for "Cause" or otherwise shall in no way abrogate ESY's obligation to pay or furnish the Vested Benefits. This Employment Agreement shall increase or enhance and not reduce the benefits available to Employee under the Prior Agreement. 11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 12. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 13. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 13. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 13, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 14. REMEDIES CUMULATIVE. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 15. SEVERABILITY. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 16. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 17. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 18. NOTICE. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 19. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley By: E. Gene Keiffer Secretary Chairman of the Board and Chief Executive Officer EMPLOYEE: Terry W. Heil AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Terry W. Heil dated December 19, 1990 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing on February 24, 1998 (or at retirement if later), equal to 50 percent (55 percent if the Agreement is extended to February 24, 2000, as provided above and Employee retires on or after February 24, 2000; 65 percent if the Agreement is extended to February 24, 2003, as provided above and Employee retires on or after February 24, 2003) of "Average Monthly Compensation". Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable, and Employee may retire at any time thereafter, and after February 24, 1998, commence receiving his Normal Retirement Benefit. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after February 24, 1998, at Employee's election. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley A. Lowell Lawson Secretary President (CORPORATE SEAL) Employee: AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT DATED AS OF DECEMBER 19, 1990 BETWEEN E-SYSTEMS, INC. AND TERRY W. HEIL In consideration of the mutual promises herein contained, the Employment Agreement dated as of December 19, 1990, between E- Systems, Inc. and Dr. Terry W. Heil is hereby amended as follows: E-Systems, Inc. and Dr. Terry W. Heil agree that the automatic extension from February 25, 1995, and ending February 24, 2000, is to take effect and neither party shall exercise its right to notify the other that the Agreement shall not be so extended. IN WITNESS WHEREOF, the parties have caused this Amendment No. Two to the Agreement dated as of December 19, 1990, as of this 27th day of April, 1994. ATTEST: E-SYSTEMS, INC. James W. Crowley, Secretary A. Lowell Lawson Chief Executive Officer and President EMPLOYEE: Terry W. Heil EX-10.(D) 5 E.A.-MARINO EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and PETER A. MARINO OCTOBER 14, 1991 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 14th day of October 1991 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Peter A. Marino (hereinafter referred to as "Employee"). RECITALS WHEREAS, Employee is willing to serve as an executive officer of ESY and has the education, background and experience to make major contributions to the profitability, growth and business of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to contribute to the growth and success of ESY during his employment and desires to reward such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's employment shall continue hereunder through October 14, 1996, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing October 14, 1996, and ending October 14, 2001, unless either the Board of Directors or the Employee shall, not less than 120 days prior to October 14, 1996, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. Two additional automatic renewal periods shall extend from October 14, 2001 to February 3, 2004 and February 3, 2004 to February 3, 2007, respectively; provided that each prior renewal shall have occurred and that neither party has given notice not less than 120 days prior to February 3, 2001 and February 3, 2004, respectively, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $275,000, or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent of his Average Monthly Compensation, but without reduction as specified in Section 6.1(a) of the Executive Supplemental Retirement Plan ("Executive Plan") for less than 10 years' vesting. If the Agreement is not extended beyond February 3, 2001, and the employee retires on or after his "Normal Retirement Date", the "Normal Retirement Benefit" shall be 50 percent. If the Agreement is extended to February 3, 2004, as provided above and Employee retires on or after February 3, 2004, the "Normal Retirement Benefit" shall be 55 percent; and 65 percent if the Agreement is extended to February 3, 2007, as provided above and Employee retires on or after February 3, 2007. "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Notwithstanding Section 5.1 of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 9 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(1) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until October 14, 1996, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after the "Normal Retirement Date" as defined in the Executive Plan. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two-thirds of the applicable amount specified in Section 2(c)(1) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9, and 18 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence specified in Schedule 1 attached without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. MITIGATION. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY or any prior employment; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); provided that any such act or acts must have been materially harmful to ESY; and further provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in material harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. 10. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 12. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 12. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 12, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 14. SEVERABILITY. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 17. NOTICE. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley, Secretary E. Gene Keiffer Chairman of the Board and Chief Executive Officer EMPLOYEE: Peter A. Marino AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Peter A. Marino, dated October 14, 1991 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if later), equal to 50 percent of his Average Monthly Compensation, but without reduction as specified in Section 6.1(a) of the Executive Supplemental Retirement Plan ("Executive Plan") for less than 10 years' vesting. Section 2(c)(1) is also amended by adding the following after the first sentence: "Normal Retirement Date" is defined in the Executive Plan. Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after the "Normal Retirement Date" as defined in the Executive Plan. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley A. Lowell Lawson Secretary President (CORPORATE SEAL) Employee: Peter A. Marino AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT DATED AS OF OCTOBER 14, 1991 BETWEEN E-SYSTEMS, INC. AND PETER A. MARINO In consideration of the mutual promises herein contained, the Employment Agreement dated as of October 14, 1991, between E-Systems, Inc. and Peter A. Marino is hereby amended as follows: E-Systems, Inc. and Mr. Peter A. Marino agree that the automatic extension from October 14, 1996, and ending October 13, 2001, is to take effect and neither party shall exercise its right to notify the other that the Agreement shall not be so extended. IN WITNESS WHEREOF, the parties have caused this Amendment No. Two to the Agreement dated as of October 14, 1991, as of this 27th day of April, 1994. ATTEST: E-SYSTEMS, INC. ___________________________ ________________________________ James W. Crowley, Secretary A. Lowell Lawson Chief Executive Officer and President EMPLOYEE: ________________________________ Peter A. Marino EX-10.(E) 6 E.A.-CULLEN EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and BRIAN D. CULLEN October 14, 1991 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 14th day of October, 1991 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Brian D. Cullen (hereinafter referred to as "Employee"). RECITALS WHEREAS, Employee is an executive officer of ESY and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to contribute to the growth and success of ESY during his employment and desires to reward such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's employment shall continue hereunder through November 8, 1996, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing November 8, 1996, and ending November 8, 2000, unless either the Board of Directors or the Employee shall, not less than 120 days prior to November 8, 2000, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. Two additional automatic renewal periods shall extend from November 8, 2000 to November 8, 2002, and from November 8, 2002 to November 8, 2005, respectively; provided that each prior renewal shall have occurred and that neither party has given notice not less than 120 days prior to November 8, 2000 or November 8, 2002, respectively, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $187,000 or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows:(1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent (55 percent if the Agreement is extended to November 8, 2002, as provided above and Employee retires on or after November 8, 2002; 65 percent if the Agreement is extended to November 8, 2005, as provided above and Employee retires on or after November 8, 2005) of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Notwithstanding Section 5.1 of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 9 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(1) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until November 8, 1996, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available at Employee's "Normal Retirement Date" as defined in the Executive Plan. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two-thirds of the applicable amount specified in Section 2(c)(1) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9, and 18 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence specified in Schedule 1 attached without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. MITIGATION. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY or any prior employment; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); provided that any such act or acts must have been materially harmful to ESY; and further provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in material harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. 10. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 12. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 12. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 12, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 14. SEVERABILITY. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 17. NOTICE. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley, Secretary E. Gene Keiffer Chairman of the Board and Chief Executive Officer EMPLOYEE: Brian D. Cullen AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Brian D. Cullen dated October 14,1991 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if later), equal to 50 percent (55 percent if the Agreement is extended to November 8, 2002, as provided above and Employee retires on or after November 8, 2002; 65 percent if the Agreement is extended to November 8, 2005, as provided above and Employee retires on or after November 8, 2005) of "Average Monthly Compensation". Section 2(c)(1) is also amended by adding the following after the first sentence: "Normal Retirement Date" is defined in the Executive Plan. Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available at Employee's "Normal Retirement Date" as defined in the Executive Plan. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley, Secretary A. Lowell Lawson President (CORPORATE SEAL) Employee: Brian D. Cullen AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT DATED AS OF OCTOBER 14, 1991 BETWEEN E-SYSTEMS, INC. AND BRIAN D. CULLEN In consideration of Mr. Brian D. Cullen being elected Senior Vice President, E-Systems,Inc., effective January 26, 1994, and in further consideration of the mutual promises herein contained, the Employment Agreement dated as of October 14, 1991, between E-Systems, Inc. and Mr. Brian D. Cullen is hereby amended as follows: 1. E-Systems, Inc. and Mr. Brian D. Cullen agree that the automatic extension from November 8, 1996, and ending November 7, 2000, is to take effect and neither party shall exercise its right to notify the other that the Agreement shall not be so extended. 2. Effective January 26, 1994, Exhibit B is amended to specify that the position of Mr. Brian D. Cullen is: Senior Vice President. IN WITNESS WHEREOF, the parties have caused this Amendment No. Two to the Agreement dated as of October 14, 1991, as of this 27th day of April, 1994. ATTEST: E-SYSTEMS, INC. James W. Crowley, Secretary A. Lowell Lawson Chief Executive Officer and President EMPLOYEE: Brian D. Cullen EX-10.(F) 7 E.A.-CROWLEY AMENDED EMPLOYMENT AGREEMENT James W. Crowley Employment Agreement AS RESTATE EFFECTIVE JUNE 1, 1982 This amended Employment Agreement is executed as of the 1st day of June, 1982, between E-Systems, Inc. (hereinafter referred to as "ESY") and James W. Crowley (hereinafter referred to as "Employee"). ESY and Employee have previously entered into an Employment Agreement dated as of the 28th day of June, 1978, which the parties desire to amend by restatement in its entirety in order to provide for various matters as set forth in this amended Employment Agreement. The Employment Agreement, as restated hereby, is referred to as the "Agreement" or "Employment Agreement". ESY desires that Employee agree to continue to serve as a senior executive officer of ESY. Employee is willing to continue to serve as a senior executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him. The Board of Directors of ESY recognizes that employee's contribution to the growth and success of ESY during his employment has been superior and desires to make certain changes in the Agreement in recognition of such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which E-Systems competes for business and executive talent. Esy and Employee in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the effective date of this Agreement and continuing through February 18, 1990, unless Employee retires pursuant to Pragraph 2(c)(3) hereof prior to such date, Employee will devote his full time and efforts to ESY's business and not engage in any activities which would be inconsistent with strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY as the Board of Directors of ESY may from time to time elect him or appoint him. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, except as provided in Paragraph 8, Employee will receive an annual base salary of $145,000, payable in equal monthly installments effective upon this amendment. Employee's annual base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit-sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (1) Upon Employee's retirement, he shall be paid a Normal Retirement Benefit equal to 65% of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit "A" and incorporated in all respects herein. Employee may retire at any time after February 18 1990, upon providing the Board of Directors with reasonable notice. The amounts payable pursuant to this paragraph shall be paid Employee as provided in the Executive Plan. (2) If Employee should die during the Employment Period, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving widow, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to the Employee shall be two-thirds of that amount specified in Paragraph 2(c)(1) above payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this paragraph (c) shall not be funded, and neither Employee nor his surviving widow shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally and presumably permanently prevents Employee from performing the duties required of his position. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties which would involve unreasonable personal hazard nor shall he be assigned duties which would necessitate prolonged absences or changes in the place of his residence without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eyecare coverage equal to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and his Spouse. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time by ESY's Board of Directors for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publiclyheld corporations) which is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer of director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. After retirement or during any period when disability payments are being made hereunder, Employee agrees, without the prior written consent of ESY, not to engage in any consulting services for others or any activities which are directly or indirectly competitive with those of ESY. 5. PARTICIPATION IN BENEFIT PLANS. This Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY, in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount considered advisable. Employee shall have no right, title or interest therein; and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. CHANGE OF CONTROL. For purpose of this Employment Agreement, a "Change of Control" of ESY shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14-A of Regulation 14-A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") or any similar successor rule or regulation; provided that, without limitation, such a Change of Control shall be conclusively deemed to have occurred if (a) any "person" as such term is used in Sections 13(d)(1), 13(d)(3), 14(d)(1), and 14(d)(2) of the Exchange Act and the rules and regulations promulgated thereunder, is or become the beneficial owner, directly or indirectly, of Securities of ESY representing 20% or more of the combined voting power of ESY's then outstanding securities (except for ESY or any Employee Benefit Plan or Trustee or Custodian therefor, now or hereafter established by ESY) or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of ESY cease for any reason to constitute at least a majority thereof, unless the election of each Director who was not a Director at the beginning of such period has been approved in advance by Directors representing at least two-third of the Directors then in office who were Directors at the beginning of the period. A Change of Control by virtue of a change in the ownership of ESY's securities shall be deemed not to have occurred for purposes of this Employment Agreement if such Change of Control occurs as the result of a transaction or series of transactions which is approved by the vote of three quarters of the entire membership of the Board of Directors prior to the time the person acquiring control acquires securities of ESY representing 10% or more of the combined voting power of ESY's then outstanding securities. 8. COMPENSATION AND BENEFITS FOLLOWING A CHANGE OF CONTROL. If a Change of Control shall have occurred, the Employee shall be paid a salary at an annual rate not less than the rate of his Average Aggregate Compensation (as hereinafter defined). All such compensation shall be paid in appropriate installment to conform with the regular payroll payments dates of ESY, but in no event less frequently than once each month. Following a Change of Control the Employee shall be entitled to participate in all of ESY's employee benefit plans and executive perquisites existing prior to the Change of Control, including without limitation any stock option plans, restricted stock awards, Employee Stock Ownership Plans, incentive compensation plans, retirement savings plans, and any other pension and retirement plans, group life insurance, hospitalization, medical, surgical, major medical and dental coverage, sick leave, vacations, holidays, long-term disability, travel accident plans, accidental death and dismemberment plans, and other related fringe benefits as are made or may be made available from time to time to executive employees of ESY, and any perquisites which the Employee has received prior to the date of such Change of Control. 9. AVERAGE AGGREGATE COMPENSATION. Aggregate Average Compensation shall mean the sum of (1) the Employee's salary at the annual rate in effect at the time the Change of Control occurs plus (2) an amount determined by multiplying such annual salary by a fraction, the numerator of which is such Employee's aggregate incentive compensation payments during the three fiscal years preceding the Change of Control and the denominator of which is such Employee's aggregate salary payments during the three fiscal years preceding the Change of Control. 10. TERMINATION. (a) ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis or (ii) conviction of a crime involving moral turpitude, or (iii) the Employee's engaging in business activities or consulting services in violation of paragraph 4 of this agreement. Such termination shall be effected by written notice thereof, delivered by the Company to the Employee and, as except as hereinafter provided shall be effective as of the 30th day after receipt by the Employee of such notice. If, within the 30 day period following the date of receipt of such notice of termination for cause as defined in Paragraph 10(a)(i) above, the Employee shall resume rendering services on substantially a full-time basis, the termination shall not be effective. If, within the 30 day period following the receipt of such notice of termination for cause as defined in Paragraph 10(a)(iii), the Employee shall terminate the activities which are the subject of such notice and to so certify to ESY, the termination shall not be effective. (b) After the occurrence of a Change of Control, this Employment Agreement may be terminated by the Employee upon not less than ten days prior written notice to ESY because of the breach by ESY of its obligations hereunder. In the event the Employee terminates this agreement because of a breach by ESY of its obligations hereunder, although the Employment Period will then be terminated, the Employee shall continue to receive all compensation provided for herein for the remainder of the Employment Period and shall be entitled to all the benefits otherwise provided for herein notwithstanding such termination. (c) After the occurrence of a Change of Control, benefits provided under the Executive Plan shall be vested as provided for in Section 5.3 of the Executive Plan. Termination of this Agreement by either party for any reason shall not thereafter affect the benefits provided in the Executive Plan. (d) In the event of termination of this Employment Agreement by the Employee as a result of the breach by ESY of any of its obligations hereunder, or in the event of the termination of the Employee's employment by ESY in breach of this Employment Agreement, the Employee shall not be required to seek or accept other employment in order to mitigate his damages hereunder. (e) In the event that the Employee engages in any legal action involving his rights under, or to receive damages for breach of this Employment Agreement, the Employee, if he is the prevailing party, shall be entitled to recover from ESY any actual expenses for attorneys' fees and disbursements incurred by him in connection with such action. 11. INDEMNIFICATION. After the occurrence of a Change of Control ESY shall throughout the remaining term of this Employment Agreement and thereafter, indemnify the Employee for losses or damages, including without limitation, attorneys' fees and costs, in respect of any actions or omissions as an employee, officer or director of ESY (or any successor pursuant to Paragraph 16 hereof), whether occurring before or after such Change of Control, to the fullest extent permitted by law. 12. REMEDIES. Effective upon the occurrence of a Change of Control ESY waives and will not assert any right to set off the amount of any claims, liabilities, damages or losses ESY may have against any amounts payable by ESY to the Employee hereunder, and any amounts payable to or otherwise accrued for the account of the Employee in respect of any period prior to the effective termination of this Agreement shall be paid as provided for in this Employment Agreement. After the occurrence of a Change of Control, ESY's sole remedy for any asserted violation of any provision of this Employment Agreement shall be to terminate the Employee's employment in accordance with this Employment Agreement. 13. GOVERNING LAW. This Employment Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas. 14. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of the Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 15. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter to deemed for all purposes hereof to be ESY hereunder. This Employment Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of the Employee. (b) This Employment Agreement is personal in nature and neither of the parties hereto shall assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Paragraph 15. 16. AMENDMENTS AND WAIVERS. This Employment Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument execute by both of the parties hereto or in the case of a waiver by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner effect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Employment Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Employment Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written ATTEST: James M. Bolding Assistant Secretary E-SYSTEMS, INC. BY: John W. Dixon Chairman of the Board and Chief Executive Officer "EMPLOYEE" James W. Crowley EX-10.(G) 8 A&R INDEMN. AGMT. FORM OF AMENDED AND RESTATED INDEMNIFICATION AGREEMENT This AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into as of this _____ day of __________________, 19__, by and between E-Systems, Inc., a Delaware corporation (the "Company"), and ______________ , a ________ resident ("Indemnitee"). RECITALS: A. The Company and Indemnitee have previously entered into an Indemnification Agreement dated _ (the "Prior Agreement"). B. Certain court decisions in Delaware have construed the law with respect to indemnification by a Delaware corporation of its officers and directors and expense advances in connection therewith. C. The Company and Indemnitee wish to amend and restate the Prior Agreement to reflect such Delaware court decisions and to amend certain other aspects of the Prior Agreement. D. Competent and experienced persons are reluctant to serve or to continue to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or indemnification (or both) against claims and actions against them arising out of their service to and activities on behalf of those corporations. E. The current uncertainties relating to the availability of adequate insurance for directors and officers have increased the difficulty for corporations to attract and retain competent and experienced persons. F. The Board of Directors of the Company has determined that the continuation of present trends in litigation will make it more difficult to attract and retain competent and experienced persons, that this situation is detrimental to the best interests of the Company's stockholders, and that the Company should act to assure its directors and officers that there will be increased certainty of adequate protection in the future. G. The Certificate of Incorporation of the Company requires the Company to indemnify its directors and officers to the fullest extent permitted by law. H. It is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify its directors and officers to the fullest extent permitted by applicable law in order to induce them to serve or continue to serve the Company. I. Indemnitee is willing to serve, continue to serve, and to take on additional service for or on behalf of the Company on the condition that he be indemnified to the fullest extent permitted by law. J. Concurrently with the execution of this Agreement, Indemnitee is agreeing to serve or to continue to serve as a director or officer of the Company. K. Indemnitee and the Company agree that this document is an amendment and restatement of the Prior Agreement, and the terms and provisions hereof override, as of the date hereof, all of the terms and provisions of the Prior Agreement, with this document being a continuation of the Prior Agreement in an amended form. