Exhibit 10.2
EMPLOYMENT AGREEMENT
     This Employment Agreement (“Agreement”) is made this 6th of November, 2008,
by and between Sparton Corporation, an Ohio corporation (“Company”), and Cary
Wood (“Executive” or “Wood”). Any reference to the Company shall be deemed to
include any subsidiary or parent of the Company.
     In consideration of the mutual promises contained herein, the Company and
Executive agree as follows:
     1. Employment. The Company employs the Executive as its Chief Executive
Officer, and the Executive accepts such employment, upon the terms and
conditions set forth in this Agreement.
     2. Duties. The Executive shall perform and discharge well and faithfully
such duties for the Company as may be reasonably assigned to the Executive from
time to time by the Board of Directors. As Chief Executive Officer, Executive
will be a member of the Board of Directors. The Executive shall devote his full
business time, attention and energies to the business of the Company, and shall
not during the employment Term (as defined below) engage in any other business
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage, without the prior written approval of the Board of
Directors.
     3. Term. The term of employment under this Agreement shall commence on
November 24, 2008, and shall expire on October 31, 2011 (“Term”). Neither the
Company nor the Executive is under any obligation to renew or extend Executive’s
employment beyond the Term of this Agreement.
     4. Compensation.
          (a) Salary. The Company shall pay the Executive a salary during the
Term at the rate of $400,000 per year, payable on the same payroll schedule as
other Executives of the Company, minus normal payroll deductions required by
law.
          (b) Benefits. The Company will provide the Executive with fringe
benefits no less favorable than those provided to other Executives of the
Company during the Term, including but not limited to, nineteen (19) days of
paid time off annually (vacation, personal, sick, which may be increased from
time to time), health, disability, and life insurance, and 401(k) Savings Plan.
During the term, Executive will receive a car allowance of $12,000 annually,
payable periodically on the Company’s customary payroll schedule, to cover the
purchase/lease, fuel, and maintenance costs of an automobile. Executive will be
provided with a membership at the Jackson Country Club, including all initiation
fees, assessments and membership dues, payable directly by the Company, or as
reimbursed to Executive pursuant to Paragraph 4(c) below.
          (c) Reimbursement of Expenses. During the Term, the Executive shall be
reimbursed for all travel, meals, entertainment, and other out-of-pocket
expenses reasonably incurred by him on behalf of or in connection with the
performance of his duties and the business of the Company, pursuant to the
normal standards and guidelines followed from time to time by

 

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the Company; provided that an expense reimbursement shall under no circumstances
occur later than 90 days after the date on which an expense is incurred.
          (d) 2009 Performance Bonus. The Compensation Committee, with input
from the Executive, shall establish written objective and subjective criteria
for a performance bonus for the fiscal year ending on June 30, 2009. Subject to
Paragraph 10 below, Executive will be eligible for a target bonus of up to
$226,666.00 with fifty (50%) percent of the target, or $113,333, guaranteed. The
bonus will be paid as soon as the financial books for the fiscal year are closed
and a determination regarding performance has been determined by the
Compensation Committee, but no later than September 15, 2009.
          (e) 2010 Performance Bonus. The Compensation Committee, with input
from the Executive, shall establish written objective and subjective criteria
for a performance bonus for the fiscal year ending June 30, 2010. Subject to
Paragraph 10 below, Executive will be eligible for a target bonus up to $340,000
with fifty (50%) percent, or $170,000, guaranteed. The bonus will be paid as
soon as the financial books for the year are closed and a determination
regarding performance can be made by the Compensation Committee, but no later
than September 15, 2010.
          (f) 2011 and 2012 Performance Bonuses. The Compensation Committee,
with input from the Executive, shall establish written objective and subjective
criteria for a performance bonus for the fiscal years ending in June, 2011, and
June, 2012. Subject to Paragraph 10 below, Executive will be eligible for a
target bonus up to $340,000 for each year. The bonus will be paid as soon as the
financial books for each fiscal year are closed and a determination regarding
performance can be made by the Compensation Committee, but no later than
September 15, 2011, and September 15, 2012, respectively.
          (g) Signing Bonus. Executive shall receive a lump sum payment of fifty
thousand dollars ($50,000), less applicable tax withholdings, within thirty
(30) days after the Agreement is executed. Should Executive be terminated for
Cause, or resign without Good Reason, prior to November 24, 2009, Executive
shall repay to the Company this signing bonus.
          (h) Attorneys’ fees. The Company will pay Executive’s reasonable and
documented attorneys’ fees (subject to attorney-client privilege) incurred in
connection with the preparation, negotiation, review of the term sheet on which
this Agreement is based, and the execution of this Agreement. Such fees shall
not exceed Ten Thousand Dollars ($10,000), and shall be paid by the Company
within sixty (60) days of the execution of this Agreement.
     6. Initial Equity Grant. In accordance with the terms of the Sparton
Corporation 1999 Stock Incentive Plan (“SIP”), Article 8, Executive will be
awarded 120,000 shares of Restricted Stock. Subject to the terms and conditions
set forth in Paragraph 10 below, 46,666 shares shall vest and all restrictions
shall lapse with respect to those shares on June 30, 2009, 46,666 shares shall
vest and all restrictions shall lapse with respect to those shares on June 30,
2010, and the remaining 26,668 shares shall vest and all restrictions shall
lapse with respect to those shares on June 30, 2011. Notwithstanding any
provision of the 1999 SIP to the contrary, Executive shall have all of the
rights of a holder of shares of Company stock, including the right to receive
dividends, and the Company (or any committee of the Company) shall not exercise
its discretion to permit or require the payment of dividends to be deferred. The
parties agree, notwithstanding any provision of the 1999 SIP to the contrary,
that this Agreement shall

