M-TRON
INDUSTRIES, INC.
100
Douglas Street
P.O.
Box 630
Yankton,
SD 57078
January
7, 1999
Robert
R. Zylstra
12329
Ethan Avenue
White
Bear Lake, MN 55110
Dear
Bob:
The
following summarizes our agreement regarding your retention by
M-tron Industries, Inc. (the “Company”), effective
January 24, 2000.
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1.
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POSITION . You will serve as President and Chief Executive
Officer of the Company. You will also be made a director of the
Company.
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2.
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COMPENSATION . You are to receive a base salary,
bonus potential and equity incentive as set forth
herein.
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(a)
BASE
SALARY . Your initial base salary will be $175,000 per
year payable semi-monthly.
(b)
BONUS
PROGRAM . You will develop and recommend to the Board
of Directors of the Company a bonus program applicable to you
and the other principal executives of the Company for Year
2000 and beyond.
(c)
BONUS .
Your bonus for the year ended December 31, 2000 will be not
less than $100,000 provided that the Company meets its plan
target for EBITDA (calculated in the manner as set forth in
Schedule A hereto) of $3,832,000 for said year. The upside
follows the formula in the bonus program adopted in Paragraph
2.(b) above. The bonus will be paid as soon as practical after
the end of Year 2000.
(d)
EQUITY INCENTIVE
. It is the parties’ intention to provide you with an
equity incentive, intended to be approximately 3% as set forth
herein.
(i)
COMPANY GOES
PUBLIC . If the Company shall complete an initial
public offering (“IPO”) of its common stock during
your employment and prior to January 24, 2003, you shall be
entitled to purchase at the time of the IPO shares of common
stock of the Company equal to 3% of the outstanding shares of
common Stock immediately after the IPO. The purchase price for
the stock will be 33 1/3% of the public offering price payable
in cash or, with the Company’s agreement, structured
notes secured by the stock. The exact structure of your
ownership will be structured by the Company at the time with
the Company’s
tax,
book accounting and “blue sky” law implications
taking dominant importance versus your tax position. It is
anticipated that the Company will adopt a stock option program
at the time of an IPO and you will be entitled to participate
therein. You will agree to such restrictions on the shares of
stock or options acquired by you as the underwriters for the
IPO may request. The certificates for such shares and for any
shares of Lynch Corporation issued pursuant to Paragraph
2(d)(ii) shall contain such legends including without
limitation a securities acts legend as the Company deems
appropriate.
(ii)
COMPANY DOES NOT
GO PUBLIC . If the Company has not done an IPO by
January 24, 2003 and if you are then employed by the Company,
you shall be entitled, upon any termination of your employment
to an inputed equity value benefit (“IEVB”) equal
to 3% of the increase in the economic value of the Company
from January 1, 2000 through the end of the last fiscal
quarter next preceding termination of your employment (the
“Valuation Date”). The economic value of the
Company at January 1, 2000 shall be deemed to be 7.5 times the
EBITDA (plus cash and marketable securities and minus debt) of
the Company for the year ended December 31, 1999 (calculated
in the manner set forth on Schedule A hereto), and the value
at the Valuation date shall be 7.5 times the EBITDA (plus cash
and marketable securities and minus debt) of the Company for
the twelve months ended on the Valuation Date (with EBITDA for
such twelve month period being calculated in the same manner
as on Schedule A). Should there have been any stock issued in
connection with any acquisition included in the calculation,
the value of the stock issued, at the time of issuance, will
be deemed to be debt for purposes of the calculation. The IEVB
shall, at the Company’s option, be payable either in (a)
cash in three (3) equal installments payable on the first,
second and third anniversary dates of the date of your
termination of employment and such deferred payments shall
bear interest on the outstanding principal amount at an annual
rate equal to eight percent (8%), which interest shall be
payable in arrears on each of said anniversary dates or (ii)
in common stock of Lynch Corporation valued at the average
closing market price thereof for the ten trading days on which
the stock traded prior to the date of payment. For purposes of
this Paragraph 2(d)(ii) only, any sale by Lynch Corporation of
a majority of common stock of the Company (other than to its
shareholders or in a public offering) or any sale by the
Company of all or substantially all of its assets (excluding
its investment in Spinnaker Industries, Inc. and any successor
investments to Spinnaker Industries, Inc.), in each case other
than to an “affiliate” (i.e., a person or entity
that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with
the person or entity) of the Company, shall be deemed to be a
termination of employment effective as of the date of such
event (with you being deemed to have satisfied the three year
vesting requirement).
(e)
EMPLOYEE BENEFIT
PROGRAMS . You will also be entitl