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee's agreement to serve or continue to serve as a director or officer of the Company, and the covenants contained in this Agreement, the Company and Indemnitee hereby covenant and agree as follows (which covenants and agreements shall amend and restate the Prior Agreement in its entirety): 1. CERTAIN DEFINITIONS: (a) ACQUIRING PERSON: shall mean any Person other than (i) the Company, (ii) any of the Company's Subsidiaries, (iii) any employee benefit plan of the Company or of a Subsidiary of the Company or of a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary of the Company or of a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. Notwithstanding the foregoing, an Acquiring Person shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, (iv) any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (iv) any such Person who has reported or is required to report such ownership (but less than 25%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of 2 such Schedule (other than the disposition of the Common Stock) and, within 10 Business Days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired shares of Common Stock in excess of 14.9% inadvertently or without knowledge of the terms of the Rights and who, together with all Affiliates and Associates, thereafter does not acquire additional shares of Common Stock while the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 Business Days, then such Person shall become an Acquiring Person immediately after such 10 Business Day Period. (b) CHANGE IN CONTROL: shall be deemed to have occurred if: (i) any Acquiring Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company representing fifteen percent or more of the combined voting power of the then outstanding Voting Securities of the Company; or (ii) members of the Incumbent Board cease for any reason to constitute at least a majority of the Board of Directors of the Company; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or partnership (or, if no such approval is required, the consummation of such a merger or consolidation of the Company), other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior to the consummation thereof continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity or of a parent of the surviving entity) eighty percent of the combined voting power of the Voting Securities of the surviving entity (or its parent) outstanding immediately after that merger or consolidation; or (iv) the stockholders 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 the Company's assets (or, if no such approval is required, the consummation of such a liquidation, sale or disposition in one transaction or series of related transactions) other than a liquidation, sale or disposition of all or substantially all the Company's assets in one transaction or a series of related transactions to a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 3 (c) CLAIM: any threatened, pending or complete action, suit or proceeding (including, without limitation, securities laws actions, suits, and proceedings), or any inquiry or investigation (including discovery), whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (d) EXPENSES: all costs, expenses (including attorneys' and expert witnesses' fees), and obligations paid or incurred in connection with investigating, defending (including affirmative defenses and counterclaims), being a witness in, or participating in (including on appeal), or preparing to defend, be a witness in, or participate in, any Claim relating to any Indemnifiable Event. (e) INCUMBENT BOARD: individuals who, as of February 1, 1994, constitute the Board of Directors of the Company and any other individual who becomes a director of the Company after that date and whose election or appointment by the Board of Directors 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. (f) INDEMNIFIABLE EVENT: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. For purposes of this Agreement, the Company agrees that Indemnitee's service on behalf of or with respect to any Subsidiary of the Company shall be deemed to be at the request of the Company. (g) PERSON: shall mean any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust, or other entity. A Person, together with that Person's Affiliates and Associates (as those terms are defined in Rule 12b-2 under the Exchange Act), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Company with such Person, shall be deemed a single "Person." (h) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if (i) the Company enters into an agreement, the 4 consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control; (iii) any Acquiring Person who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the then outstanding Voting Securities of the Company increases his beneficial ownership of such securities by 5% or more over the percentage so owned by that Person on the date hereof; or (iv) the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (i) REVIEWING PARTY: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board (including Special Counsel referred to in Section 3) who is not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) SPECIAL COUNSEL: special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or for Indemnitee within the last three years (other than as Special Counsel under this Agreement or similar agreements). (k) SUBSIDIARY: with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person. (l) VOTING SECURITIES: any securities that vote generally in the election of directors, in the admission of general partners, or in the selection of any other similar governing body. 2. BASIC INDEMNIFICATION AND EXPENSE REIMBURSEMENT ARRANGEMENT. (a) In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than 30 days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties, and amounts paid in settlement (including all interest, assessments, and other charges paid or payable in connection with or in respect of such Expenses, judgment, fines, penalties, or amounts paid in settlement) of or with respect to that Claim. 5 Notwithstanding the foregoing, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which Special Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law. Nothing contained in this Agreement shall require any determination under this Section 2(a) to be made by the Reviewing Party prior to the disposition or conclusion of the Claim against the Indemnitee; provided, however, that Expense Advances shall continue to be made by the Company pursuant to and to the extent required by the provisions of Section 2(b). (b) If so requested by Indemnitee, the Company shall pay any and all Expenses incurred by Indemnitee (or, if applicable, reimburse Indemnitee for any and all Expenses incurred by Indemnitee and previously paid by Indemnitee) within two business days after such request (an "Expense Advance). The Company shall be obligated to make or pay an Expense Advance in advance of the final disposition or conclusion of any Claim. In connection with any request for an Expense Advance, if requested by the Company, Indemnitee or Indemnitee's counsel shall submit an affidavit stating that the Expenses incurred were reasonable. Any dispute as to the reasonableness of any Expense shall not delay an Expense Advance by the Company, and the Company agrees that any such dispute shall be resolved only upon the disposition or conclusion of the underlying Claim against the Indemnitee. If, when, and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be indemnified with respect to a Claim under applicable law, the Company shall be entitled to be reimbursed by Indemnitee and Indemnitee hereby agrees to reimburse the Company without interest (which agreement shall be an unsecured obligation of Indemnitee) for all related Expense Advances theretofore made or paid by the Company; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance, and the Company shall be obligated to continue to make Expense Advances, until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors of the Company. If there has been a Change in Control, the Reviewing Party shall be advised by or shall be Special Counsel referred to in Section 3 hereof, if and as Indemnitee so requests. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any 6 court in the states of Texas or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. 3. CHANGE IN CONTROL. The Company agrees that, if there is a Change in Control and if Indemnitee requests in writing that Special Counsel advise the Reviewing Party or be the Reviewing Party, then the Company shall not deny an indemnification payments (and Expense Advances shall continue to be paid by the Company pursuant to Section 2b)) that Indemnitee requests or demands under this Agreement or any other agreement or law now or hereafter in effect relating to Claims for Indemnifiable Events and not to request or seek reimbursement from Indemnitee of any related Expense Advance unless, with respect to a denied indemnification payment, Special Counsel has rendered its written opinion to the Company and Indemnitee that the Company would not be permitted under applicable law to pay Indemnitee such indemnification payment. The Company agrees to pay the reasonable fees of Special Counsel referred to in this Section 3 and to indemnify fully Special Counsel against any and all expenses (including attorney's fees), claims, liabilities, and damages arising out of or relating to this Agreement or Special Counsel's engagement pursuant hereto. 4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee (the "Trust) and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, and defending any Claim relating to an Indemnifiable Event, and any and all judgments, fines, penalties, and settlement amounts of any and all Claims relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated, or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any situation in which Special Counsel referred to in Section 3 is involved. The terms of the Trust shall provide that, upon a Change in Control, (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of Indemnitee, (ii) the trustee of the Trust shall advance, within two business days of a request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the circumstances in which Indemnitee would be required to reimburse the Company for Expense Advances under Section 2(b) of this Agreement); (iii) the Trust shall continue 7 to be funded by the Company in accordance with the funding obligation set forth above; (iv) the trustee of the Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and (v) all unexpended funds in that Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the Terms of this Agreement. The trustee of the Trust shall be chosen by Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. 5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify Indemnitee against any and all costs and expenses (including attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall (within two business days of that request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification or advance payments of Expenses by the Company under this Agreement or any other agreement or provision of the Company's Certificate of Incorporation or By-laws now or hereafter in effect relating to Claims for Indemnifiable Events or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to that indemnification, advance expense payment, or insurance recovery, as the case may be. 6. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties, and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice. Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 7. CONTRIBUTION (a) CONTRIBUTION PAYMENT. To the extent the indemnification provided for under any provisions of this Agreement is determined (in the manner hereinabove provided) not to be permitted under applicable law, then in the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable event, the Company, in lieu of 8 indemnifying Indemnitee, and to the extent permitted by law, shall contribute to the amount of any and all Expenses, judgments, fines, or penalties assessed against or incurred or paid by Indemnitee on account of that Claim and any and all amounts paid in settlement of that Claim (including all interest, assessments, and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties, or amounts paid in settlement) for which such indemnification is not permitted ("Contribution Amounts"), in such proportion as is appropriate to reflect the relative fault with respect to the Indemnifiable Event giving rise to the Contribution Amounts of Indemnitee, on the one hand, and of the Company and any and all other parties (including officers and directors of the Company other than Indemnitee) who may be at fault with respect to such Indemnifiable Event (collectively, including the Company, the "Third Parties") on the other hand. (b) RELATIVE FAULT. The relative fault of the Third Parties and the Indemnitee shall be determined (i) by reference to the relative fault of Indemnitee as determined by the court or other governmental agency assessing the Contribution Damages or (ii) to the extent such court or other governmental agency does not apportion relative fault, by the Reviewing Party (which shall include Special Counsel) after giving effect to, among other things, the relative intent, knowledge, access to information, and opportunity to prevent or correct the applicable Indemnifiable Event and other relevant equitable considerations of each party. The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does take account of the equitable considerations referred to in this Section 7(b). 8. BURDEN OF PROOF. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified under any provisions of this Agreement (or to receive contribution pursuant to Section 7 of this Agreement), the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. 9. NO PRESUMPTION. For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 10. NON-EXCLUSIVITY. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's By-laws or Certificate of Incorporation or the Delaware General Corporation Law or otherwise. To the extent 9 that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's By- laws or Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by that change. 11. LIABILITY INSURANCE. Except as otherwise agreed to by the Company and Indemnitee in a written agreement, to the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by that policy or those policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 12. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee or Indemnitee's spouse, heirs, executors, or personal or legal representatives after the expiration of three years from the date of accrual of that cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within that three-year period; provided, however, that, if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern. 13. AMENDMENTS. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall that waiver constitute a continuing waiver. 14. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of that payment to all of the rights of recovery on Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure those rights, including the execution of the documents necessary to enable the Company effectively to bring suit to enforce those rights. 15. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation or By-laws, or otherwise) of the amounts otherwise indemnifiable hereunder. 16. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or 10 indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or another enterprises at the Company's request. 17. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, that provision shall be fully severable; this Agreement shall be construed and enforced as if that illegal, invalid, or unenforceable provision has never comprised a part hereof; and the remaining provisions shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of that illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 18. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state without giving effect to the principles of conflicts of laws. 19. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 20. NOTICES. Whenever this Agreement requires or permits notice to be given by one party to the other, such notice must be in writing to be effective and shall be deemed delivered and received by the party to whom it is sent upon actual receipt (by any means) of such notice. Receipt of a notice by any officer of the Company shall be deemed receipt of such notice by the Company. 21. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. EXECUTED as of the date first written above. E-SYSTEMS, INC. 11 A. Lowell Lawson Title: Chairman of the Board and Chief Executive Officer ____________________________ Indemnitee 12 EX-10.(H) 9 1982 INCEN. SOP E-SYSTEMS, INC. 1982 INCENTIVE STOCK OPTION PLAN AS AMENDED JANUARY 24, 1984 This 1982 Incentive Stock Option Plan adopted by the Board of Directors of E-Systems, Inc. on January 27, 1982 and amended by the Board of Directors on January 24, 1984: WITNESSETH: 1. PURPOSE. The Plan is to provide key employees with a proprietary interest in the Company through the granting of options to purchase shares of the Company and the granting of awards of shares of the Company to key employees subject to certain restrictions, as more specifically hereinafter set forth, for the following purposes: (a) to increase the interest in the Company's welfare of those key employees who share primary responsibility for the management, growth and protection of the business of the Company; (b) to furnish an incentive to such employees to continue their services for the Company; and (c) to provide a means through which the Company may attract able persons to enter its employment. 2. ADMINISTRATION. The Plan shall be administered by a Stock Option Committee ("Committee") composed of members of the Board. The Committee, which shall consist of three members unless otherwise set as a greater number by the Board, shall be appointed and vacancies shall be filled by the Board. The Committee shall keep minutes of its activities. 3. PARTICIPANTS. The Committee shall determine from time to time those key employees of the Company or of any subsidiary corporation of the Company to whom options or stock awards are to be granted and the number of shares optioned or granted to each such employee. Such employees upon the grant of options or award of shares to them shall become participants in the Plan. 4. RESTRICTIONS ON ELIGIBILITY. No option shall be granted to or award made to: (a) any director of the Company who is not an employee of the company or a subsidiary corporation; or (b) any person who is the beneficial owner of 10% or more of the voting power of all classes of stock of the Company or a subsidiary corporation; however, the stock ownership limitation will not apply in the case of an "ISO" (as hereinafter defined) if the option price is at least 110% of the fair market value (at the time the option is granted) of the stock subject to the option and the option by its terms is not exercisable more than five years from the date it is granted. 5. SHARES SUBJECT TO THE PLAN. The Committee from time to time may provide for options and awards of common stock under this Plan not in excess of an aggregate of 3,000,000 shares of the Common Stock of the Company. These shares shall be made available from either the authorized but unissued Common Stock of the Company or treasury stock held by the Company. Any shares that by reason of the expiration of an option or otherwise are no longer subject to purchase pursuant to an option granted, or are no longer subject to delivery under an award made, under the Plan may be reoffered under the Plan. 6. ALLOTMENT OF SHARES. The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of options or awards to key employees of the Company or its subsidiary corporations. The selection of an employee as a participant in any grant of options or awards under the Plan shall not be deemed to either entitle such employee to, or to disqualify such employee from, any participation in any other grant of options or awards under the Plan. 7. GRANT OF OPTIONS AND AWARDS. The Committee shall be responsible for and authorized to grant options and awards under the Plan. Grants of options may include Incentive Stock Options as defined in the Economic Recovery Tax Act of 1981 adopted August 13, 1981 ("ISO's"), and non-statutory options, or combinations of both, as the Committee may direct. ISO's shall meet all required terms and conditions set forth in Section 12 hereof in addition to other terms and conditions required or permitted by this Plan. The grant of options and awards shall be evidenced by agreements containing such terms and provisions as are approved by the Committee, but not more favorable than the terms of the Plan. The Company shall execute such agreements upon instruction from the Committee. Stock Appreciation Rights may be granted from time to time with respect to any options granted under the Plan, as an alternative method of exercise of any option. All provisions, terms and conditions of the E-Systems Inc. Stock Appreciation Rights Plan ("SAR Plan") adopted January 30, 1979 and approved and ratified by the stockholders on April 18, 1979 and as amended of even date herewith are incorporated herein by reference. For purposes of such incorporation by reference, the "Stock Option Plan" as defined in the SAR Plan shall be deemed to include this Plan. 8. OPTION AND AWARD PRICE. The price of the common stock with respect to which an option or award is granted pursuant to this Plan shall be determined by the Committee on the date of grant or award. The price at which each option or award is granted may be any price set by the Committee and may be equal to, less than or greater than the fair market value of the stock on the date of grant except as specified in Sections 4(b) and 1 2(b). The Committee shall also determine the fair market value of the stock on the date of grant and shall set forth the determination in its minutes; provided if the stock is listed on a recognized securities exchange, the fair market value will be taken as the reported closing price of the stock on such exchange on the date of grant of the option or award, or if no sale of the stock shall have been reported on such date of grant, on the next preceding day when a sale was reported. 9. STOCK OPTION EXERCISE PERIOD. The option period shall commence on the date the Committee authorizes the grant of an option. The Committee may provide any period of time for exercising an option, provided that no option shall be for a period of more than 10 years from the date of grant of the option by the Committee. The Committee may provide for the exercise of options in installments and upon such terms, conditions and restrictions as may be determined by the Committee. 10. RIGHTS IN EVENT OF DEATH OF OPTIONEE. If a participant dies prior to termination of his or her rights to exercise an option in accordance with the provisions of the stock option agreement without having exercised his or her option as to all shares covered thereby, the option may be exercised to the extent of the shares with respect to which the option could have been exercised on the date of the participant's death by the participant's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the participant, provided the period during which the option may be so exercised shall not continue beyond the earlier of 10 years from the date of grant of the option or such period following the date of the participant's death as the Committee shall specify. 11. SPECIAL PROVISIONS WITH RESPECT TO RESTRICTED STOCK AWARDS. The following special restrictions apply to the award of shares by the Committee: (a) Shares of common stock awarded pursuant to this Plan shall be issued and registered in the name of the employee participant, but the participant may not voluntarily dispose of such award shares prior to the earliest of the following events: (i) the participant's retirement under any retirement plan of the Company or a subsidiary corporation; (ii) the participant's death; (iii) in extraordinary cases, with the consent of the Committee, delivery of such shares to the participant following the participant's termination of employment prior to retirement or death; or (iv) expiration of the period of time specified in the award, not to exceed ten years, during which time the shares are to be held in escrow. (b) The Committee may, but need not, at the time of making of an award or at any subsequent time prior to expiration of the restrictions set forth in subparagraph (a) above, impose additional restrictions on voluntary disposition and release from escrow of the shares awarded pursuant to this Plan, including, without limitation, permitting disposition and release of shares only in installments over a period of years. (c) In order to administer restrictions required or permitted on the release and delivery of award shares to a participant, the certificates evidencing such shares awarded hereunder, although issued in the name of the participant, shall be held in escrow by an escrow agent appointed from time to time by the Company, subject to delivery to the participant or to the Company at such times and in such amounts as shall be directed by the Committee under the terms of this Plan or the agreement of award with the participant. A participant's acceptance of an award of shares pursuant to the Plan shall constitute such participant's irrevocable power of attorney to the escrow agent to cause the transfer and delivery to the Company of any such award shares which the Committee shall direct to be so transferred and delivered pursuant to the provisions of this Plan or of the award agreement with the participant. (d) Unless otherwise provided by the Committee, the voting rights on restricted shares shall belong to each participant with respect to those share awards held in escrow. Dividends, if any, on shares held in escrow shall be paid to each participant unless the Committee provides otherwise at the time of making the award. 