 

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constitute the Award Agreement (as that term is defined in the 1999 SIP) with
respect to the shares of Restricted Stock granted under this paragraph 6.
     7. Long Term Incentive Grants. Long Term Incentives will be awarded to
Executive in accordance with the Sparton Corporation Senior Executive Long Term
Incentive Plan (“Plan”) which is in the process of being developed and approved
by the Board.
     8. Relocation Expenses. Because it is required that Executive relocate to
the Jackson-Ann Arbor area in order to carry out his duties, the Company will
reimburse Executive for the reasonable and documented expenses of moving his
personal property from Southeastern Michigan to the Jackson-Ann Arbor area in
accordance with the provisions of Attachment A to this Agreement, which is
attached hereto and incorporated herein by reference; provided, that such
reimbursement will occur no later than November 30, 2009.
     9. Disability; Death.
          (a) In the event Executive shall be unable to perform his duties under
this Agreement by virtue of illness or physical or mental capacity or disability
in substantially the manner and to the extent required under this Agreement
prior to the commencement of such disability, and the Executive shall fail to
perform such duties for periods aggregating 120 days, whether or not continuous,
in any continuous period of 180 days, the Company shall have the right to
terminate the Executive’s employment under this Agreement at the end of any
calendar month during the continuance of such disability upon at least 30 days’
prior written notice to Executive (“Date of Termination”). In the event of the
Executive’s death, the Date of Termination shall be the date of such death.
          (b) In the event the Executive’s employment is terminated pursuant to
this section, the Executive, or in the case of his death, the Executive’s
estate, shall be entitled to receive when otherwise payable, but no later than
sixty (60) days after the Date of Termination, subject to any offsets (i) all
salary compensation earned but unpaid as of the Date of Termination, and
(ii) any unpaid reimbursable expenses outstanding, and any unused accrued
vacation, as of such date. Any benefits to which the Executive or his
beneficiaries may be entitled under the plans and programs described above as of
his date of termination shall be determined in accordance with the terms of such
plans and programs. Except as stated in this paragraph, the Company shall have
no further liability to the Executive or the Executive’s heirs, beneficiaries or
estate for damages, compensation, benefits, severance, indemnities or other
amounts of whatever nature.
     10. Termination.
          (a) With Cause. The Company, by direction of the Board of Directors of
the Company, shall be entitled to terminate the Term and to discharge the
Executive at any time for Cause upon written notice. The term “Cause” shall be
limited to the following grounds:
               (i) The Executive’s failure or refusal to materially perform his
duties and responsibilities, or the failure of the Executive to devote
substantially all of his business time and attention exclusively to the business
and affairs of the Company in accordance with the terms of this Agreement;

 