12. SPECIAL PROVISIONS WITH RESPECT TO INCENTIVE STOCK OPTIONS. As designated by the Committee any option or part thereof granted pursuant to this plan may be designated as an incentive stock option as defined in the Economic Recovery Tax Act of 1981 adopted August 13, 1981. Any option or part thereof designated as an incentive stock option is hereinafter referred to as an "ISO." The following special provisions shall apply to any ISO granted under this Plan: (a) Maximum amount subject to ISO's: The maximum aggregate fair market value (determined as the time the ISO is granted) of the common stock for which any employee may be granted ISO's in any calendar year shall not exceed $100,000 plus a carry-over amount, if any. The carry-over amount from any year is one half the amount by which $100,000 exceeds the aggregate fair market value of the stock for which ISO's were granted in any such prior year. Carry over amounts may be carried over for three years. ISO's granted in any year use up the $100,000 limitation first and then the carry-over amount from the earliest year. (b) ISO Exercise Price: The purchase price of Common Stock subject to an ISO granted pursuant to this Plan shall be determined by the Committee on the date of the grant. The price shall not be less than 100 percent of the fair market value of the Common Stock on the date of the grant of the ISO; provided however, that if the participant owns more than 10 percent of the Common Stock of the Company, the exercise price shall not be less than I 10 percent of the fair market value of the Common Stock on the date of the grant. (c) Exercise of ISO: ISO's granted under the Plan may not be exercised while there is outstanding any ISO previously granted to the option holder. An ISO will be considered outstanding until such ISO is exercised in full or expires by reason of lapse of time. (d) Notice upon disposition: The Company shall be notified immediately upon sale of any Common Stock acquired pursuant to the exercise of an ISO granted under the Plan, if such sale occurs within 2 years from the date of the grant of the ISO or I year from the date of issuance of the stock certificates evidencing exercise of the ISO. 13. PAYMENTS AND WITHHOLDING TAX. (a) As to option shares, full payment for shares purchased upon exercise of an option shall be made at the time of exercise. Any federal, state or local taxes required to be paid by or withheld from the employee at the time of exercise shall also be paid or withheld prior to delivery of any shares upon such exercise. No participant shall have any rights as a stockholder until such shares are issued upon exercise of the options. (b) As to award shares, upon the satisfaction of any conditions for delivery to the employee otherwise set forth in the Plan or in the award share agreement with the participant, shares will be delivered to the participant only upon payment by him to the Company of the amount of any withholding tax which may be imposed thereon under the provisions of the Internal Revenue Code as then in effect or any law of any other taxing jurisdiction requiring payment of any such taxes or withholding tax. Should such participant fail to make the required payment within 30 days following the date of removal of restrictions on the delivery of such shares, such participant shall be deemed to have instructed the escrow agent to sell for such participant's account at the best price reasonably obtainable as many of the shares deliverable to such participant as may be necessary to obtain the amount of the required tax payment and the balance of such shares shall then be delivered to the participant. 14. ISSUANCE OF SHARES. The provisions governing options granted and shares awarded under this Plan shall be evidenced in an appropriate agreement with each participant and shall set forth such terms, conditions, restrictions and agreements as the Committee may provide; however, no such agreement shall conflict with the terms of this Plan and, in the event of any such conflict, the provisions of this Plan shall be deemed to control. 15. CAPITAL ADJUSTMENTS. The number of shares authorized in the aggregate for this Plan shall be adjusted, and the number of shares of Common Stock covered by each outstanding option or award granted by this Plan and the option price (where applicable) thereof shall be subject to an equitable adjustment, as determined by the Committee, to reflect any stock dividend, stock split, or share combination, or to reflect any exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation, or the like, of or by the Company. 16. NONASSIGNABILITY. The options and awards granted pursuant to this Plan shall not be transferable (other than by will or by the laws of dissent and distribution) assigned, pledged or hypothecated in any way whether by operation of law or otherwise, or be subject to execution, attachment or similar process. Upon any attempt to so transfer, assign, pledge, hypothecate, or upon the levy by reason of any attachment or similar process, contrary to the provisions hereof, of any option or award, such option or award shall immediately become null and void. During a participant's lifetime options shall be exercisable only by him and awards deliverable only to him. 17. CHANGE IN CONTROL OF COMPANY. In order to provide maximum incentive for continued dedication to employment duties of the key employees to whom options and awards are granted pursuant to this Plan in the face of potentially disruptive circumstances, the Committee may provide that all options granted pursuant to this Plan, whether otherwise fully exercisable by the participant or not, and all share awards pursuant hereto, whether fully deliverable to a participant hereunder or not under the terms of the award, shall, without further action by any party, become immediately exercisable in full with respect to options and shall become fully deliverable to the participant with respect to share awards upon the happening of either of the following events: (a) Common Stock of the Company has been acquired other than directly from the Company in exchange for cash or property by one person (as defined in Section 13 of the Securities Exchange Act of 1934) who thereby becomes the owner of more than 10% of the Company's outstanding Common Stock if such person (as defined) is not the Company or the trustee administrator or custodian for any employee benefit plan now or hereafter constituted of the Company. (b) Any person or corporation other than the Company or trustee administrator or custodian for one of the Company's employee benefit plans now or hereafter constituted has made a tender offer for or a request or invitation for tenders of Common Stock of the Company. In the event of a question or controversy concerning whether or not either of the preceding events has taken place, a determination by the Committee that such event has or has not occurred shall be conclusive and binding upon the Company and participants in this Plan. 18. TERMINATION OF OPTIONS RIGHTS AND AWARDS. The Committee may provide for the termination of options and the revocation of share awards in the case of a participant's termination of employment with the Company or a subsidiary corporation for cause for defalcation, theft, embezzlement, falsification of records with intent to defraud or any act involving moral turpitude or crime constituting a felony. Upon such termination of employment, the participant's rights to exercise any options granted pursuant to this Plan or to receive any shares awarded pursuant hereto shall cease. In the case of award shares the Committee shall direct the escrow agent to return all forfeited shares to the Company. 19. INTERPRETATION. The Committee shall interpret this Plan and shall prescribe such rules and regulations in connection with the operation of the Plan as it shall determine to be necessary or advisable for the administration hereof consistent with the purposes herein contained. The Committee shall have the power and authority to rescind, amend and modify its rules and regulations. 20. AMENDMENT OR DISCONTINUATION. This Plan may be amended, altered or discontinued by the Company without approval of the shareholders, except the Board of Directors shall not have the power or authority to change the employees or class of employees who are eligible to participate or the aggregate number of shares which may be issued under options and awards. In the event any law, rule or regulation issued or promulgated by the Internal Revenue Service, New York Stock Exchange, Securities and Exchange Commission or other governmental agency requires the Plan to be amended, the Plan will be amended at the time and all options and awards granted and outstanding will be subject to such amendment. 21. EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or Committee shall be deemed to give any officer or employee any right to be granted an option or award with respect to the common stock of the Company or to any other rights whatsoever except as may be evidenced by a stock option agreement or share award agreement and any amendment thereto, duly executed on behalf of the Company, and then only to the extent and on terms and conditions expressly set forth therein. 22. TERM. Unless sooner terminated by action of the Board, this Plan shall terminate January 26, 1992 and no options or awards may be granted pursuant hereto after such date. 23. DEFINITIONS. For purpose of this Plan, unless the context requires otherwise, the following words shall have the meanings indicated: (a) "Plan" shall mean this 1982 Incentive Stock Option Plan as amended from time to time in accordance with the terms thereof. (b) "Company" shall mean E-Systems, Inc. and its successors and assigns. (c) "Board" shall mean the Board of Directors of E-Systems, Inc. and its successors and assigns. (d) "Committee" shall mean the Stock Option Committee appointed by the Board and described in Paragraph 2., Administration, of this Plan. (e) "Common Stock" shall mean the $1.00 par value common stock of the Company authorized by amendment of the Certificate of Incorporation effective January 29, 1982, subject to the right of the Company to change the authorized number of shares of such class and to provide no par or change in par value for such stock. (f) "Subsidiary corporation" shall mean any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option or making of the award hereunder, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 24. EFFECTIVENESS OF THE PLAN. This Plan shall be subject to approval and ratification on or before the next regular stockholders' meeting of the Company by the vote of the holders of the majority of the shares of stock of the Company present or represented at the meeting to which the Plan is submitted. Subject to such approval and ratification, the Plan is effective at once. Options and awards may be granted under the Plan prior to such approval and ratification, but each such option or award granted shall be subject to the approval and ratification of the Plan by the stockholders. If the Plan shall not be so approved and ratified, all options and awards granted shall be of no effect. The date of the grant of any option or award granted prior to such approval and ratification by the stockholders shall be determined for all purposes as if the option or award had not been subject to such approval and ratification; however, no option granted may be exercised and no award made may be delivered to a participant prior to such approval and ratification. EX-10.(I) 10 1980 SOP E-SYSTEMS, INC. 1980 STOCK OPTION PLAN This 1980 Stock Option Plan adopted by the Board of Directors of E-Systems, Inc. on July 29, 1980: 1. PURPOSE. The Plan is to provide key employees with a proprietary interest in the Company through the granting of option to purchase shares of the Company and the granting of awards of shares of the Company to key employees subject to certain restrictions, as more specifically hereinafter set forth, for the following purpose: (a) to increase the interest in the Company's welfare of those key employees who share primary responsibility for the management, growth and protection of the business of the Company: (b) to furnish an incentive to such employees to continue their services for the Company: and (c) to provide a means through which the Company may attract able person to enter its employment. 2. ADMINISTRATION. The Plan shall be administered by a Stock Option Committee ("Committee") composed of members of the Board. The Committee, which shall consist of three members unless otherwise set as a greater number by the Board, shall be appointed and vacancies shall be filled by the Board. The Committee shall keep minutes of its activities. 3. PARTICIPANTS. The Committee shall determine from time to time those key employees of the Company or of any subsidiary corporation of the Company to whom options or stock awards are to be granted and the number of shares optioned or granted to each such employees upon the grant of options or award of share to them shall become participants in the Plan. 4. RESTRICTIONS OF ELIGIBILITY. No option shall be granted to or award made to: (a) any director of the Company who is not an employee of the Company or a subsidiary corporation: or (b) any person who is the beneficial owner of 5% or more of the total combined voting power or value of all classes of stock of the Company or a subsidiary corporation: or who upon exercise of the option granted or award of the stock awarded would become the beneficial owner of 5% or more of such combined voting power or value of all classes of stock of the Company. 5. SHARES SUBJECT TO THE PLAN. The Committee from time to time may provide for options and awards of common stock under this Plan not in excess of an aggregate of 500,000 shares of the Common Stock of the Company. These shares shall be made available from either the authorized by unissued Common Stock of the Company or treasury stock held by the Company. Any shares that by reason of the Expiration of an option or otherwise are no longer subject to purchase pursuant to an option granted, or are no longer subject to delivery under an award made, under the Plan may be reoffered under the Plan. 6. ALLOTMENT OF SHARES. The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of options or awards to key employees of the Company or its subsidiary corporation. The selection of an employee as a participant in any grant of options or awards under the Plan shall not be deemed to either entitle such employee to, or to disqualify such employee from, any participation in any other grant of options or awards under the Plan. 7. GRANT OF OPTIONS AND AWARDS. The Committee shall be responsible for and authorized to grant options and awards under the Plan. The grant of options and awards shall be evidenced by agreements containing such terms and provisions as are approved by the committee, but not more favorable that the terms of the Plan. The Company shall execute such agreements upon instruction from the Committee. Stock Appreciation Rights may be granted from time to time with respect to any options granted under the Plan, as an alternative method of exercise of any option. All provisions, terms and conditions of the E-Systems, Inc. Stock Appreciation Rights Plan ("SAR Plan") adopted January 30, 1979 and approved and ratified by the stockholder on April 18, 1979 are incorporated herein by reference. For purposes of such incorporation by reference the "Stock Option Plan" as defined in the SAR Plan shall be deemed to include this Plan. 8. OPTION AND AWARD PRICE. The price of the common stock with respect to which an option or award is granted pursuant to this plan shall be determined by the Committee on the date of grant or award. The price at which each option or award is granted may be any price set by the Committee and may be equal to, less than or greater that the fair market value of the stock on the date of grant. The Committee shall also determine the fair market value of the stock on the date of grant, and shall set forth the determination in its minutes provided if the stock is listed on a recognized securities exchange, the fair market value will be taken as the reported closing price of the stock on such exchange on the date of grant of the option or award, or if no sale of the stock shall have been reported on such date of grant, on the next preceding day when a sale was reported. 9. STOCK OPTION EXERCISE PERIOD. The option period shall commence on the date the Committee authorizes the grant of an option. The Committee may provide any period of time for exercising an option, provided that no option shall be for a period of more than 10 years from the date of grant of the option by the Committee. The Committee may provide for the exercise of options and installments and upon such terms, conditions and restrictions as may be determined by the Committee. 10. RIGHTS IN EVENT OF DEATH OF OPTIONEE. It a participant dies prior to termination of his or her rights to exercise an option in accordance with the provisions of the stock option agreement without having exercised his or her option as to all shares covered thereby, the option may be exercised to the extent of the shares with respect to which the option could have been exercised on the date of the participant's death by the participant's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the participant, provided the period during which the option may be so exercised shall not continue beyond the earlier of 10 years from the date of grant of the option or one year from the date of the participant's death. 11. SPECIAL PROVISIONS WITH RESPECT TO RESTRICTED STOCK AWARDS. The following special restrictions apply to the award of shares by the Committee: (a) Shares of common stock awarded pursuant to this Plan shall be issued and registered in the name of the employee participant, but the participant may not voluntarily disposed of such award shares prior to the earliest of the following events: (i) the participant's retirement under any retirement plan of the Company or a subsidiary corporation: (ii) the participant's death: (iii) in extraordinary cases, with the consent of the Committee, delivery of such shares to the participant following the participant's termination of employment prior to retirement or death: or (iv) expiration of the period of time specified in the award, not to exceed ten years, during which time the shares are to be held in escrow. (b) The Committee may, but need not, at the time of making of an award or at any subsequent time prior to expiration of the restrictions set forth in subparagraph (a) above, impose additional restrictions on voluntary disposition and release from escrow of the shares awarded pursuant to this Plan, including, without limitation, permitting disposition and release of shares only in installments over a period of years. (c) In order to administer restrictions required or permitted on the release and delivery of award shares to a participant the certificates evidencing such shares awarded hereunder, although issued in the name of the participant, shall be held in escrow by an escrow agent appointed from time to time by the Company, subject to delivery to the participant or to the Company at such times and in such amounts as shall be directed by the Committee under the terms of this Plan or the agreement of award with participant. A participant's acceptance of an award of shares pursuant to the Plan shall constitute such participant's irrevocable power of attorney to the escrow agent to cause the transfer and delivery to the Company of any such award shares which the Committee shall direct to be so transferred and delivered pursuant to the provisions of this Plan or of the award agreement with the participant. (d) Unless otherwise provided by the Committee, the rights on restricted shares shall belong to each participant with respect to those share awards held in escrow. Dividends, if any, on shares held in escrow shall be paid to each participant unless the Committee provides otherwise at the time of making the award. 12. PAYMENTS AND WITHHOLDING TAX. (a) As to option share, full payment for shares purchased upon exercise of an option shall be made at the time of exercise. Any federal, state or local taxes required to be paid by or withheld from the employee at the time of exercise shall also be paid or withheld prior to delivery of any shares upon such exercise. No participant shall have any rights as a stockholder until such shares are issued upon exercise of the options. (b) As to award shares, upon the satisfaction of any conditions for delivery to the employee otherwise set forth in the Plan or in the award share agreement with the participant, shares will be delivered to the participant only upon payment by him to the Company of the amount of any withholding tax which may be imposed thereon under the provisions of the Internal Revenue Code as then in effect or any law of any other taxing jurisdiction requiring payment of any such taxes or withholding tax. Should such participant fail to make the required payment within 30 days following the date of removal of restrictions on the delivery of such shares, such participant shall be deemed to have instructed the escrow agent to sell for such participant's account at the best price reasonably obtained as many of the shares deliverable to such participant as may be necessary to obtain the amount of the required tax payment and the balance of such shares shall be delivered to the participant. 13. ISSUANCE OF SHARES. The provisions governing options granted and shares awarded under this Plan shall be evidence in an appropriate agreement as the Committee may provide; however, no such agreement shall conflict with the terms of this Plan and , in the event of any such conflict, the provisions of this Plan shall be deemed to control. 14. CAPITAL ADJUSTMENTS. The number of shares authorized in the aggregate for this Plan shall be adjusted, and the number of shares of common stock covered by each outstanding option or award granted by this Plan and the option price (where applicable) thereof shall be subject to an equitable adjustment, as determined by the Committee, to reflect any stock dividend, stock split, or share combination, or to reflect any exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation, or the like, of or by the Company. 15. NONASSIGNABILITY. The options and awards granted pursuant to this Plan shall not be transferable (other than by will or by the laws of dissent and distribution) assigned, pledged or hypothecated in any way whether by operation of law or otherwise, or be subject to execution, attachment or similar process. Upon any attempt to so transfer, assign, pledge, hypothecate, or upon the levy by reason of any attachment or similar process, contrary to the provisions hereof, of any option or award such option or award shall immediately become null and void. During a participant's lifetime options shall be exercisable only by him and awards deliverable only to him. 16. CHANGE IN CONTROL OF COMPANY. In order to provide maximum incentive for continued dedication to employment duties of the key employees to whom options and awards are granted pursuant to this Plan in the face of potentially disruptive circumstances, the Committee may provide that all options granted pursuant to this Plan, whether otherwise fully exercisable by the participant or not, and all share awards pursuant hereto, whether fully deliverable to a participant hereunder or not under the terms of the award, shall without further action by any party become immediately exercisable in full with respect to options and shall become fully deliverable to the participant with respect to share awards upon the happening of either of the following events: (a) Common stock of the Company has been acquired other than directly from the Company exchange for cash or property by one person (as defined in Section 13 of the Securities and Exchange Act of 1934) who thereby becomes the owner of more than 10% of the Company's outstanding common stock if such person (as defined) is not the Company or the trustee administrator or custodian for any employee benefit plan now or hereafter constituted to the Company. (b) Any person or corporation other than the Company or trustee administrator or custodian for one of the Company's employee benefit plans nor or hereafter constituted has made a tender offer for or a request or invitation for tenders of common stock of the Company. In the event of a question or controversy concerning whether or not either of the proceeding events has taken place, a determination by the Committee that such event has or has not occurred shall be conclusive and binding upon the Company and participants in the Plan. 17. TERMINATION OF OPTIONS RIGHTS AND SWARDS. The Committee may provide for the termination of options and the revocation of share awards in the case of a participant's termination of employment with the Company or a subsidiary corporation for cause for defalcation, theft, embezzlement, falsification of records with intent to defraud or any act involving moral turpitude or crime constituting a felony. Upon such termination of employment, the participant's rights to exercise any options granted pursuant to this Plan or to receive any shares awarded pursuant hereto shall cease. In the case of award shares the Committee shall direct the escrow agent to return all forfeited shares to the Company. 18. INTERPRETATION. The Committee shall interpret this Plan and shall prescribe such rules and regulation in connection with the operation of the Plan as it shall determine to be necessary or advisable for the administration hereof consistent with the purposes herein contained. The Committee shall have the power and authority to rescind, amend and modify its rules and regulations. 19. AMENDMENT OR DISCONTINUATION. This Plan may be amended, altered or discontinued by the Company without approval of the share holders, except the Board of Directors shall not have the power or authority to change the employees or class of employees who are eligible to participate or the aggregate number of shares which may be issued under options and awards. In the event any law, rule or regulation issued or promulgated by the Internal Revenue Service, New York Stock Exchange, Securities and Exchange Commission or other governmental agency requires the Plan to be amended, the Plan will be amended at the time and all options and awards granted and outstanding will be subject to such amendment. 20. EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or Committee shall be deemed to give any officer or employee any right to be granted an option or award with respect to the common stock of the Company or to any other rights whatsoever except as may be evidenced by a stock option agreement or share award agreement and any amendment thereto, duly executed on behalf of the Company, and then only to the extent and on terms and conditions expressly set forth therein. 21. TERMS. Unless sooner terminated by action of the Board, this Plan shall terminate July 28, 1990 and no options or awards may be granted pursuant hereto after such date. 22. DEFINITIONS. For purpose of this Plan, unless the context requires otherwise, the following words shall have the meanings indicated: (a) "Plan" shall mean this 1980 Stock Option Plan as amended from time to time in accordance with the terms thereof. (b) "Company" shall mean E-Systems, Inc. and its successors and assigns. (c) "Board" shall mean the Board of Directors of E-Systems, Inc. and its successors and assigns. (d) "Committee" shall mean the Stock Option Committee appointed by the Board and described in Paragraph 2., Administration, of this Plan. (e) "Common Stock" shall mean the $1.25 par value common stock of the Company subject to the right of the Company to change the authorized number of shares of such class and to provide no par or change in par value for such stock. (f) "Subsidiary corporation" shall mean any cooperation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option or making of the award hereunder, each of the corporation other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 23. EFFECTIVENESS OF THE PLAN. This Plan shall be subject to approval and ratification on or before the next regular or special stockholders' meeting of the company by the vote of the holder of the majority of the shares of stock of the Company present or represented at the meeting to which the Plan is submitted. Subject to such approval and ratification, but each such option or award granted shall be subject to the approval and ratification of the Plan by the stockholders. If the Plan shall not be so approved and ratified, all options and awards granted shall be of no effect. The date of the grant of any option or award grated prior to such approval and ratification by the stockholders shall be determined for all purposes as if the option or award had not been subject to such approval and ratification: however, no option granted may be exercised and no award made may be delivered to a participant prior to such approval and ratification. EX-10.(J) 11 STOCK OPT. AGMT. FORM OF STOCK OPTION AGREEMENT THIS AGREEMENT IS MADE in Dallas, Texas, by and between the employee whose name appears below (the "Employee" ) and E-SYSTEMS, INC. (the "Company" ). The Board of Directors of the Company adopted a certain Stock Option Plan, as amended, the ("Plan"). The Company acting through the Compensation and Benefits Committee of the Board, has granted to the Employee the Stock Option described below, subject to the provisions of the Plan and the terms of this Agreement. NOW THEREFORE, in consideration of the recitals, the Company grants and the Employee accepts the Stock Option described below on the terms contained herein.
EMPLOYEE: OPTION PRICE GRANT DATE ------------ ----------- NUMBER OF DOLLARS SOCIAL SECURITY MO DAY YR SHARES PER SHARE NUMBER ----------- --------- --------- --------------- EXPIRATION DATE ---------------
THIS STOCK OPTION SHALL BECOME EXERCISABLE (VEST) IN THREE INSTALLMENTS: An amount of shares equal to one-third of the total shares set forth above shall become available for exercise on the first, second and third anniversary dates from the grant of this option, respectively. If the total shares set forth is not divisable by three without resulting in a fractional share, fractional shares may not be issued and the amount of such fraction shall be dropped from the first increment and the following adjustment(s) made in the number of shares in the second or third (or both) increments: - if the fractions aggregate one whole share the third increment shall be increased by one share; - if the fractions aggregate two whole shares, the second and third increments shall each be increased by one share. In no event shall the aggregate number of shares of all three vesting increments exceed the total number of option shares set forth above. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement. EMPLOYEE: E-SYSTEMS, INC.: Chairman of the Board and Chief Executive Officer WITNESS: ATTEST: Secretary Page 1 TERMS & CONDITIONS OF STOCK OPTION AGREEMENT 1. GRANT OF OPTION. Pursuant to the Stock Options Plan for key employees of E-Systems, Inc. and its subsidiaries, the Company hereby grants to the Employee an option (the "Option") to purchase from the Company certain shares of $1.00 par value Common Stock of the Company in the amounts, during the periods, and upon the terms and conditions herein set forth. The number and price per share of such Option shares is set out on page 1 of this Agreement. 2. TIME OF EXERCISE. Except as provided elsewhere herein, this Option shall become exercisable in installments as set forth on page 1. In no event may this Option be exercised in whole or in part after the termination date set forth in paragraph 3 below, which shall not be later than ten (10) years from the date of grant. 3. TERM. This Option shall terminate at the earliest of: (a) 5:00 p.m. Dallas time on the Expiration Date indicated on page 1; (b) two (2) years following the date of Employee's death; or (c) ninety (90) days after termination of Employee's employment with the Company for any reason other than death or retirement under any retirement plan of the Company. 4. WHO MAY EXERCISE. During the lifetime of the Employee, this Option may be exercised only by the Employee. If there is any attempt to transfer, assign, pledge, dispose of, or upon the levy by reason of any attachment or similar process, contrary, to the provisions of this Agreement, this Option shall become null and void. If the Employee dies while this Option is in effect all remaining unexercised shares shall become fully vested as of the date of death and such option may be exercised by the Employee's estate or a person who has acquired the right to exercise the Option by the Employee's will or by the laws of descent and distribution at anytime or times prior to the termination date specified in Section 3, (a) and (b). 5. OTHER RESTRICTIONS ON EXERCISE. The Option evidenced by this Agreement may not be exercised in whole or in part, and no certificates representing shares subject to such Option shall be delivered, if any requisite registration with, or approval or consent of, any governmental authority having jurisdiction over the exercise of this Option or shares delivered pursuant to this Option shall not have been secured. 6. MANNER OF EXERCISE. To exercise this Option, Employee shall give written notice to the Company of the number of shares being purchased pursuant to the exercise of this Option and the purchase price to be paid therefor, accompanied by the following: (a) full payment of the Option price. (b) an undertaking to furnish or execute such documents as the Company in its discretion shall deem necessary to comply with governmental requirements and to complete Company records; (c) full payment of any federal, state or local taxes required to be paid or withheld from the Employee at the time of exercise of the Option; (d) any other requirements that the Compensation and Benefits Committee administering the Plan (the "Committee") may establish. 7. RIGHTS AS STOCKHOLDER. The Employee shall have no rights as a stockholder with respect to any shares covered by this Option until the issuance of a certificate or certificates to the Employee for such shares. 8. CAPITAL ADJUSTMENTS. The number of shares of common stock covered by this Option and the Option price thereof shall be subject to such adjustment as the Committee administering the Plan may deem appropriate to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation, or the like, of or by the Company. However, in no event shall such adjustment exceed the aggregate stock option price of the Options granted by this Agreement, except for rounding upward to the next whole cent of the per share price (if necessary to prevent fractional cents per share). 9. COMPANY DEFINED. The "Company" as herein used shall mean E-Systems, Inc., or any subsidiary thereof. 10. SUCCESSOR. This Agreement shall be binding upon any successor of the Company. 11. LAW GOVERNING. This agreement is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. 12. EMPLOYMENT. Neither the granting of this Option nor any term or provision of this Agreement shall constitute or be evidence of any understanding, expressed or implied, on the part of the Company, to employ the Employee for any specified period. 13. ADMINISTRATION OF PLAN AND AGREEMENT. This Option and the exercise thereof is subject to the terms and conditions of the Plan which is incorporated herein by reference and made a part hereof, and this Stock Option Agreement. However, the terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. The Committee's interpretation and resolution of any conflict between the Plan and this Agreement shall be final. The Committee may exercise all discretionary powers granted to it under the Plan. In addition, performance of this Agreement is subject to any rules and regulations promulgated by the Committee pursuant to the Plan, now or hereafter in effect. Page 2 EX-10.(K) 12 REST. STOCK AWARD AGMT. FORM OF RESTRICTED STOCK AWARD AGREEMENT THIS AGREEMENT IS MADE in Dallas, Texas, by and between the employee whose name appears below (the "Employee" ) and E-SYSTEMS, INC. (the "Company" ). The Board of Directors of the Company adopted a certain Stock Option Plan, as amended, the ("Plan"). The Company acting through the Compensation and Benefits Committee of the Board, has granted to the Employee the Stock Award described below, subject to the provisions of the Plan and the terms of this Agreement. NOW THEREFORE, in consideration of the recitals, the Company grants and the Employee accepts the Stock Award on the terms contained on page 2.
AWARD PRICE GRANT DATE ----------- EMPLOYEE: ---------- NUMBER OF DOLLARS SOCIAL SECURITY MO DAY YR SHARES PER SHARE NUMBER ----------- --------- --------- ---------------
DELIVERY DATE IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement. EMPLOYEE: E-SYSTEMS, INC.: Chairman and C.E.O. WITNESS: ATTEST: Secretary 1. STOCK HELD IN ESCROW. All Award Stock shall be issued and registered in the name of the Employee but held in escrow for a period of time determined by the Stock Option Committee administering the Plan (the "Committee") in accordance with Section 11 of this Agreement. The following terms shall govern the escrow arrangement: (a) ESCROW AGENT. The Escrow Agent shall be located at P.O. Box 660248, Dallas, Texas 75266-0248, (214)661-1000. The Company may change the Escrow Agent at any time and from time to time and the Employee shall be notified in writing of any such changes in the address and telepone number of the Escrow Agent. (b) IRREVOCABLE POWER OF ATTORNEY. The execution of this Agreement. and Employee's acceptance of this award and delivery of the award into escrow shall constitute the Employee's Irrevocable Power of Attorney to the Escrow Agent to act on the Employee's behalf in connection with the Award Stock. The Escrow Agent shall have the right to transfer and deliver all such escrowed Award Stock to the Employee or to the Company at such times and in such amounts as directed by the Committee. (c) VOTING RIGHTS AND DIVIDENDS. During the term of the escrow, the Employee shall have all voting rights and shall receive all dividends declared and paid on such Award Stock. 2. NON-ASSIGNABILITY. During the duration of the escrow provided for under the terms of the Agreement, the Award Stock is non-transferable, except by will, or by the laws of descent and distribution, and the shares shall not be assigned, pledged, or disposed of in any way whether by operation or law or otherwise, or be subject to execution, attachment, or similar process. If there is any attempt to transfer, assign, pledge, dispose of, or upon the levy by reason of any attachment or similar process, contrary, to the provisions of this Agreement, the Employee's interest in the Award Stock shall be forfeited and the Escrow Agent shall deliver such Award Stock to the Company for transfer out of the Employee's name. 3. DELIVERY OF AWARD STOCK TO EMPLOYEE. The Award Stock shall not be deliverable out of escrow until the first of the following events occurs: (a) The Employee retires under the terms of any retirement plan of the Company; (b) The Employee dies; (c) The Employee is granted special permission by the Company allowing the Employee to dispose of Award Stock; or (d) The expiration of ten (10) years from the date Award Stock is granted, (shown on page 1 as delivery date). At such time as the Award Stock shall become deliverable, the Escrow Agent shall deliver the Award Stock to the Employee upon: (a) payment to the Escrow Agent of the consideration for the Award Stock as determined by the Committee and indicated on page 1 and, (b) Payment of all federal, state or local withholding taxes due and payable by the Employee as a result of the removal of the restrictions on the Award Stock. If the Employee fails to pay such consideration or taxes within (30) days from the date the Award Stock has become deliverable by the Company, the Company shall have the right to instruct the Escrow Agent to sell the necessary amount of shares to obtain sufficient funds with which to make such payments. 4. RESTRICTIONS ON DISPOSITION OF AWARD STOCK. The Employee may not dispose of Award Stock until the Award Stock has been delivered out of escrow in accordance with Section 3 and additional restrictions, if any, on the disposition of the Award Stock reflected on page 1 of this Agreement, have been fulfilled. 5. CAPITAL ADJUSTMENTS. The shares of Award Stock covered by this Agreement shall be subject to any adjustment to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganizatiobn, liquidation, or the like, of or by the Company on the same basis of adjustment as other shares of issued and outstanding stock of the same class as the Award Stock. No such adjustments shall entitle the Employee to release of the adjusted Award Stock from escrow until the conditions on delivery set forth herein have been fulfilled. 6. TERMINATION. In the event the Employee terminates employment with the Company (and except as otherwise provided in Section 3 herein), the Employee's interest in the escrowed Award Stock shall be forfeited. In such event, the Escrow Agent shall return the forfeited Award Stock shares to the Company for transfer out of the Employee's name. 7. LAW GOVERNING. This Agreement is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the laws of Texas. 8. COMPANY DEFINED. The "Company" as herein used shall mean E-Systems, Inc. or any subsidiary thereof. 9. SUCCESSOR. This Agreement shall be binding upon any successor of the Company. 10. EMPLOYMENT. Neither the granting of this Award Stock nor any term or provision of this Agreement shall constitute or be evidence of any understanding, expressed or implied, on the part of the Company, to employ the Employee for any specified period. 11. ADMINISTRATION OF PLAN AND AGREEMENT. This Award is subject to the terms and conditions of the Plan which is incorporated herein by reference and made a part hereof and this Restricted Stock Award Agreement. However, the terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. The Committee's interpretation and resolution of any conflict between the Plan and the Agreement shall be final. The Committee may exercise all discretionary powers granted to it under the Plan. In addition, performance of this Agreement is subject to any rules and regulations promulgated by the Committee pursuant to the Plan, now or hereafter in effect. EX-10.(M) 13 EXEC. SUPP. RETIREMENT PLAN E-SYSTEMS, INC. EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN This restatement as of 1/15/87 incorporates: Amendment No. 1 - June 1, 1982; Amendment No. 2 - August 27, 1986; Amendment No. 3 - December 17, 1986 ARTICLE I Purpose The Purpose of this Plan is to retain key executives by providing retirement income as a supplement to compensation and employee benefits otherwise payable to selected executive employees of E-Systems, Inc. who are expected to contribute materially to the success of the Company's business by their ability, ingenuity, and industry. ARTICLE II Definitions and Construction 2.1 Definitions: Where the following words and phrases appear in this Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary: (a) Average Monthly Compensation: The sum of (1) plus (2) as follows: (1) The result obtained by dividing the total Basic Compensation paid to a Participant during a considered period by the number of months in the considered period by the number of months in the considered period. The considered period shall be thirty-six (36) consecutive calendar months, within the one hundred twenty (120) consecutive calendar month period ending with the month including the Participant's date of termination or disability, which yield the highest Average Monthly Compensation, or in the event of the Participant was employed for fewer than thirty-six (36) calendar months, the considered period shall be all calendar months in which Basic Compensation was paid. (2) The result obtained by dividing the total Incentive Compensation paid to a Participant during a considered period by the number of months in the considered period. The considered period shall be the thirty-six (36) consecutive calendar months, within the one hundred twenty (120) consecutive calendar month period ending with the month including the Participant's date of termination or disability, which yield the highest Average Monthly Incentive Compensation, or in the event the Participant was employed for fewer than thirty-six (36) calendar months, the considered period shall be all calendar months in which Incentive Compensation was paid. (b) Basic Compensation: The base salary, paid sick days, paid vacation days taken for a calendar year, and payment for unused vacation time made to an Employee upon his termination of employment, but excluding moving expenses, severance pay, payments under long-term disability insurance, income resulting from the exercise of Stock Appreciation Rights, Employee Stock Options and Restricted Stock Awards, and the value of any fringe benefits such as life, medical, disability, or hospitalization insurance premiums and Employer contributions allocated to a Participant under any defined benefit or defined contribution plan of the Employer which qualifies under Section 401(a) of the Internal Revenue Code. (c) Board of Directors: The duly elected and serving Board of Directors of the Corporation or any duly authorized committee of that Board. (d) Committee: The persons appointed to administer the Plan in accordance with Article VII. (e) Company: E-Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or its successor or successors. (f) Compensation Committee: The Compensation Committee appointed by the Board of Directors of the Company. (g) Disability: A physical or mental condition which in the judgment of the Committee totally and presumably permanently prevents the Participant from performing the duties required of his position. (h) Effective Date: June 1, 1982. (I) Employer: E-Systems, Inc. and any of its majority owned subsidiaries. (j) Incentive Compensation: Payments to a Participant under the Incentive Compensation Plan. (k) Normal Retirement Benefit: The benefit described in Section 6.1. (l) Normal Retirement Date: The earlier of: (1) the sixty-fifth (65th) birthday of a Participant; (2) the sixtieth (60th) birthday of a Participant and the completion of ten (10) years of service since the Participant's last date of hire. Provided, however, at the discretion of the Compensation Committee, if the Participant is requested by the Company to retire at age sixty (60), or later, without ten (10) years service, Normal Retirement Date shall be his date of termination. (m) Participant: An eligible executive employee of the Employer who has been selected to participate in the Plan in accordance with the provisions of Article III hereof, evidenced by written agreement signed by Employer. (n) E-Systems, Inc. Supplemental Retirement Plan, as amended from time to time. (o) Plan Year: The twelve (12) month period beginning on January 1st and ending on December 31st. (p) Primary Social Security Benefit: The monthly amount available to the Participant at age sixty-two (62), or his commencement date, if later, under the provisions of Title II of the Social Security Act at the time of his termination of employment (or age sixty-two (62) if earlier), without regard to any increases in the wage base or benefit levels that take effect after the date of termination of employment; provided that (1) if a Participant terminates employment prior to age sixty-two (6), his Primary Social Security Benefit shall be estimated by assuming the Employee will receive no further pay after his termination of employment, or (2) if a Participant terminates employment because of Disability and qualifies for a Disability Insurance Benefit under the Social Security Act, his Primary Social Security Benefit shall be the monthly amount payable as a Disability Insurance Benefit. (q) Qualified Plan: E-Systems, Inc. Salaried Retirement Plan, (a defined benefit Plan), amended from time to time, which plan is qualified within the meaning of Section 401(a) of the Internal Revenue Code of 1954, as amended from time to time. (r) Qualified Plan Benefit: The monthly benefit, if any, payable under the defined benefit Qualified Plan. (s) Service: A Participant's employment with the Employer, as determined by the Committee. 2.2 Construction: The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender; the singular may include the plural; and vice versa, unless the context clearly indicates to the contrary. 2.3 Governing Law: The Plan shall be construed in accordance with and governed by the laws of the State of Texas. ARTICLE III Eligibility and Participation 3.1 Employees Eligible to Participate: Only officers and other executive employees of the Employer who are engaged in performing executive or other important managerial functions shall be eligible to participate in the Plan. A director of the Employer shall be eligible to be a Participant if he is also an officer or other executive employee of the Employer. The Board of Directors shall be the sole judge in determining who shall be eligible to be a Participant, but shall select only those employee who have been recommended by the Chairman of the Board of Directors and by the Compensation Committee. Participation shall be evidenced by either a written employment contract with Participant or other instrument in writing signed on behalf of the Employer. 3.2 Adoption of Guidelines: The Board of Directors from time to time may adopt, amend, or revoke such definitions and guidelines as it may deem advisable for its own purposes to guide it in determining which of the officers and other executive employees it shall deem eligible to be Participants. ARTICLE IV Provisions for Benefits 4.1 Amounts Provided by the Employer: Benefits under the Plan shall constitute general obligations of the Company in accordance with the terms of the Plan. No amounts in respect of such benefits shall be set aside or held in trust, and no recipient of any benefit shall have any right to have the benefit paid out of any particular assets of the Employer, (except that the Board of Directors of the Company may establish a Trust or Trusts out of which benefits hereunder may be paid provided that the principal and income of such Trust or Trusts are subject to the claims of the creditors of the Company in the event of insolvency as provided for under the terms of such Trust(s)). Although the Board of Directors of the Company reserves the right to amend this Plan from time to time or to discontinue it, any such amendment or discontinuance shall not adversely affect the rights of, or shall not reduce the benefits payable to, a Participant (or beneficiary) under this Plan who has been selected for participation in the Plan prior to the effective date of any such amendment or discontinuation. ARTICLE V Requirements for Retirement Benefits 5.1 Normal Retirement: A Participant shall be eligible to receive a Normal Retirement Benefit on or after his Normal Retirement Date if his employment with the Employer is terminated (whether voluntarily or involuntarily) on or after such date. Upon vesting of benefits as set forth in Section 5.3, a Participant shall receive his Normal Retirement Benefit if his employment with the Employer is terminated (whether voluntarily or involuntarily) prior to such date. Payment of a Normal Retirement Benefit shall commence as of the first day of the month coinciding with or next following the Participant's date of retirement. The last payment shall be made as of the first day of the month in which the death of the retired Participant occurs. 5.2 Disability Retirement: A Participant shall be eligible to receive a Disability Benefit if his employment with the Employer is terminated on account of Disability. Payment of a Disability Benefit shall commence as of the first day of the month coinciding with or next following the cessation of his sick leave, vacation time and accident and sickness benefit. The last payment shall be made as of the first day of the month in which the death of the retired Participant occurs prior to Normal Retirement Date. If Disability ceases prior to the Participant's Normal Retirement Date, the Disability Benefit shall cease. The Disability Benefit shall cease and the Normal Retirement Benefit in accordance with Section 5.1 shall commence in the month in which a disabled Participant reaches his Normal Retirement Date. The period when Participant is paid a Disability Benefit shall be counted as Service for purposes of computing the Normal Retirement Benefit. 