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               (ii) The willful misappropriation of the funds or property of the
Company;
               (iii) Use of alcohol, to the extent that such use interferes with
the performance of the Executive’s obligations under this Agreement, continuing
after written warning, or use of illegal drugs, with or without previous
warning;
               (iv) Conviction of, or pleas of guilty or “no contest”, to a
felony or of any crime involving moral turpitude, dishonesty, theft, unethical
or unlawful conduct;
               (v) A material breach by the Executive of this or any other
agreement between the Executive and the Company;
               (vi) A material failure by the Executive to comply with the
Company’s written policies or rules; or
               (vii) The commission by the Executive of any willful or
intentional act which could reasonably be expected to injure the reputation,
business or business relationships of the Company or which may tend to bring the
Executive or the Company into disrepute, or the commission of any act which is a
breach of the Executive’s fiduciary duties to the Company.
     For any termination pursuant to subparagraphs (i), (v), or (vi), the
Company shall first give written notice of the breach to the Executive, with an
opportunity to cure any breach.
     Upon termination for Cause, or by the Executive without Good Reason, the
Company shall pay the Executive, when otherwise payable (but no later than sixty
(60) days after the date of termination) his salary compensation, his unused
accrued vacation, and any unpaid reimbursable expenses as of the date of
termination. All rights to any unvested Restricted Stock, Stock Options, or
incentive grants or bonuses of any kind, shall be forfeited. Any benefits to
which the Executive or his beneficiaries may be entitled to under the plans and
programs described above as of the date of his termination shall be determined
in accordance with the terms of such plans and programs. The Company shall have
no further liability to the Executive or the Executive’s heirs, beneficiaries or
estate for damages, compensation, benefits, severance, indemnities or other
amount of whatever nature.
          (b) Without Cause. At any time during the term of this Agreement, the
Company shall be entitled to terminate the Term and discharge the Executive
Without Cause, upon delivery of written notice to the Executive. Upon
termination Without Cause, the Company shall pay the Executive, subject to
offset, salary continuation for Eighteen (18) months, as well as one and
one-half (1 1/2) times the maximum target bonus for the then current fiscal year
bonus (such bonus to be paid at the end of the fiscal year as set forth in
Paragraphs 4(d), (e) and (f) above) as if Executive had not been terminated, and
the Company will pay the COBRA premiums for health insurance continuation for up
to twelve (12) months, or until Executive secures alternative coverage. In all
other respects, Executive shall receive the same compensation and benefits as
set forth above in paragraph 10(a) for termination for Cause. This Paragraph
10(b) is intended to satisfy the requirements of the exemption from the
application of Section 409A of the Internal Revenue Code of 1986, as amended
(“Code”), for separation pay plans under Treasury Regulation Section
1.409A-1(b)(9). To the extent the aggregate payments due hereunder exceed two
(2) times the lesser of (i) the Executive’s compensation for the Executive’s
taxable year preceding the taxable year of his termination of employment, or
(ii) the

 

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Code Section 401(a)(17) limit for the taxable year of the Executive’s
termination of employment ($230,000 for 2008 and $245,000 for 2009), such excess
payments shall be subject to the provisions of Paragraph 22 below. For purposes
of the preceding sentence, the calculation of ‘aggregate payments’ shall exclude
any bonus payment due under a bonus arrangement that satisfies the requirements
of the exemption from the application of Code Section 409A for short-term
deferrals under Treasury Regulation Section 1.409A-1(b)(4). The Executive shall
be entitled to the salary payments set forth in this paragraph only so long as
he is in compliance with the Protective Covenants set forth below in Paragraphs
11, 12, and 13, and only after Executive has executed an appropriate legal
release of all claims against the Company, except those claims brought to
enforce the provisions of this Agreement.
          (c) Executive Termination—For Good Reason. The Executive shall be
entitled to terminate this Agreement for Good Reason. Good Reason is defined as
the occurrence of any of the following: (1) a material change by the Company in
the Executive’s authority, duties or responsibilities which would cause the
Executive’s position with the Company to become of materially less
responsibility and importance; including but not limited to the removal of
Executive from his position as CEO, or his removal from the Board, or, (2) the
Company otherwise materially breaches this Agreement, provided that (a) the
Executive shall provide written notice to the Company of the Good Reason no more
than ninety (90) days after the initial existence of the Good Reason, and
(b) the Company is afforded thirty (30) days to remedy the material change or
breach, and (c) the Executive terminates within 150 days following the initial
existence of any Good Reason. In those circumstances where the Executive
terminates this Agreement for a Good Reason, Executive shall be entitled to the
compensation set forth in paragraph 10(b)(Termination Without Cause), so long as
he is in compliance with the Protective Covenants set forth below in paragraphs
11, 12, and 13, and only after he has executed an appropriate legal release of
all claims against the Company.
     11. Confidentiality. The Executive agrees to at all times (during the Term
and thereafter without limitation) hold in confidence and keep secret and
inviolate all of the confidential information of the Company and its
Subsidiaries, including, without limitation, all unpublished matters relating to
the business, property, accounts, books, records, customers and contracts of the
Company which he may or hereafter come to know; provided, however, the Executive
may (i) disclose any such information which has otherwise entered the public
domain (other than through a breach of this Agreement) or which he is required
to disclose to any governmental authority by law or subpoena or judicial
process, and (ii) disclose so much of such information to personal tax or
financial advisors as may be required to enable such advisors to render
appropriate advice to the Executive.
     12. Non-Competition and Non-Solicitation.
          (a) Executive hereby acknowledges that he is, or will become, familiar
with the Company’s trade secrets and other confidential information. Therefore,
Executive agrees that while employed and thereafter for twelve months he shall
not, directly or indirectly, either for himself or for any other Person own any
interest in, manage, control, consult with, render services for or participate
in (whether as an officer, director, employee, partner, agent, representative or
otherwise) or in any other manner engage anywhere in a Province of Canada, or
State of the United States where the Company transacts business now, or at any
time of the Term (the “Restricted Territories”) in any business engaged in
Electronic Manufacturing Services (the “Restricted Business”); provided that
nothing herein shall prohibit passive ownership of not