5.3 Vesting: If a Participant terminates his employment with the Employer prior to becoming eligible for a benefit under Section 5.1 or 5.2 hereof, no benefit will be payable to or for him under this Plan except as set forth in this section. In the event of the liquidation, bankruptcy, insolvency, sale, consolidation or merger of the Company with or control of the Company by another organization, the rights of each affected Participant to benefits hereunder shall be nonforfeitable. Payment of benefits under Section 5.1 shall commence as of the first day of this month coinciding with or next following the Participant's attainment of age sixty (60) or, upon his retirement, if later, based upon his Average Monthly Compensation at the date of his termination of employment and the number of years of Service he would have earned if his employment had continued until his Normal Retirement Date. Payment of benefits under Section 5.2 shall commence as set forth in the second sentence of Section 5.2. ARTICLE VI Amount of Benefits 6.1 Normal Retirement Benefit: A Participant who meets the requirements for a Normal Retirement Benefit shall receive a monthly amount determined as follows: (a) a percentage, determined by the Compensation Committee not to exceed sixty-five percent (65%), of his Average Monthly Compensation, provided, however, that as to any Participant who has not completed ten (10) years of Service, such percentage shall be reduced by multiplying said percentage by a fraction, the numerator of which is the Participant's actual number of years of Service (including any fractional part of a year) and the denominator of which is ten (10), minus (b) the sum of his Qualified Plan Benefits, and his Primary Social Security Benefit. 6.2 Disability Benefit: A Participant who meets the requirements for a Disability Benefit shall receive a monthly amount equal to two-thirds (2/3) of the amount determined as for a Normal Retirement Benefit under Section 6.1(a) hereof, considering his Average Monthly Compensation as of his date of Disability and the number of years of Service he would have earned if his employment had continued until his Normal Retirement Date, reduced by the amount in Section 6.1(b) hereof and by any amount or amounts payable under the E-Systems, Inc. Long Term Disability Income and Death Benefit Plan (or that would have been payable thereunder if the Participant had elected to participate in such plan). 6.3 Death Benefit: A. Spouse's Pension: 1. Death Prior to Retirement or While Permanently Disabled Prior to Normal Retirement Date: The surviving spouse of a Participant who dies prior to retirement or while permanently disabled prior to his Normal Retirement Date shall be eligible for a Death Benefit in the form of a monthly pension. The amount of such pension shall be equal to (a) minus (b) as follows: (a) One-half (1/2) of the amount determined as for a Normal Retirement Benefit under Section 6.1(a) hereof, considering his Average Monthly Compensation as of his date of death and the number of years of service he would have earned if his employment had continued until his Normal Retirement Date, minus (b) The sum of: (I) the amount of death benefit payable to the spouse under the defined benefit Qualified Plan, and (ii) the Survivor's benefit (which is based on the amount of the Participant's Primary Social Security Benefit) payable to the spouse under the Social Security Act. Payment of such Pension shall commence on the first day of the month coinciding with or next following the Participant's date of death. The last payment shall be made as of the first day of the month coinciding with or next preceding the date of death of the spouse. 2. Death After Retirement or After Normal Retirement Date As to Permanently Disabled Participants: The surviving spouse of a Participant who dies after retirement (for reasons other than disability) or after attaining Normal Retirement Date as of a Participant who terminated on account of permanent disability and remained permanently disabled on his Normal Retirement Date, shall be eligible for a Death Benefit in the form of a monthly pension. The amount of such pension shall be equal to (a) minus (b) as follows: (a) One-half (1/2) of the amount that was determined under Section 6.1(a) hereof, at the Participant's retirement, or at his Normal Retirement Date in the case of a permanently disabled Participant who reached Normal Retirement Date while permanently disabled, minus (b) The sum of: (I) the amount of Pension, if any, that would be payable to the Participant's beneficiary under the defined benefit Qualified Plan, and (ii) the survivor's benefit (which is based on the amount of the Participant's Primary Social Security Benefit) payable to the spouse under the Social Security Act. Payment of such Pension shall commence on the first day of the month coinciding with or next following the Participant's date of death. The last payment shall be made as of the first day of the month coinciding with or next preceding the date of death of the spouse. B. Children's Pension: If a Participant dies prior to retirement, while disabled or retired and leaves no surviving spouse who is entitled to receive a Spouse's Pension under A above, but leaves a surviving child or children (born or legally adopted) under the age of twenty two_(22), (including for this purpose children born within ten (10) months after the date of his death) each such surviving child or children shall receive a Children's Pension. The amount of such Children's Pension (payable in equal parts if more than one (1) such child under age twenty- two (22) is surviving), shall be equal to the Spouse's Pension that would have been payable under A above. Payment of such Children's Pension shall be made until there is no longer any such child under age twenty-two (22). Upon he death of a surviving spouse who is receiving a Spouse's Pension under A above, any such surviving child or children, as defined in the first paragraph of this Subsection B, shall receive a Children's Pension in the same manner and amount as described in said first paragraph. ARTICLE VII Administration 7.1 Appointment of Committee: The Plan shall be administered by a Committee, which, unless otherwise determined by the Board of Directors, shall be the Compensation Committee. The membership of the Committee may be reduced, changed, or increased from time to time in the absolute discretion of the Board of Directors. 7.2 Committee Powers and Duties: The duties of the Committee will be determined by the Board of Directors. The Committee shall have such powers as may be necessary to discharge its duties hereunder. ARTICLE VIII Miscellaneous Provisions 8.1 Amendment, Termination, Etc.: The Board of Directors may, by resolution, in its absolute discretion, from time to time, amend, suspend, or terminate in whole or in part, and if terminated reinstates, any or all of the provisions of the Plan, except that no amendment, suspension, or termination may apply so as to adversely affect the rights of, or to decrease the payment or benefit to any Participant (or beneficiary) under the Plan who has been selected for participation in the Plan prior to the effective date of such amendment, suspension, or termination. Any such amendment, suspension, or termination shall become effective on such date s shall be specified in such resolution and, except as expressly limited in this Section 8.1, include such provisions and have such effect as the Board of Directors, in its absolute discretion, deems desirable. 8.2 Nonguarantee of Employment: Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any employee, or as a right of any employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its employees, with or without cause. 8.3 Nonalienation of Benefits: To the extent permitted by law, benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. No part of the assets of the Employer shall be subject to seizure by legal process resulting from any attempt by creditors of or claimants against any Participant (or beneficiary), or any person claiming under or through the foregoing, to attach his interest under the Plan. 8.4 Liability: No member of the Board of Directors, the Compensation Committee, or of the Committee shall be liable for any act or action, whether of commission or omission, taken by any other member, or by any officer, agent, or employee of the Employer or of any such body, nor, except in circumstances involving his bad faith, for anything done or omitted to be done by himself. 8.5 Adoption: This Plan has been duly authorized and adopted effective June 1, 1982, by the Board of Directors of the Company at the meeting held May 26, 1982. EX-10.(O) 14 TRUST AGMT. (6-23-87) TRUST AGREEMENT This Trust Agreement ("Agreement") made this 23rd day of June, 1987 by and between E-Systems, Inc., a Delaware corporation ("the Corporation"), and AmeriTrust Company National Association, a national banking association (the "Trustee"); WITNESSETH: WHEREAS, in addition to benefits payable under the E-Systems, Inc. Salaried Retirement Plan, as the same has been or may hereafter be amended or restated, or any successor thereto, to the executives and retired executives listed on Exhibit A hereto ("Executives") or to the beneficiaries of such Executives (Executives and where the context requires, Executives' beneficiaries are referred to herein as "Trust Beneficiaries"), as the case may be, the Trust Beneficiaries are entitled to certain other retirement and related benefits under the provisions of certain employment agreements entered into with respect to each Executive (the "Employment Agreements") and/or the E-Systems, Inc. Executive Supplemental Retirement Plan, as the same has been or may hereafter be amended or restated, or any successor thereto (the "SERP"); WHEREAS, the Employment Agreements and/or the SERP provide for certain retirement income, death, disability and survivor benefits, and the Corporation wishes specifically to assure the payment to the Trust Beneficiaries of amounts due thereunder (the amounts so payable being collectively referred to herein as the "Supplemental Benefits"); WHEREAS, subject to Section 9 hereof, the amounts and timing of Supplemental Benefits to which each Trust Beneficiary is presently or may become entitled are specified in Exhibit B attached hereto and incorporated herein by this reference; WHEREAS, the Corporation wishes to establish a trust (the "Trust") and to transfer to the Trust assets and rights which shall be held therein subject to the claims of the creditors of the Corporation to the extent set forth in Section 3 hereof until paid in full to all Trust Beneficiaries as Supplemental Benefits in such manner and at such times as specified herein unless the Corporation is Insolvent (as defined herein) at the time that such Supplemental Benefits become payable; and WHEREAS, the Corporation shall be considered "Insolvent" for purposes of this Agreement at such time as the Corporation (i) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code, as heretofore or hereafter amended, or (ii) is unable to pay its debts as they mature. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: 1. TRUST FUND: (a) Subject to the claims of its creditors to the extent set forth in Section 3 hereof, the Corporation hereby deposits with the Trustee in trust Twenty six million, two hundred fifty one thousand and forty five Dollars ($26,251,045) and/or other property which shall become the principal of this Trust, to be held, administered and disposed of by the Trustee as herein provided. (b) The Trust hereby established shall be revocable by the Corporation at any time prior to the earlier of (i) the date that is 30 days following the issuance by the Internal Revenue Service of tax rulings requested by the Corporation in conjunction with the establishment of this Trust, or (ii) the date on which occurs a "Change in Control," as that term is defined in Exhibit C hereto; on or after such date (the "Irrevocability Date"), this Trust shall be irrevocable. In the event that the Irrevocability Date has occurred, the Corporation shall so notify the Trustee promptly. (c) The principal of the Trust, and any earnings thereon, shall be held in trust separate and apart from other funds of the Corporation exclusively for the uses and purposes herein set forth. No Trust Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust prior to the time that such assets are paid to a Trust Beneficiary as Supplemental Benefits as provided herein. (d) The Corporation may at any time or from time to time make additional deposits of cash or other property in the Trust to augment the principal to be held, administered and disposed of by the Trustee as herein provided, but no payments of all or any portion of the principal of the Trust or earnings thereon shall be made to the Corporation or any other person or entity on behalf of the Corporation except as herein expressly provided. (e) The Trust is intended to be a grantor trust, within the meaning of section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision thereto, and shall be construed accordingly. 2. PAYMENTS TO TRUST BENEFICIARIES. (a) Provided that the Corporation is not Insolvent and commencing with the earlier to occur of (i) appropriate notice to the Trustee by the Corporation, or (ii) the Irrevocability Date, the Trustee shall make payments of Supplemental Benefits to each Trust Beneficiary from the assets of the Trust in compliance and conformity with the SERP and/or the Employment Agreements and in accordance with Exhibit B hereto, and subject to Section 9 hereof. The Trustee shall make provision for withholding of any federal, state or local taxes that may be required to be withheld by the Trustee in connection with the payment of any Supplemental Benefits hereunder. (b) If the balance of an Executive's separate account maintained pursuant to Section 7(b) hereof is not sufficient to provide for full payment of Supplemental Benefits to which such Executive's Trust Beneficiaries are entitled as provided herein, the Corporation shall make the balance of each such payment as it falls due as provided in the applicable provision of the Employment Agreement or the SERP, as the case may be. No payment from the Trust assets to a Trust Beneficiary shall exceed the balance of such separate account. 3. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO A TRUST BENEFICIARY WHEN THE CORPORATION IS INSOLVENT: (a) At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of creditors of the Corporation. The Board of Directors of the Corporation and its Chief Executive Officer ("CEO") shall have the duty to inform the Trustee if either the Board or the CEO believes that the Corporation is Insolvent. If the Trustee receives a notice from the Board, the CEO, or a creditor of the Corporation alleging that the Corporation is Insolvent, then unless the Trustee independently determines that the Corporation is not Insolvent, the Trustee shall (i) discontinue payments to any Trust Beneficiary, (ii) hold the Trust assets for the benefit of the general creditors of the Corporation, and (iii) promptly seek the determination of a court of competent jurisdiction regarding the Insolvency of the Corporation. The Trustee shall deliver any undistributed principal and income in the Trust to the extent necessary to satisfy the claims of the creditors of the Corporation as a court of competent jurisdiction may direct. Such payments of principal and income shall be borne by the Executives in proportion to the balances on the date of such court order of their respective accounts maintained pursuant to Section 7(b) hereof; provided, however, that all Account Excesses shall first be determined and allocated in accordance with Sections 4 and 7(b) hereof; and provided further that for this purpose, the Threshold Percentage shall be equal to 100%. If payments to any Trust Beneficiary have been discontinued pursuant to this Section 3(a), the Trustee shall resume payments to such Trust Beneficiary only after receipt of an order of a court of competent jurisdiction. The Trustee shall have no duty to inquire as to whether the Corporation is Insolvent and may rely on information concerning the Insolvency of the Corporation which has been furnished to the Trustee by any creditor of the Corporation and by any person (other than an employee or director of the Corporation) acting with actual or apparent authority with respect to the Corporation. Nothing in this Agreement shall in any way diminish any rights of any Trust Beneficiary to pursue his rights as a general creditor of the Corporation with respect to Supplemental Benefits or otherwise, and the rights of each Trust Beneficiary under the respective Employment Agreement and/or the SERP shall in no way be affected or diminished by any provision of this Agreement or action taken pursuant to this Agreement except that any payment actually received by any Trust Beneficiary hereunder shall reduce dollar-per-dollar amounts otherwise due to such Trust Beneficiary pursuant to the respective Employment Agreement and/or the SERP, as the case may be. (b) If the Trustee discontinues payments of Supplemental Benefits from the Trust pursuant to Section 3(a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments which would have been made to the Trust Beneficiaries in accordance with this Agreement during the period of such discontinuance, less the aggregate amount of payments of Supplemental Benefits made to any Trust Beneficiary directly by the Corporation during any such period of discontinuance of such payments from the Trust, together with interest on the net amount delayed determined at a rate equal to the rate actually earned during such period with respect to the assets of the Trust corresponding to such net amount delayed; provided, however, that no such payment shall exceed the balance of the respective Executive's account as provided in Section 7(b) hereof. 4. PAYMENTS TO THE CORPORATION: Except to the extent expressly contemplated by Section 1(b) and this Section 4, the Corporation shall have no right or power to direct the Trustee to return any of the Trust assets to the Corporation before all payments of Supplemental Benefits have been made to all Trust Beneficiaries as herein provided. From time to time, but in no event before the fifth anniversary of the date of this Agreement, if and when requested by the Corporation to do so, the Trustee shall engage the services of Mercer-Meidinger-Hansen, or such other independent actuary as may be mutually satisfactory to the Corporation and to the Trustee to determine the maximum actuarial present values of the future Supplemental Benefits that could become payable under the SERP and the Employment Agreements with respect to the Trust Beneficiaries of each Executive. The Trustee shall determine the fair market values of the Trust assets allocated to the account of each Executive pursuant to Section 7(b) hereof. The Corporation shall pay the fees of such independent actuary and of any appraiser engaged by the Trustee to value any property held in the Trust. The independent actuary shall make its calculations based upon the assumption that all Executives will have salary increases from the date of calculation through the termination of their employment by the Corporation of 8% per year and that no Executive will leave the employ of the Corporation for any reason other than (a) death prior to retirement or (b) retirement on or before the Normal Retirement Date (as that term is defined in the SERP) or corresponding date specified in the Employment Agreement at the age that would result in the maximum present value of Supplemental Benefits payable to him or his Trust Beneficiaries that is possible under the SERP and/or the Employment Agreements. In addition, the independent actuary shall use the 1975 group annuity mortality table, an interest rate of 7-1/2%, cost-of-living increases of 3%, or such other assumptions as are recommended by such actuary and approved by the Corporation and, after the Irrevocability Date, a majority of the Executives (subject to the provisions of Sections 11(b)(i) and (b)(ii) hereof). For purposes of this Agreement, (A) the "Fully Funded" amount with respect to the account of an Executive maintained pursuant to Section 7(b) hereof shall be equal to the "Threshold Percentage," as defined below, multiplied by the maximum actuarial present value of the future Supplemental Benefits that could become payable under the SERP and/or the Employment Agreement with respect to the Trust Beneficiaries of such Executive, and (B) the "Account Excess" with respect to such account shall be equal to the excess, if any, of the fair market value of the assets held in the Trust allocated to an Executive's account over the respective Fully Funded amount. Unless otherwise provided, the Threshold Percentage shall be equal to 140%. The Trustee shall allocate any Account Excess in accordance with Section 7(b) hereof. Thereafter, upon the request of the Corporation, the Trustee shall pay to the Corporation the excess, if any, of the aggregate account balances over the aggregate Fully Funded amounts; provided, however, that if such payment would leave the Trustee with insufficient liquid assets to pay all premiums due and to become due on any life insurance policies held in the Trust, the Trustee shall retain sufficient liquid as sets to pay such premiums. 5. INVESTMENT OF TRUST FUND: The Trustees shall have sole power to invest the assets of the Trust. The Trustees shall act at all times, however, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims. The investment objective of the Trustee shall be to preserve the principal of the Trust while obtaining a reasonable total rate of return, measurement of which shall include market appreciation or depreciation plus receipt of interest and dividends. The Trustee shall be mindful, in the course of its management of the Trust, of the liquidity demands on the Trust and any actuarial assumptions that may be communicated to it from time to time in accordance with the provisions of this Agreement. 6. INCOME OF THE TRUST: Except as provided in Section 3 hereof, during the continuance of this Trust all net income of the Trust shall be allocated annually among the Executives' separate accounts maintained in accordance with Section 7(b) hereof. 7. ACCOUNTING BY TRUSTEE: (a) The Trustee shall keep records in reasonable detail of all investments, receipts, disbursements and all other transactions required to be done, including such specific records as shall be agreed upon in writing by the Corporation and the Trustee. All such accounts, books and records shall be open to inspection and audit at all reasonable times by the Corporation, by any Trust Beneficiary or by any agent or representative of any of the foregoing. Within five business days following the end of each fiscal month of the Corporation, the Trustee shall furnish to the Corporation such information as the Corporation may require in order to account accurately for all Trust transactions during such fiscal month and for the fiscal year to date. Within 30 calendar days following the end of each calendar year and within 30 calendar days after the removal or resignation of the Trustee, the Trustee shall deliver to the Corporation and to each Trust Beneficiary a written account of its administration of the Trust during such year or during the period from the end of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities, rights and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Such written accounts shall reflect the aggregate of the Trust accounts and the status of each separate account maintained for each Executive. b. The Trustee shall maintain a separate account for each Executive. The Trustee shall credit or debit each Executive's account as appropriate to reflect such Executive's allocable portion of the Trust assets, as such Trust assets may be adjusted from time to time pursuant to the terms of this Agreement. Except as provided in this Section 7(b), all allocations shall be made in proportion to the balances of the separate accounts of the Executives. Prior to the Irrevocability Date, all deposits of principal pursuant to Sections 1(a) and 1(d) shall be allocated as directed by the Corporation; on or after such date, deposits of principal may not be reallocated by the Corporation. If any deposit of principal is not allocated by the Corporation, such amount shall be allocated as an Account Excess in accordance with this Section 7(b). The Trustee shall determine annually the amount of all Account Excesses, as defined in Section 4 hereof. The Trustee shall allocate the aggregate amount of the Account Excesses to any accounts that are not Fully Funded, as defined in Section 4 hereof, in proportion to the differences between the respective Fully Funded amount and account balance, insofar as possible until all accounts are Fully Funded. Any remaining aggregate Account Excess shall be allocated to all the accounts in proportion to the respective Fully Funded amounts. (c) Nothing in this Section 7 shall preclude the commingling of Trust assets for investment. 8. RESPONSIBILITY OF TRUSTEE: (a) The Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval which is contemplated by and in conformity with the terms of the Employment Agreements and/or the SERP, and is given in writing by the Corporation or by a Trust Beneficiary applicable to his or her beneficial interest herein. (b) The Trustee shall not be required to undertake or to defend any litigation arising in connection with this Agreement unless it is first indemnified against its prospective costs, expenses and liabilities (including without limitation attorneys' fees and expenses) relating thereto, and the Corporation hereby agrees to indemnify the Trustee and be primarily liable for such costs, expenses and liabilities. (c) The Trustee may consult with legal counsel (who may be counsel for the Corporation) with respect to any of its duties or obligations hereunder, and shall be fully protected in acting or refraining from acting in accordance with the advice of such counsel. (d) The Trustee may rely and shall be protected in acting or refraining from acting within the authority granted by the terms of this Agreement upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties, including, without limiting the scope of this Section 8(d), the notice of the Irrevocability Date required by Section 1(b) hereof. (e) The Trustee may hire agents, accountants, actuaries, and financial consultants, who may be agent, accountant, actuary, or financial consultant, as the case may be, for the Corporation, for the SERP, or for any Employment Agreement. (f) The Trustee is empowered to take all actions necessary or advisable in order to collect any life insurance, annuity, or other benefits or payments of which the Trustee is the designated beneficiary. The Trustee shall maintain in force all life insurance policies held in the Trust (i) by requesting that the Corporation pay directly all premiums and other charges due thereon in a timely manner, and (ii) by paying all such premiums and charges that are not so paid by the Corporation. To the extent the Trustee has cash or its equivalent readily available for such purpose or policy loans and/or dividends are available, the Trustee shall pay premiums due with such cash or its equivalent or policy loans and/or dividends, as the Trustee may deem best. If the Trustee does not have sufficient cash or its equivalent readily available and policy loans and dividends are not available, then the Trustee shall liquidate other assets held by it in the Trust to generate the necessary cash. The Trustee shall be named sole owner and beneficiary of each life insurance and annuity policy held in the Trust and shall have full authority and power to exercise all rights of ownership relating to the policy, except that the Trustee shall have no power, other than in accordance with Sections 1(b), 4, and 12 hereof, to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor trustee, or to loan to any person the proceeds of any borrowing against such policy or, except as provided in the immediately preceding sentence, to surrender any policy or allow any policy to lapse at any time when there are other assets in the Trust that can be disposed of or otherwise used to generate any cash necessary to maintain the policy. The Trustee shall have the power, with the consent of the Corporation, to exchange that portion, if any, of the life insurance coverage on any Executive that is in excess of the amount of such coverage necessary to provide sufficient proceeds to pay the corresponding amount of Supplemental Benefits, for additional life insurance coverage on other Executives. The Trustee shall also have the power to acquire additional life insurance on Executives through application for new life insurance. (g) The Trustee is empowered with respect to the assets of the Trust: (i) To invest and reinvest all or any part of the Trust assets, in each and every kind of property, whether real, personal or mixed, tangible or intangible, whether income or non-income producing, whether secured or unsecured, and wherever situated, including, but not limited to, real estate, shares of common and preferred stock, mortgages and bonds, leases (with or without option to purchase), notes, debentures, equipment or collateral trust certificates, and other corporate, individual or government securities or obligations, time deposits (including savings deposit and certificates of deposit in the Trustee or its affiliates if such deposits bear a reasonable rate of interest) annuity and insurance contracts (including, but not limited to retirement income contract(s) or contract(s) with an insurance company or companies of the deposit administration type); (ii) At such time or times, and upon such terms and conditions as the Trustee shall deem advisable, to sell convert, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any property held hereunder, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency, or propriety of any such disposal; (iii) To manage, operate, repair, partition, and improve and mortgage or lease (with or without an option to purchase) for any length of time any property held in the Trust; to renew or extend any mortgage or lease, upon such terms as the Trustee may deem expedient; to agree to reduction of the rate of interest on any mortgage; to agree to any modification in the terms of any lease or mortgage or of any guarantee pertaining to either of them; to exercise and enforce any right of foreclosure; to bid on property in foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in connection therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit, or proceeding at law or in equity any rights, covenants, conditions or remedies with respect to any lease or mortgage or to any guarantee pertaining to either of them or to waive any default in the performance thereof; (iv) To exercise, personally or by general or limited proxy, the right to vote any shares of stock or other securities held in the Trust; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise or sell, personally or by power of attorney, any conversion or subscription or other rights appurtenant to any securities or other property held in the Trust; (v) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease (with or without an option to purchase), mortgage or sale of the property of any organization the securities of which are held in the Trust; to pay from the Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depository; and to retain any property allotted to the Trust in any reorganization, recapitalization, consolidation, merger or liquidation; (vi) To compromise, settle, or arbitrate any claim, dept or obligation of or against the Trust; to enforce or abstain from enforcing any right, claim, debt, or obligation; and to abandon any property determined by it to be worthless; (vii) To reserve from investment and keep unproductive of income, without liability for interest, such cash as it deems advisable and, consistent with its obligations as Trustee hereunder, to hold such cash in a demand deposit in the Trustee; (viii) To hold property of the Trust in bulk, in bearer form, in its own name or in the name of a nominee, without disclosure of this trust, and to deposit property with any depository, but no such holding or depositing shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust in accordance with the provisions of this Agreement, and the Trustee's records shall at all times show that such property is part of the Trust; (ix) To make, execute and deliver, as Trustee, any deeds, conveyances, leases (with or without option to purchase), mortgages, options, contracts, waivers or other instruments that the Trustee shall deem necessary or desirable in the exercise of its powers under this Agreement; and (x) To pay out of the assets of the Trust all taxes imposed or levied with respect to the Trust and in its discretion may contest the validity or amount of any tax, assessment, penalty, claim, or demand respecting the Trust and may institute, maintain, or defend against any related action or proceeding either at law or in equity (and in such regard, the Trustee shall be indemnified in accordance with Section 8(b) hereof). (h) The Trustee shall have without exclusion, all powers conferred on Trustees by applicable law unless expressly provided otherwise herein. 9. AMENDMENTS, ETC. TO EMPLOYMENT AGREEMENTS OR SERP: (a) Prior to the Irrevocability Date, the Corporation shall furnish the Trustee with any amendments, restatements, or other changes in the SERP or any Employment Agreement, and the Corporation may prescribe or amend, as the case may be, Exhibit B hereto to reflect any such amendment, restatement, or other change, or any changes in the compensation of the Executives, or otherwise. (b) On or after the Irrevocability Date, the provisions of this Section 9(b) shall apply. (i) Not later than 45 calendar days after the end of each calendar year and at such other time as may in the judgment of the Corporation be appropriate in view of a change in circumstances, the Corporation and each Executive (or his personal representative (including his guardian, executor or administrator) (hereafter, his "Successor")) shall agree upon any amendment to Exhibit B hereto as shall be required to reflect any required change in the amounts of Supplemental Benefits as a result of any change in such Executive's compensation during the prior calendar year, or any amendment, restatement or other change in or to an Employment Agreement or to the SERP, which agreements to amendments to such Exhibit B shall be furnished to the Trustee by the Corporation or the Executives (or their Successors) and thereafter be deemed to be a part of, and to amend to the extent thereof, this Agreement; provided, however, that in the event of the failure of the Corporation and any Executive (or Successor) to reach such agreement, the provisions of Section 9(b)(ii) hereof shall control. (ii) The Corporation has previously furnished the Trustee complete and correct copies of the Employment Agreements and the SERP, and the Corporation shall, and any Trust Beneficiary may, promptly furnish the Trustee true and correct copies of any amendment, restatement or successor thereto. The Corporation shall also furnish the Trustee, upon the Trustee's request, such evidence of changes in compensation of the Executives as the Trustee shall deem necessary for its determination under this Section 9(b)(ii). Upon written notification to the Trustee by the Corporation or any Executive (or Successor) of the failure of the Corporation and such Executive (or Successor) to agree as provided in Section 9(b)(i), the Trustee shall, to the extent necessary in the sole judgment of the Trustee, (A) recompute the amount payable hereunder as set forth in Exhibit B hereto to any Trust Beneficiary; and (B) notify the Corporation and the Executive (or Successor) in writing of its computations. Thereafter, this Agreement and all Exhibits thereto shall be amended to the extent of such Trustee determinations without further action; provided, however, that the failure of the Corporation to furnish any such amendment, restatement or successor or compensation information shall in no way diminish the rights of any Trust Beneficiary hereunder or thereunder. (iii) Not later than 45 days after the end of each calendar year and at such other time as may in the judgment of the Corporation be appropriate, the Corporation shall furnish to the Trustee any amendment to Exhibit A and any corresponding amendment to Exhibit B required as a result of such amendment to Exhibit A. On or after the Irrevocability Date, any such amendment to Exhibit A must be (A) agreed to by a majority of the Executives, subject to the provisions of Sections 11(b)(i) and (b)(ii) hereof, and (B) in the case of an amendment that adds a new Executive as a Trust Beneficiary, accompanied by the deposit into the Trust by the Corporation on or before the effective date on which the new Executive would become a Trust Beneficiary, an amount certified by Mercer-Meidinger-Hansen, or such other actuary acceptable to the Corporation and a majority of the Executives (as determined prior to the effective date of the amendment and subject to Sections 11(b)(i) and (b)(ii) hereof) as sufficient to pay such new Executive's Supplemental Benefits hereunder (with such sufficiency determined on the same actuarial basis as that used to determine sufficiency with respect to the Supplemental Benefits as in effect hereunder immediately prior to the addition of such new Executive). 10. COMPENSATION AND EXPENSES OF TRUSTEE: The Trustee shall be entitled to receive such reasonable compensation for its services as shall be agreed upon by the Corporation and the Trustee. The Trustee shall also be entitled to reimbursement of its reasonable expenses incurred with respect to the administration of the Trust including fees and expenses incurred pursuant to Sections 8(c) and 8(e). Such compensation and expenses shall in all events be payable either directly by the Corporation or, in the event that the Corporation shall refuse, from the assets of the Trust. The Trust shall have a claim against the Corporation for any such compensation or expenses so paid. 11. REPLACEMENT OF THE TRUSTEE: (a) The Trustee may resign after providing not less that 90 days' notice to the Corporation and the Executives. Prior to the Irrevocability Date, the Trustee may be removed at any time by the Corporation. On or after such date, such removal shall also require the agreement of a majority of the Executives. Prior to the Irrevocability Date, a replacement or successor trustee shall be appointed by the Corporation. On or after such date, such appointment shall also require the agreement of a majority of the Executives. No such removal or resignation shall become effective until the acceptance of the trust by a successor trustee designated in accordance with this Section 11. If the Trustee should resign, and within 45 days of the notice of such resignation the Corporation and, if required, a majority of the Executives shall not have notified the Trustee of an agreement as to a replacement trustee, the Trustee shall appoint a successor trustee. The successor trustee shall be a bank or trust company (i) that the Trustee in its discretion considers an appropriate trustee for the Trust, having due regard for the objectives, magnitude and expected duration of the Trust; (ii) whose trust assets under investment would place it among the 100 largest trust companies in the United States; and (iii) that is independent and not subject to the control of either the Corporation or the Executives. The preceding determinations shall be made as of the time of appointment of the successor trustee. Upon the acceptance of the trust by a successor trustee, the Trustee shall release all of the moneys and other property in the Trust to its successor, who shall thereafter for all purposes of this Agreement be considered to be the "Trustee." (b) For purposes of the removal or appointment of a Trustee under this Section 11, (i) if any Executive shall be deceased or adjudged incompetent, such Executive's Successor (or if no Successor, his Trust Beneficiaries) shall participate in such Executive's stead, and (ii) no Successor or Trust Beneficiary shall participate if all payments of Supplemental Benefits have been made with respect to such Executive (including his Trust Beneficiaries). 12. AMENDMENT OR TERMINATION: (a) This Agreement may be amended at any time and to any extent by a written instrument executed by the Trustee, the Corporation and, on or after the Irrevocability Date, a majority of the Executives, except to make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof, or to alter Section 8(f) or 12(b) hereof, except that amendments contemplated by Section 9 hereof shall be made as therein provided. (b) From and after the Irrevocability Date, the Trust shall not terminate until the date on which the Trust no longer contains any assets, or, if earlier, the date on which each Trust Beneficiary is entitled to no further payments hereunder. (c) Upon termination of the Trust as provided in Section 12(b) hereof, any assets remaining in the Trust shall be returned to the Corporation. 13. SPECIAL DISTRIBUTION: (a) It is intended that (i) the creation of, and transfer of assets to, the Trust will not cause any of the Employment Agreements or the SERP to be other than "unfunded" for purposes of title I of the Employee Retirement Income Security Act of 1974 ("ERISA"); (ii) transfers of assets to the Trust will not be transfers of property for purposes of section 83 of the Code, or any successor provision thereto, nor will such transfers cause a currently taxable benefit to be realized by a Trust Beneficiary pursuant to the "economic benefit" doctrine; and (iii) pursuant to section 451 of the Code, or any successor provision thereto, amounts will be includable as compensation in the gross income of a Trust Beneficiary in the taxable year or years in which such amounts are actually distributed or made available to such Trust Beneficiary by the Trustee. (b) Notwithstanding anything to the contrary contained in this Agreement, in the event it is determined by a court of competent jurisdiction that (i) by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered "funded" for purposes of title I or ERISA; or (ii) a transfer of assets to the Trust is considered a transfer of property for purposes of section 83 of the Code; or (iii) a transfer of assets to the Trust causes a Trust Beneficiary to realize income pursuant to the "economic benefit" doctrine; or (iv) pursuant to section 451 of the Code, amounts are includable as compensation in the gross income of a Trust Beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would, but for this Section 13, otherwise actually be distributed or made available to such Trust Beneficiary by the Trustee, then (A) the assets held in trust shall be allocated in accordance with Section 7(b) hereof, and (B) subject to Section 2(b) hereof, the Trustee shall promptly make distributions to the affected Trust Beneficiaries equal to the amounts that are includable in the respective incomes of the Trust Beneficiaries by reason of clause (i), (ii), (iii) or (iv) of this Section 13(b). 14. SEVERABILITY, ALIENATION, ETC.: (a) Any provision of this Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating the remaining provisions hereof. (b) To the extent permitted by law, benefits to Trust Beneficiaries under this Agreement may not be anticipated (except as herein expressly provided), assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process and no benefit actually paid to any Trust Beneficiary by the Trustee shall be subject to any claim for repayment by the Corporation or Trustee. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflict of laws thereof. 15. NOTICES: All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when received: IF TO THE TRUSTEE, TO: Ameritrust Company National Association 900 Euclid Avenue Cleveland, Ohio 44101 ATTENTION: Trust Department Employee Benefit Administration If to the Corporation, to: E-Systems, Inc. 6250 LBJ Freeway Dallas, Texas 75240 ATTENTION: General Counsel If to the Executives, to the addresses listed on Exhibit A hereto. provided, however, that if any party or his or its successors shall have designated a different address by written notice to the other parties, then to the last address so designated. IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this Agreement to be executed on its behalf as of the date first above written. E-SYSTEMS, INC. By: John A. Farrington Its: Treasurer AMERITRUST COMPANY NATIONAL ASSOCIATION By: Its: Executive Vice President EXHIBIT A EXECUTIVE ADDRESS J.W. Dixon 5065 Lakehill Court Dallas, TX 75220 K.M. Smith P.O. Box 520 Creede, CO 81130 R.H. Mitchell Rt. 4, Box 999J Greenville, TX 75401 V.B. Pettigrew 10748 St. Lazare Dallas, TX 75229 E. Adams c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 J.W. Crowley c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 C.R. Farmer c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 T.S. Huff c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 E.G. Keiffer c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 T.D. Kelly c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 A.L. Lawson c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 J.W. Pope c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 J.W. Russell c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 D.R. Tacke c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 H.L. Thurmon c/o E-Systems, Inc. P.O. Box 660248 Dallas, TX 75266 NOTE: The above addresses are for identification purposes. Details concerning where checks are to be mailed will be supplied at a subsequent date. EXHIBIT B The purpose of this Exhibit B is to list the benefits to which retired employees are entitled, pursuant to Employment Agreements and/or the SERP. EXECUTIVE MONTHLY BENEFIT AMOUNT (Gross) J.W. Dixon $64,096.46 K.M. Smith 12,376.82 R.H. Mitchell 5,446.00 V.B. Pettigrew 4,903.00 The above amounts do not reflect any deductions for income tax. Exhibit C The term "Change in Control" shall mean the occurrence of any of the following events: (i) The Corporation is merged, or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Corporation immediately prior to such transaction; (ii) The Corporation sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding voting securities of which are held in the aggregate by the holders of voting securities of the Corporation immediately prior to such sale; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Ace"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 10% or more of the combined voting power of the then-outstanding voting securities of the Corporation; (iv) The Corporation files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Corporation has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or (v) If during any period of two consecutive years individuals who at the beginning of any such period constitute the Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Corporation's stockholders, of each Director of the Corporation first elected during such period was approved by a vote of at least two-thirds of the Directors of the Corporation then still in office who were Directors of the Corporation at the beginning of any such period. Notwithstanding the foregoing provisions of clause (iii) or (iv) hereof, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because the Corporation, an entity in which the Corporation directly or indirectly beneficially owns 50% or more of the voting securities of such entity, any Corporation-sponsored employee stock ownership plan or any other employee benefit plan of the Corporation either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of voting securities of the Corporation, whether in excess of 10% or otherwise, or because the Corporation reports that a change in control of the Corporation has or may have occurred or will or may occur in the future by reason of such beneficial ownership. FIRST AMENDMENT TO TRUST AGREEMENT This First Amendment to Trust Agreement (the "First Amendment") is made this 23rd day of September, 1987, by and between E-Systems, Inc., Delaware corporation (the "Corporation"), and AmeriTrust Company National Association, a national banking association (the "Trustee"); WITNESSETH: WHEREAS, the Corporation and the Trustee have established a trust (the "Trust") pursuant to an agreement dated June 23, 1987 (the "Agreement"); WHEREAS, the Corporation has transferred assets to the Trust which are being held in trust by the Trustee, all pursuant to the terms of the Agreement; WHEREAS, as of the date first above written, the Irrevocability Date, as defined in Section 1(b) of the Agreement, has not occurred; WHEREAS, in accordance with Section 12(a) of the Agreement, the Corporation and the Trustee desire to amend the Agreement in certain respects, as set forth in this First Amendment, NOW, THEREFORE, the parties do hereby agree that the Agreement shall be amended as follows: 1. Section 6 of the Agreement is amended by substituting the word "quarterly" for the word "annually." 