 

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more than 2% of the stock of a publicly-held corporation whose stock is traded
on a national securities exchange or in the over-the-counter market so long as
Executive does not have any active participation in the business of the
corporation. Executive agrees that the Company’s business has been conducted or
is presently proposed to be conducted throughout the Restricted Territories
(including as the same relates to the development, marketing, licensing and sale
of its products and services) and that the geographic restrictions set forth
above are reasonable and necessary to protect the goodwill of the Company’s
business.
          (b) Executive shall not directly, or indirectly through another person
or entity, (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof; (ii) hire any person who was an employee
of the Company at any time during the six month period immediately prior to the
date on which such hiring would take place (it being conclusively presumed by
the parties so as to avoid any disputes under this Paragraph that any such
hiring within such six month period is in violation of clause (i) above), or
(iii) for twelve months after termination of Executive’s employment with the
Company, call on, solicit, or service any customer, supplier, licensee, licensor
or other business relation of the Company (“Person”) in order to induce or
attempt to induce such Person to cease doing business with the Company, or in
any way interfere with the relationship between any such Person, customer,
supplier, licensee, or business relation and the Company (including making any
negative statements or communications about the Company or any of its
Subsidiaries).
     13. Enforcement.
          (a) If, at the time of enforcement of the covenants contained in
paragraph 11 and/or 12 above (“Protective Covenants”), a court shall hold that
the duration, scope or area restrictions stated are unreasonable under
circumstances then existing, the parties agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted for the stated
duration, scope or area and that the court shall be allowed to revise the
Protective Covenants to cover the maximum duration, scope and area permitted by
law. Executive has consulted with legal counsel regarding the Protective
Covenants and based on such consultation has determined and agrees that the
Protective Covenants are reasonable in terms of duration, scope and area
restrictions and are necessary to protect the goodwill of the Company’s
businesses and agrees not to challenge the validity or enforceability of the
Protective Covenants.
          (b) If Executive breaches, or threatens to commit a breach of any of
the Protective Covenants, the Company and its Subsidiaries shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company or its Subsidiaries at law or in equity:
               (i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction, it being agree
that any breach or threatened breach of the Protective Covenants would cause
irreparable injury to the Company and its Subsidiaries and that money damages
would not provide an adequate remedy to the Company or its Subsidiaries; and

 