2. Section 13(b) of the Agreement is amended by deleting the balance of such Section after "(B)", and substituting therefor the following: "subject to the last sentence of Section 2(b) hereof, the Trustee shall promptly make a distribution to each affected Trust Beneficiary which, after taking into account the federal, state and local income tax consequences of the special distribution itself, is equal to the sum of any federal, state and local income taxes, interest due thereon, and penalties assessed with respect thereto which are attributable to amounts that are includable in the income of such Trust Beneficiary for any of the reasons described in clause (i), (ii), (iii) or (iv) of this Section 13(b)." 3. Subject to applicable federal law, this First Amendment shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the principles of conflicts of laws thereof. 4. This First Amendment may be executed in two or more counterparts, each of which shall be considered an original agreement, but all of which together shall constitute one agreement. 5. This First Amendment shall be effective as of June 23, 1987. IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this First Amendment to be executed on its behalf as of the date first above written. E-SYSTEMS, INC. By: Its: Assistant Treasurer AMERITRUST COMPANY NATIONAL ASSOCIATION By: Its: John R. Wert, Senior Trust Officer SECOND AMENDMENT TO TRUST AGREEMENT This Second Amendment to Trust Agreement (the "Second Amendment") is made this 4th day of February, 1988, by and between E-Systems, Inc., a Delaware corporation (the "Corporation"), and AmeriTrust Company National Association, a national banking association (the "Trustee"); WITNESSETH: WHEREAS, the Corporation and the Trustee have established a trust (the "Trust") pursuant to an agreement dated June 23, 1987, as amended by an agreement dated September 23, 1987 (the "Agreement"); WHEREAS, the Corporation has transferred assets to the Trust which are being held in trust by the Trustee, all pursuant to the terms of the Agreement; WHEREAS, as of the date first above written, the Irrevocability Date, as defined in Section 1(b) of the Agreement, has not occurred; WHEREAS, in accordance with Section 12(a) of the Agreement, the Corporation and the Trustee desire to amend the Agreement in certain respects, as set forth in this Second Amendment, NOW, THEREFORE, the parties do hereby agree that the Agreement shall be amended as follows: 1. Section 1(b)(i) of the Agreement is amended by substituting the number "100" for the number "30". 2. Subject to applicable federal law, this Second Amendment shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the principles of conflicts of laws thereof. 3. This Second Amendment may be executed in two or more counterparts, each of which shall be considered an original agreement, but all of which together shall constitute one agreement. 4. This Second Amendment shall be effective as of the date first above written. IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this Second Amendment to be executed on its behalf as of the date first above written. E-SYSTEMS, INC. By: Its: Vice President AMERITRUST COMPANY NATIONAL ASSOCIATION By: Its: Trust Officer EX-10.(P) 15 TRUST AGMT. (5-19-94) TRUST AGREEMENT This Trust Agreement ("Agreement") made this 19th day of May, 1994, by and between E-Systems, Inc., a Delaware Corporation ("the Corporation"), and Society National Bank, a national banking association (the "Trustee"); WITNESSETH WHEREAS, in addition to benefits payable under the E- Systems, Inc. Salaried Retirement Plan, as the same has been or may hereafter be amended or restated, or any successor thereto, to the executives and retired executives listed on Exhibit A hereto ("Executives") or to the beneficiaries of such Executives (Executives and, where the context requires, Executives' beneficiaries are referred to herein as "Trust Beneficiaries"), as the case may be, the Trust Beneficiaries are entitled to certain other retirement and related benefits under the provisions of certain employment agreements entered into with respect to each Executive (the "Employment Agreements") and/or the E-Systems, Inc. Executive Supplemental Retirement Plan, as the same has been or may hereafter be amended or restated, or any successor thereto (the "SERP"); WHEREAS, the Employment Agreements and/or the SERP provide for certain retirement income, death, disability and survivor benefits, and the Corporation wishes specifically to assure the payment to the Trust Beneficiaries of amounts due thereunder (the amounts so payable being collectively referred to herein as the "Supplemental Benefits"); WHEREAS, subject to Section 9 hereof, the amounts and timing of Supplemental Benefits to which each Trust Beneficiary is presently or may become entitled are specified in Exhibit B attached hereto and incorporated herein by this reference; WHEREAS, the Corporation in 1987 established a Trust for the benefit of other executives of the Corporation (the "1987 Trust"); WHEREAS, the Corporation wishes to establish a trust (the "Trust") and to transfer to the Trust assets and rights which shall be held therein subject to the claims of the creditors of the Corporation to the extent set forth in Section 3 hereof until paid in full to all Trust Beneficiaries as Supplemental Benefits in such manner and at such times as specified herein unless the Corporation is Insolvent (as defined herein) at the time that such Supplemental Benefits become payable; and WHEREAS, the Corporation shall be considered "Insolvent" for purposes of this Agreement at such time as the Corporation (i) is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code, as heretofore or hereafter amended, or (ii) is unable to pay its debts as they mature. NOW THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: 1. TRUST FUND (a) Subject to the claims of its creditors to the extent set forth in Section 3 hereof, the Corporation hereby deposits with the Trustee in trust Eight million five hundred ninety six thousand, nine hundred twenty one dollars ($8,596,921), which shall become the principal of this Trust, to be held, administered and disposed of by the Trustee as herein provided. (b) The Trust hereby established shall be revocable by the Corporation at any time prior to the earlier of (i) the date that is 100 days following the issuance by the Internal Revenue Service of tax rulings requested by the Corporation in conjunction with the establishment of this Trust, or (ii) the date on which occurs a "Change in Control", as that term is defined in Exhibit C hereto; on or after such date (the "Irrevocability Date"), this Trust shall be irrevocable. In the event that the Irrevocability Date has occurred, the Corporation shall so notify the Trustee promptly. (c) The principal of the Trust, and any earnings thereon, shall be held in trust separate and apart from other funds of the Corporation exclusively for the uses and purposes herein set forth. No Trust Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust prior to the time that such assets are paid to a Trust Beneficiary as Supplemental Benefits as provided herein. Each Trust Beneficiary shall have the status of a general unsecured creditor with respect to the assets of the Trust. The obligation of the Trustee to pay Supplemental Benefits pursuant to the Agreement constitutes merely an unsecured promise to pay such Benefits. (d) The Corporation may at any time or from time to time make additional deposits of cash or other property in the Trust to augment the principal to be held, administered and disposed of by the Trustee as herein provided, but no payments of all or any portion of the principal of the Trust or earnings thereon shall be made to the Corporation or any other person or entity on behalf of the Corporation except as herein expressly provided. (e) The Trust is intended to be a grantor trust, within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision thereto, and shall be construed accordingly. 2. PAYMENTS TO TRUST BENEFICIARIES. (a) Provided that the Corporation is not Insolvent and commencing with the earlier to occur of (i) appropriate notice to the Trustee by the Corporation, or (ii) the Irrevocability Date, the Trustee shall make payments of Supplemental Benefits to each Trust Beneficiary from the assets of the Trust in compliance and conformity with the SERP and/or the Employment Agreements and in accordance with Exhibit B hereto, and subject to Section 9 hereof. The Trustee shall make provision for withholding of any federal, state or local taxes that may be required to be withheld by the Trustee in connection with the payment of any Supplemental Benefits hereunder. (b) If the balance of an Executive's separate account maintained pursuant to Section 7(b) hereof is not sufficient to provide for full payment of Supplemental Benefits to which such Executive's Trust Beneficiaries are entitled as provided herein, the Corporation shall make the balance of each such payment as it falls due as provided in the applicable provision of the Employment Agreement or the SERP, as the case may be. No payment from the Trust assets to a Trust Beneficiary shall exceed the balance of such separate account. 3. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO A TRUST BENEFICIARY WHEN THE CORPORATION IS INSOLVENT: (a) At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of creditors of the Corporation. The Board of Directors of the Corporation and its Chief Executive Officer ("CEO") shall have the duty to inform the Trustee if either the Board or the CEO believes that the Corporation is Insolvent. If the Trustee receives a notice from the Board, the CEO, or a creditor of the Corporation alleging that the Corporation is Insolvent, then unless the Trustee independently determines that the Corporation is not Insolvent, the Trustee shall (i) discontinue payments to any Trust Beneficiary, (ii) hold the Trust assets for the benefit of the general creditors of the Corporation, and (iii) promptly seek the determination of a court of competent jurisdiction regarding the Insolvency of the Corporation. The Trustee shall deliver any undistributed principal and income in the Trust to the extent necessary to satisfy the claims of the creditors of the Corporation as a court of competent jurisdiction may direct. Such payments of principal and income shall be borne by the Executives in proportion to the balances on the date of such court order of their respective accounts maintained pursuant to Section 7(b) hereof; provided, however, that all Account Excesses shall first be determined and allocated in accordance with Sections 4 and 7(b) hereof; and provided further that for this purpose, the Threshold Percentage shall be equal to 100 percent. If payments to any Trust Beneficiary have been discontinued pursuant to this Section 3(a), the Trustee shall resume payments to such Trust Beneficiary only after receipt of an order of a court of competent jurisdiction. The Trustee shall have no duty to inquire as to whether the Corporation is Insolvent and may rely on information concerning the Insolvency of the Corporation which has been furnished to the Trustee by any creditor of the Corporation and by any person (other than an employee or director of the Corporation) acting with actual or apparent authority with respect to the Corporation. Nothing in this Agreement shall in any way diminish any rights of any Trust Beneficiary to pursue his rights as a general creditor of the Corporation with respect to Supplemental Benefits or otherwise, and the rights of each Trust Beneficiary under the respective Employment Agreement and/or the SERP shall in no way be affected or diminished by any provision of this Agreement or action taken pursuant to this Agreement except that any payment actually received by any Trust Beneficiary hereunder shall reduce dollar-per-dollar amounts otherwise due to such Trust Beneficiary pursuant to the respective Employment Agreement and/or the SERP, as the case may be. (b) If the Trustee discontinues payments of Supplemental Benefits from the Trust pursuant to Section 3(a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments which would have been made to the Trust Beneficiaries in accordance with this Agreement during the period of such discontinuance, less the aggregate amount of payments of Supplemental Benefits made to any Trust Beneficiary directly by the Corporation during any such period of discontinuance of such payments from the Trust, together with interest on the net amount delayed determined at a rate equal to the rate actually earned during such period with respect to the assets of the Trust corresponding to such net amount delayed; provided, however, that no such payment shall exceed the balance of the respective Executive's account as provided in Section 7(b) hereof. 4. PAYMENTS TO THE CORPORATION: Except to the extent expressly contemplated by Section l(b) and this Section 4, the Corporation shall have no right or power to direct the Trustee to return any of the Trust assets to the Corporation before all payments of Supplemental Benefits have been made to all Trust Beneficiaries as herein provided. From time to time, but in no event before the fifth anniversary of the date of this Agreement, if and when requested by the Corporation to do so, the Trustee shall engage the services of William M. Mercer, Inc., or such other independent actuary as may be mutually satisfactory to the Corporation and to the Trustee to determine the maximum actuarial present values of the future Supplemental Benefits that could become payable under the SERP and the Employment Agreements with respect to the Trust Beneficiaries of each Executive. The Trustee shall determine the fair market values of the Trust assets allocated to the account of each Executive pursuant to Section 7(b) hereof. The Corporation shall pay the fees of such independent actuary and of any appraiser engaged by the Trustee to value any property held in the Trust. The independent actuary shall make its calculations based upon the assumption that all Executives will have salary increases from the date of calculation through the termination of their employment by the Corporation of 8 percent per year and that no Executive will leave the employ of the Corporation for any reason other than (a) death prior to retirement or (b) retirement on or before the Normal Retirement Date (as that term is defined in the SERP) or corresponding date specified in the Employment Agreement at the age that would result in the maximum present value of Supplemental Benefits payable to him or his Trust Beneficiaries that is possible under the SERP and/or the Employment Agreements. In addition, the independent actuary shall use the 1975 group annuity mortality table, an interest rate of 7 1/2 percent, cost of living increases of 3 percent, or such other assumptions as are recommended by such actuary and approved by the Corporation and, after the Irrevocability Date, a majority of the Executives (subject to the provisions of Sections 11(b)(i) and (b)(ii) hereof). For purposes of this Agreement, (A) the "Fully Funded" amount with respect to the account of an Executive maintained pursuant to Section 7(b) hereof shall be equal to the "Threshold Percentage", as defined below, multiplied by the maximum actuarial present value of the future Supplemental Benefits that could become payable under the SERP and/or the Employment Agreement with respect to the Trust Beneficiaries of such Executive, and (B) the "Account Excess" with respect to such account shall be equal to the excess, if any, of the fair market value of the assets held in the Trust allocated to an Executive's account over the respective Fully Funded amount. Unless otherwise provided, the Threshold Percentage shall be equal to 140 percent. The Trustee shall allocate any Account Excess in accordance with Section 7(b) hereof. Thereafter, upon the request of the Corporation, the Trustee shall pay to the Corporation the excess, if any, of the aggregate account balances over the aggregate Fully Funded amounts. In no event may any assets be returned to the Corporation so long as any account in the Trust or the 1987 Trust is not Fully Funded. If all Trust accounts are Fully Funded, then the Corporation may directly shift excess funds to the 1987 Trust so long as such shift does not fund accounts in the 1987 Trust to any extent greater than the funding of accounts in the Trust following the shift of assets. 5. INVESTMENT OF TRUST FUND: The Trustee shall have sole power to invest the assets of the Trust. The Trustee shall act at all times, however, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims. The investment objective of the Trustee shall be to preserve the principal of the Trust while obtaining a reasonable total rate of return, measurement of which shall include market appreciation or depreciation plus receipt of interest and dividends. The Trustee shall be mindful, in the course of its management of the Trust, of the liquidity demands on the Trust and any actuarial assumptions that may be communicated to it from time to time in accordance with the provisions of the Agreement. 6. INCOME OF THE TRUST: Except as provided in Section 3 hereof, during the continuance of this Trust all net income (or loss) of the Trust shall be allocated quarterly among the Executives' separate accounts maintained in accordance with Section 7(b) hereof. Net income (or loss) of the Trust shall be determined by taking into account (i) receipt of interest and dividends, and (ii) any increase or decrease in the value of the Trust assets attributable to market appreciation or depreciation. 7. ACCOUNTING BY TRUSTEE: (a) The Trustee shall keep records in reasonable detail of all investments, receipts, disbursements and all other transactions required to be done, including such specific records as shall be agreed upon in writing by the Corporation and the Trustee. All such accounts, books and records shall be open to inspection and audit at all reasonable times by the Corporation, by any Trust Beneficiary or by any agent or representative of any of the foregoing. Within five business days following the end of each fiscal month of the Corporation, the Trustee shall furnish to the Corporation such information as the Corporation may require in order to account accurately for all Trust transactions during such fiscal month and for the fiscal year to date. Within 30 calendar days following the end of each calendar year and within 30 calendar days after the removal or resignation of the Trustee, the Trustee shall deliver to the Corporation (with notice thereof to each Trust Beneficiary) a written account of its administration of the Trust during such year or during the period from the end of the last preceding year to date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions affected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities, rights and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Such written accounts shall reflect the aggregate of the Trust accounts and the status of each separate account maintained for each Executive. The Trustee shall deliver its written account of the administration of the Trust during the preceding calendar year (or during the period from the end of the last preceding year to the date of removal or resignation of the Trustee) directly to any Trust Beneficiary who makes written request therefor to the Trustee within the 30-day period following the end of such year (or following such removal or resignation). (b) (i) SEPARATE ACCOUNTS. The Trustee shall maintain a separate account for each Executive. The Trustee shall credit or debit each Executive's account as appropriate to reflect such Executive's allocable portion of the Trust Assets, as such Trust assets may be adjusted from time to time pursuant to the terms of this Agreement. Except as provided in this Section 7(b), all allocations shall be made in proportion to the balances of the separate accounts of the Executives; (ii) ALLOCATIONS OF NET INCOME. Except as otherwise provided in this Section 7(b)(ii), the Trustee shall allocate the net income (or loss ) of the Trust in proportion to the balances of the separate accounts of the Executives. (iii) ALLOCATIONS OF PRINCIPAL. Prior to the Irrevocability Date, all deposits of principal pursuant to Sections 1(a) and 1(d) shall be allocated as directed by the Corporation; on or after such date, deposits of principal may be allocated, but not reallocated, by the Corporation. If any deposit of principal is not allocated by the Corporation, such amount shall be allocated as an Account Excess in accordance with this Section 7(b)(iii). The Trustee shall determine annually the amount of all Account Excesses, as defined in Section 4 hereof. The Trustee shall allocate the aggregate amount of the Account Excesses to any accounts that are not Fully Funded, as defined in Section 4 hereof, in proportion to the differences between the respective Fully Funded amount and account balance, insofar as possible until all accounts are Fully Funded. Any remaining aggregate Account Excess shall be allocated to all the accounts in proportion to the respective Fully Funded amounts. (c) Nothing in this Section 7 shall preclude the commingling of Trust assets for investment. 8. RESPONSIBILITY OF TRUSTEE: (a) The Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval which is contemplated by and in conformity with the terms of the Employment Agreements and/or the SERP, and is given in writing by the Corporation or by a Trust Beneficiary applicable to his or her beneficial interest herein. (b) The Trustee shall not be required to undertake or to defend any litigation arising in connection with this Agreement unless it is first indemnified against its prospective costs, expenses and liabilities (including without limitation attorneys' fees and expenses) relating thereto, and the Corporation hereby agrees to indemnify the Trustee and be primarily liable for such costs, expenses and liabilities. (c) The Trustee may consult with legal counsel (who may be counsel for the Corporation) with respect to any of its duties or obligations hereunder, and shall be fully protected in acting or refraining from acting in accordance with the advice of such counsel. (d) The Trustee may rely and shall be protected in acting and refraining from acting within the authority granted by the terms of this Agreement upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties, including, without limiting the scope of this Section 8(d), the notice of the Irrevocability Date required by Section 1(b) hereof. (e) The Trustee may hire agents, accountants, actuaries, and financial consultants, who may be agent, accountant, actuary, or financial consultant, as the case may be, for the Corporation, for the SERP, or for any Employment Agreement. (f) The Trustee is empowered to take all actions necessary or advisable in order to collect any life insurance, annuity, or other benefits or payments of which the Trustee is the designated beneficiary. The Trustee shall have the power to acquire life insurance coverage on Executives through application for new life insurance. The Trustee shall not take out any policy loan on any life insurance policy held in the Trust for the purpose of paying Supplemental Benefits to any Trust Beneficiary so long as cash or assets that are readily convertible into cash are available for the payment of such Supplemental Benefits. Notwithstanding anything in this Section 8(f) to the contrary, the Trustee shall neither surrender nor allow to lapse that certain policy of insurance covering the life of such Executives if there are any available funds, liquid or not, with which the premiums due on such policy might be paid, including funds that would otherwise be used to pay Supplemental Benefits to any Trust Beneficiary, nor shall the Trustee exchange all or any portion of the coverage provided by such policy for additional coverage on the life of any other Executive, convert all or any portion of such policy into a different form, or exercise any option available under such policy to change the schedule of insurance thereunder without the written consent of the Corporation and a majority of the Executives. (g) The Trustee is empowered with respect to the assets of the Trust; (i) To invest or reinvest all or any part of the Trust assets, in each and every kind of property, whether real, personal or mixed, tangible or intangible, whether income or non-income producing, whether secured or unsecured, and wherever situated, including, but not limited to, real estate, shares of common and preferred stock, mortgages and bonds, leases (with or without option to purchase), notes, debentures, equipment or collateral trust certificates, and other corporate, individual or government securities or obligations, time deposits (including savings deposit and certificates of deposit in the Trustee or its affiliates if such deposits bear a reasonable rate of interest) annuity and insurance contracts (including, but not limited to retirement income contract(s) or contract(s) with an insurance company or companies of the deposit administration type); (ii) At such time or times, and upon such terms and conditions as the Trustee shall deem advisable, to sell, convert, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any property held hereunder, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency, or propriety of any such disposal; (iii) To manage, operate, repair, partition, and improve and mortgage or lease (with or without an option to purchase) for any length of time any property held in the Trust; to renew or extend any mortgage or lease, upon such terms as the Trustee may deem expedient; to agree to reduction of the rate of interest on any mortgage; to agree to any modification in the terms of any lease or mortgage or of any guarantee pertaining to either of them; to exercise and enforce any right of foreclosure; to bid on property in foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in connection therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit, or proceeding at law or in equity any rights, covenants, conditions or remedies with respect to any lease or mortgage or to any guarantee pertaining to either of them or to waive any default in the performance thereof; (iv) To exercise, personally or by general or limited proxy, the right to vote any shares of stock or other securities held in the Trust; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise or sell, personally or by power of attorney, any conversion or subscription or other rights appurtenant to any securities or other property held in the Trust; (v) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease (with or without an option to purchase), mortgage or sale of the property of any organization the securities of which are held in the Trust; to pay from the Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depository; and to retain any property allotted to the Trust in any reorganization, recapitalization, consolidation, merger or liquidation; (vi) To compromise, settle, or arbitrate any claim, debt or obligation of or against the Trust; to enforce or abstain from enforcing any right, claim, debt, or obligation; and to abandon any property determined by it to be worthless; (vii) To reserve from investment and keep unproductive of income, without liability for interest, such cash as it deems advisable and, consistent with its obligations as Trustee hereunder, to hold such cash in a demand deposit in the Trustee; (viii) To hold property of the Trust in bulk, in bearer form, in its own name or in the name of a nominee, without disclosure of this trust, and to deposit property with any depository, but no such holding or depositing shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust in accordance with the provisions of this Agreement, and the Trustee's records shall at all times show that such property is part of the Trust; (ix) To make, execute and deliver, as Trustee, any deeds, conveyances, leases (with or without option to purchase), mortgages, options, contracts, waivers or other instruments that the Trustee shall deem necessary or desirable in the exercise of its powers under this Agreement; and (x) To pay out of the assets of the Trust all taxes imposed or levied with respect to the Trust and in its discretion may contest the validity or amount of any tax, assessment, penalty, claim, or demand respecting the Trust and may institute, maintain, or defend against any related action or proceeding either at law or in equity (and in such regard, the Trustee shall be indemnified in accordance with Section 8(b) hereof). (h) The Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law unless expressly provided otherwise herein. 9. AMENDMENTS, ETC. TO EMPLOYMENT AGREEMENTS OR SERP: (a) Prior to the Irrevocability Date, the Corporation shall furnish the Trustee with any amendments, restatements, or other changes in the SERP or any Employment Agreement, and the Corporation may prescribe or amend, as the case may be, Exhibit B hereto to reflect any such amendment, restatement, or other change, or any changes in the compensation of the Executives, or otherwise. (b) On or after the Irrevocability Date, the provisions of this Section 9(b) shall apply. (i) Not later than 45 calendar days after the end of each calendar year and at such other time as may in the judgement of the Corporation be appropriate in view of a change in circumstances, the Corporation and each Executive (or his personal representative, including his guardian, executor or administrator [hereafter his "Successor"]) shall agree upon any amendment to Exhibit B hereto as shall be required to reflect any required change in the amounts of Supplemental Benefits as a result of any change in such Executive's compensation during the prior calendar year, or any amendment, restatement or other change in or to an Employment Agreement or to the SERP, which agreements to amendments to such Exhibit B shall be furnished to the Trustee by the Corporation or the Executives (or their Successors) and thereafter be deemed to be a part of, and to amend to the extent thereof, this Agreement, provided, however, that in the event of the failure of the Corporation and any Executive (or Successor) to reach such agreement, the provisions of section 9(b)(ii) hereof shall control; and provided further, that the consent of an Executive shall not be required for any purpose of this Agreement with respect to an amendment to his Employment Agreement, which amendment is required solely as a condition to obtaining a favorable ruling from the Internal Revenue Service in regard to any of the matters described in Section 13(a) hereof. (ii) The Corporation has previously furnished the Trustee complete and correct copies of the Employment Agreements and the SERP, and the Corporation shall, and any Trust Beneficiary may, promptly furnish the Trustee true and correct copies of any amendment, restatement or successor thereto. The Corporation shall also furnish the Trustee, upon the Trustee's request, such evidence of changes in compensation of the Executives as the Trustee shall deem necessary for its determination under this Section 9(b)(ii). Upon written notification to the Trustee by the Corporation or any Executive (or Successor) of the failure of the Corporation and such Executive (or Successor) to agree as provided in Section 9(b)(i), the Trustee shall, to the extent necessary in the sole judgement of the Trustee, (A) recompute the amount payable hereunder as set forth in Exhibit B hereto to any Trust Beneficiary; and (B) notify the Corporation and the Executive (or Successor) in writing of its computations. Thereafter, this Agreement and all Exhibits thereto shall be amended to the extent of such Trustee determinations without further action; provided, however, that the failure of the Corporation to furnish any such amendment, restatement or successor or compensation information shall in no way diminish the rights of any Trust Beneficiary hereunder or thereunder. (iii) Not later than 45 days after the end of each calendar year and at such other time as may in the judgement of the Corporation be appropriate, the Corporation shall furnish to the Trustee any amendment to Exhibit A and any corresponding amendment to Exhibit B required as a result of such amendment to Exhibit A. On or after the Irrevocability Date, any such amendment to Exhibit A must, in the case of an amendment that adds a new Executive as a Trust Beneficiary, be accompanied by the deposit into the Trust by the Corporation on or before the effective date on which the new Executive would become a Trust Beneficiary, an amount certified by William M. Mercer, Inc., or such other actuary acceptable to the Corporation and a majority of the Executives (as determined prior to the effective date of the amendment and subject to Sections 11(b)(i) and (b)(ii) hereof) as sufficient to pay such new Executive's Supplemental Benefits hereunder (with such sufficiency determined on the same actuarial basis as that used to determine sufficiency with respect to the Supplemental Benefits as in effect hereunder immediately prior to the addition of such new Executive). 10. COMPENSATION AND EXPENSES OF TRUSTEE: The Trustee shall be entitled to receive such reasonable compensation for its services as shall be agreed upon by the Corporation and the Trustee. The Trustee shall also be entitled to reimbursement of its reasonable expenses incurred with respect to the administration of the Trust including fees and expenses incurred pursuant to Sections 8(c) and 8(e). Such compensation and expenses shall in all events be payable either directly by the Corporation or, in the event that the Corporation shall refuse, from the assets of the Trust. The Trust shall have a claim against the Corporation for any such compensation or expenses so paid. 11. REPLACEMENT OF THE TRUSTEE: (a) The Trustee may resign after providing not less than 90 days' notice to the Corporation and the Executives. Prior to the Irrevocability Date, the Trustee may be removed at any time by the Corporation. On or after such date, such removal shall also require the agreement of a majority of the Executives. Prior to the Irrevocability Date, a replacement or successor trustee shall be appointed by the Corporation. On or after such date, such appointment shall also require the agreement of a majority of the Executives. No such removal or resignation shall become effective until the acceptance of the trust by a successor trustee designated in accordance with this Section 11. If the Trustee should resign, and within 45 days of the notice of such resignation the Corporation and, if required, a majority of the Executives shall not have notified the Trustee of an agreement as to a replacement trustee, the Trustee shall appoint a successor trustee. The successor trustee shall be a bank or trust company (i) that the Trustee in its discretion considers an appropriate trustee for the Trust, having due regard for the objectives, magnitude and expected duration of the Trust; (ii) whose trust assets under investment would place it among the 100 largest trust companies in the United States; and (iii) that is independent and not subject to the control of either the Corporation or the Executives. The preceding determinations shall be made as of the time of appointment of the successor trustee. Upon the acceptance of the trust by a successor trustee, the Trustee shall release all of the moneys and other property in the Trust to its successor, who shall thereafter for all purposes of this Agreement be considered to be the "Trustee." (b) For purposes of the removal or appointment of a trustee under this Section 11, (i) if any Executive shall be deceased or adjudged incompetent, such Executive's Successor (or if no Successor, his Trust Beneficiaries) shall participate in such Executive's stead, and (ii) no Successor or Trust Beneficiary shall participate if all payments of Supplemental Benefits have been made with respect to such Executive (including his Trust Beneficiaries). 12. AMENDMENT OR TERMINATION: (a) This Agreement may be amended at any time and to any extent by a written instrument executed by the Trustee, the Corporation and, on or after the Irrevocability Date, a majority of the Executives, except to make the trust revocable after it has become irrevocable in accordance with Section l(b) hereof, or to alter Section 8(f) or 12(b) hereof, except that amendments contemplated by Section 9 hereof shall be made as therein provided. (b) From and after the Irrevocability Date, the Trust shall not terminate until the date on which the Trust no longer contains any assets, or, if earlier, the date on which each Trust Beneficiary is entitled to no further payments hereunder. (c) Upon termination of the Trust as provided in Section 12(b) hereof, any assets remaining in the Trust shall be returned to the Corporation. 13. SPECIAL DISTRIBUTION: (a) It is intended that (i) the creation of, and transfer of assets to, the Trust will not cause any of the Employment Agreements or the SERP to be other than "unfunded" for purposes of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"); (ii) transfers of assets to the Trust will not be transfers of property for purposes of section 83 of the Code, or any successor provision thereto, nor will such transfers cause a currently taxable benefit to be realized by a Trust Beneficiary pursuant to the "economic benefit" doctrine; and (iii) pursuant to section 451 of the Code, or any successor provision thereto, amounts will be includable as compensation in the gross income of a Trust Beneficiary in the taxable year or years in which such amounts are actually distributed or made available to such Trust Beneficiary by the Trustee. (b) Notwithstanding anything to the contrary contained in this Agreement, in the event it is determined by a court of competent jurisdiction that (i) by reason of the creation of, and a transfer of assets to the Trust, the Trust is considered "funded" for purposes of Title I of ERISA; or (ii) a transfer of assets to the Trust is considered a transfer of property for purposes of Section 83 of the Code; or (iii) a transfer of assets to the Trust causes a Trust Beneficiary to realize income pursuant to the "economic benefit" doctrine; or (iv) pursuant to Section 451 of the Code, amounts are includable as compensation in the gross income of a Trust Beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would, but for this Section 13, otherwise actually be distributed or made available to such Trust Beneficiary by the Trustee, then (A) the assets held in trust shall be allocated in accordance with Section 7(b) hereof and subject to the last sentence of Section 2(b) hereof, the Trustee shall promptly make a distribution to each affected Trust Beneficiary which, after taking into account the federal, state and local income tax consequences of the special distribution itself, is equal to the sum of any federal, state and local income taxes, interest due thereon, and penalties assessed with respect thereto which are attributable to amounts that are includable in the income of such Trust Beneficiary for any of the reasons described in clause (i), (ii), (iii), or (iv) of this Section 13(b). 14. SEVERABILITY, ALIENATION, ETC.: (a) Any provision of this Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating the remaining provisions hereof. (b) To the extend permitted by law, benefits to Trust Beneficiaries under this Agreement may not be anticipated (except as herein expressly provided), assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process and no benefit actually paid to any Trust Beneficiary by the Trustee shall be subject to any claim for repayment by the Corporation or Trustee. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflict of laws thereof. 15. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when received: IF TO THE TRUSTEE, TO: Society National Bank 127 Public Square Cleveland, OH 44114 Attention: Trust Department Employee Benefit Administration IF TO THE CORPORATION, TO: E-Systems, Inc. 6250 LBJ Freeway Dallas, TX 75240 Attention: General Counsel IF TO THE EXECUTIVES,TO: The addresses listed on Exhibit A hereto. Provided, however, that if any party or his or its successors shall have designated a different address by written notice to the other parties, then to the last address so designated. IN WITNESS WHEREOF, each of the Corporation and the Trustee caused this Agreement to be executed on its behalf as of the date first above written. E-SYSTEMS, INC. By:________________________________ James W. Crowley Title: VICE PRESIDENT, SECRETARY ____________________________ AND GENERAL COUNSEL ____________________________ SOCIETY NATIONAL BANK By:________________________________ Title:_____________________________ EXHIBIT A EXECUTIVE ADDRESS --------- ------- Terry W. Heil Dallas, TX 75220 Peter A. Marino Frisco, TX 75034 Brian D. Cullen Quinlan, TX 75474 Art Hobbs Dallas, TX 75243 EXHIBIT B This Exhibit will be prepared by the independent actuary and submitted to the Corporation and the Trustee as soon as feasible. EXHIBIT C The term "Change in Control" shall mean the occurrence of any of the following events: (i) The Corporation is merged, or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Corporation immediately prior to such transaction; (ii) The Corporation sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then outstanding voting securities of which are held in the aggregate by the holders of voting securities of the Corporation immediately prior to such sale; (iii) There is a report filed on Schedule 13D or Schedule 14D-l (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 10 percent or more of the combined voting power of the then outstanding voting securities of the Corporation; (iv) The Corporation files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Corporation has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or (v) If during any period of two consecutive years individuals who at the beginning of any such period constitute the Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Corporation's stockholders, of each Director of the Corporation first elected during such period was approved by a vote of at least two-thirds of the Directors of the Corporation then still in office who were Directors of the Corporation at the beginning of any such period. Notwithstanding the foregoing provisions of clause (iii) or (iv) hereof, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because the Corporation, an entity in which the Corporation directly or indirectly beneficially owns 50 percent or more of the voting securities of such entity, any Corporation sponsored employee stock ownership plan or any other employee benefit plan of the Corporation either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of voting securities of the Corporation, whether in excess of 10 percent or otherwise, or because the Corporation reports that a change in control of the Corporation has or may have occurred or will or may occur in the future by reason of such beneficial ownership. EX-11 16 COMPUTATION TABLE EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1993 1992 -------- -------- -------- PRIMARY Average shares outstanding................................................. 33,995 33,476 32,538 Net effect of dilutive stock options based on the treasury stock method using average market price................................................ 340 565 403 -------- -------- -------- Total................................................................ 34,335 34,041 32,941 Net Income (Loss).......................................................... $ 95,640 $121,866 $(69,491) -------- -------- -------- -------- -------- -------- Per Share Amount........................................................... $ 2.79 $ 3.58 $ (2.11) -------- -------- -------- -------- -------- -------- FULLY DILUTED Average shares outstanding................................................. 33,995 33,476 32,538 Net effect of dilutive stock options based on the treasury stock method using the year end price, if higher than average market price............. 354 595 799 -------- -------- -------- Total................................................................ 34,349 34,071 33,337 Net Income (Loss).......................................................... $ 95,640 $121,866 $(69,491) -------- -------- -------- -------- -------- -------- Per Share Amount........................................................... $ 2.78 $ 3.58 $ (2.08) -------- -------- -------- -------- -------- --------
43 EX-21 17 SUBSID. OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF NAMES UNDER NAME ORGANIZATION WHICH DOES BUSINESS ---- --------------- ------------------- Auto-Trac, Inc. Texas Auto-Trac Advanced Video Products, Massachusetts "AVP" Inc. EMASS, Inc. Delaware "EMASS" Advanced Archival Colorado "AAP" Products, Inc. ESY Export Company, Delaware E-Systems Inc. Serv-Air, Inc. Delaware Serv-Air, "Maintenance Aircraft Company, Inc." and "Air-Serv, Inc." Engineering Research Maryland "ERA" Associates, Inc. HRB Systems, Inc. Delaware "HRB" E-Systems Medical Delaware "E-MED" Electronics, Inc.
EX-23 18 CONSENT OF AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-77230, Post Effective Amendment Number 1 to Form S-8 No. 2-77230; Form S-8 No. 2-98894; Form S-8 No. 33-23740 and Form No. 33-42745) pertaining to Employee Stock Option Plans of E-Systems, Inc. and the related Prospectuses and the Registration Statements (Form S-8 No. 2-88384; and Form S-8 No. 33-28356) pertaining to the E-Systems Tax Advantaged Capital Accumulation Plan of E-Systems, Inc. and Subsidiaries and the related Prospectuses and Form 8A12B pertaining to the Stockholder Rights Plan of our report dated January 29, 1995, with respect to the consolidated financial statements of E-Systems, Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1994. ERNST & YOUNG LLP Dallas, Texas March 22, 1995 EX-27 19 FDS
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF CONSOLIDATED INCOME, CONSOLIDATED BALANCE SHEET AND STATEMENT OF CONSOLIDATED CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1994 DEC-31-1994 24,401 0 625,060 0 112,373 780,711 531,570 215,743 1,374,167 196,898 0 34,071 0 0 802,558 1,374,167 2,028,300 2,033,353 1,691,677 1,889,252 0 0 2,412 141,689 46,049 95,640 0 0 0 95,640 2.79 0