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               (ii) the right and remedy to require Executive to account for and
pay over to the Company or its Subsidiaries any profits, monies or other
benefits derived or received by Executive as the result of any transactions
constituting a breach of the Protective Covenants.
     14. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one day after being sent to the recipient by reputable overnight
courier service (charges prepaid), upon machine-generated acknowledgment of
receipt by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to
Executive and the Company at the addresses indicated below or to such other
address or to the attention of such other persons as the recipient party has
specified by prior written notice to the sending party.
Notice to Executive
Thomas Cattel, Esq.
33 Bloomfield Hills Parkway, Ste. 120
Bloomfield Hills, MI 48304
Notice to Company
Chairman of the Board
Sparton Corporation
2400 East Ganson St.
Jackson, MI 49202
     15. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid or
illegal provision had never been contained herein.
     16. Complete Agreement. This Agreement contains the complete agreement and
understanding among the parties and supersedes and preempts any prior
understandings, agreements, or representations by or among the parties, written
or oral, which may have related to the subject matter herein in any way.
     17. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
     18. Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
     19. Successors and Assigns. This Agreement is intended to bind and inure to
the benefit of and be enforceable by the Company, the Executive and each of
their respective heirs,

 

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successors and assigns, except that Executive shall not assign Executive’s
rights or delegate Executive’s obligations without the prior written consent of
the Company.
     20. Choice of Law. All issues concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Michigan or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Michigan.
     21. Amendments and Waiver. The provisions of this Agreement may be amended
or waived only with the prior written consent of the Company and Executive, and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
     22. Code Section 409A. To the extent a payment hereunder is, or shall
become, subject to the application of Code Section 409A, the following shall
apply:
          (a) Delay of Payment. The Company may delay payment hereunder only
upon such events and conditions as the IRS may permit in generally applicable
published regulatory or other guidance under Code Section 409A, including,
without limitation, payments that the Company reasonably anticipates will be
subject to the application of Code Section 162(m), or will violate Federal
securities laws or other applicable law; provided that any such delayed payment
will be made at the earliest date at which the Company reasonably anticipates
that the making of the payment would not cause such a violation.
          (b) Acceleration of Payment. The time or schedule of payment hereunder
may be accelerated only upon such events and conditions as the IRS may permit in
generally applicable published regulatory or other guidance under Code
Section 409A, including, without limitation, payment to a person other than the
Executive to the extent necessary to fulfill the terms of a domestic relations
order (as defined in Code Section 414(p)(1)(B)) or payment of the amount
required to be included in income for the Executive as a result of failure of
this Agreement at any time to meet the requirements of Code Section 409A with
respect to the Executive.
          (c) Specified Employee. If, as of the date of the Executive’s
termination of employment, (1) any stock of the Company is publicly traded on an
established securities market or otherwise; and (2) a payment is payable under
this Agreement due to a termination of employment which is considered to be a
“separation from service” for purposes of the rules under Treasury
Regulation Section 1.409A-3(i)(2) (payments to specified employees upon a
separation from service); and (3) the Executive is determined to be a “specified
employee” (as determined under Treasury Regulation Section 1.409A-1(i)), then
the payment shall be delayed until a date that is six (6) months after the date
of the Executive’s termination of employment to the extent necessary to comply
with the requirements of Code Section 409A and related Treasury Regulations;
provided, however, that the payments to which the Executive would have been
entitled during such 6-month period, but for this subparagraph, shall be
accumulated and paid to the Executive on the first (1st) day of the seventh
(7th) month following the Executive’s termination of employment.

 

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          (d) Code Section 409A Compliance. This Agreement is intended to comply
with the requirements of Code Section 409A and the Treasury Regulations and
other guidance issued thereunder, as in effect from time to time. To the extent
a provision of this Agreement is contrary to or fails to address the
requirements of Code Section 409A and related Treasury Regulations, this
Agreement shall be construed and administered as necessary to comply with such
requirements to the extent allowed under applicable Treasury Regulations until
this Agreement is appropriately amended to comply with such requirements.
     23. Excise Tax Gross-Up Payment. In the event it shall be determined that
any payment or distribution of any type to or for the benefit of the Executive
directly or indirectly by the Company, any affiliate of the Company, any person
who acquires ownership or effective control of the Company or ownership of a
substantial portion of the Company’s assets (within the meaning of Section 280G
of the Code and the regulations thereunder) or any affiliate of such person,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (the “Total Payments”), is or will be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the “Excise Tax”), then the Executive
shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. Such
Gross-Up Payment shall be made no later than the end of the calendar year
following the calendar year during which the Excise Tax is incurred.
     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.

             
Sparton Corporation
      Executive    
 
           
By: \s\ James D. Fast
 
James D. Fast, Chairman of the
      \s\ Cary B. Wood
 
 Cary B. Wood    
CEO Search Committee, pursuant
           
to Board Authorization.