%

On June 29, 1999, Garratt received $1,349,000 under the SERP rather than $3,200,000.
The closing took place in New York the next day, Garratt received the special incentive payment
ashort time later. Garratt claims the board’s amendment of the SERP to exclude calculation of
the special incentive payment violated § 6.2 of the SERP.

DISCUSSION

I. Motion to dismiss standard

In ruling on a motion to dismiss, the court considers “whether relief is possible
under any set of facts that could be established consistent with the allegations.” Pokuta v. Trans
World Airlines, Inc., 191 F.3d 834, 839 (7" Cir. 1999) (citing Conley v. Gibson, 355 US. 41, 45-
46 (1957)). A claim may be dismissed only if there is no set of facts that would entitle the
plaintiff to relief based on the allegations in the complaint. Vonderohe v. B & S of Fort Wayne,
Inc., 36 F.Supp.2d 1079, 1081 (7" Cir. 1999). A motion to dismiss tests the sufficiency of the
complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7" Cir. 1990).
Il. Exhibits

The SERP attaches the April 1, 1992 version of Knowles’ employee pension plan to the
motion to dismiss. The SERP asserts the plan’s definition of “earnings” demonstrates that
Garratt’s special incentive payment should not have been considered in calculating SERP
benefits. Garratt asserts this document’s terms are not incorporated in the complaint and, thus,
cannot be considered on a motion to dismiss. For purposes of a motion to dismiss, it is true that
courts are typically restricted to the allegations in the complaint and attached exhibits. In re First
Chicago Corporation Securities Litigation, 769 F.Supp. 1444, 1450 (7" Cir. 1991). However,

courts will consider “pertinent documents that a plaintiff fails to append to his complaint but that


corporation to Doughty Hanson & Co. (“Doughty Hanson”) for $530,000,000. The closing was
set for June 30, 1999. Garratt’s efforts made this transaction possible. Thus, he was entitled to a
special incentive payment.

During April or May 1999, John W. Hupp (“Hupp”), Knowles’ attorney and board
member, authorized Mercer to recalculate the amount owed to SERP beneficiaries. In
recalculating the amount to which Garratt was entitled, Mercer included the special incentive
payment. He considered the incentive payment “earnings,” as defined by Knowles’ pension plan.
Mercer concluded Garratt was entitled to $3,200,000 under the SERP.

On June 24, 1999, Hupp informed Garratt that $3,200,000 was too high and that the
Knowles family decided he should only receive $1,349,000. The next day, Huff told the board
that Mercer’s calculations were not in accord with the SERP program. The board approved
Huff’s proposal to exclude the special incentive payments from the SERP calculations and the
SERP was amended accordingly. Section 3.1 of the SERP was amended as follows:

[t}hat for purposes of this calculation ‘Earnings’ as defined in the

Qualified Plan shall not include any bonus or incentive payments

made by reason of the sale or disposition of the Company or

under the 1989 Stock Appreciation Rights Plan for Key Employees.

The original SERP expressly prohibited the board from adopting amendments that would
deprive SERP participants of any benefits to which they were entitled prior to the amendment.
Section 6.2 of the SERP provides:

Effect of Amendment or Termination. No amendment or termination

of the Plan shall directly or indirectly deprive any current or former

Participating or Surviving Spouse of all or any Supplemental Retirement

Benefit or Surviving Spouse Benefit payment of which has commenced

prior to the effective date of such amendment or termination or which

would be payable if the Participant terminated employment for any
reason, including death, on such effective date.

3


%

a defendant attaches to his motion to dismiss...” Id.

Garratt does refer to a pension plan in his complaint. The plan may be pertinent for
resolving this dispute. However, Garratt contends the pension plan the SERP attaches to its
motion to dismiss is not the same version Garratt possesses. Decisions pertaining to the binding
effect of a particular pension plan should not be resolved in a motion to dismiss. The case on
which the SERP relies in support of its argument that the attached pension plan should be
considered is distinguishable. The court in Jn re First Chicago Corporation Securities Litigation
considered the actual documents which plaintiffs quoted directly in their complaint. 769 F.Supp.
at 1450. In contrast, it is not clear whether Knowles’ 1992 pension plan was the version
governing the SERP. In addition, the SERP fails to properly authenticate the attached pension
plan. See Wright v, Associated Insurance Companies, Inc., 29 F.3d 1244, 1247 (7" Cir. 1994)
(pertinent documents attached to motion to dismiss may be considered when properly
authenticated by an affidavit); Madsen y. Park City, 6 F.Supp.2d 938, 942, n. 3 (N.D. Ill. 1998)
(documents attached to motion to dismiss must be authenticated). Accordingly, the SERP’s

motion to dismiss must be denied.

CONCLUSION

The motion to dismiss is denied.

August 17, 2001

United States District Judge


i

BSimite Onder sin (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Suzanne B. Conlon Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C 4099 DATE 8/17/2001
CASE REG G. GARRATT vs. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF
TITLE KNOWLES ELECTRONICS, INC.
[Inthe following box (a) indicate the party filing the motion, e.. plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.}

DOCKET ENTRY:

ad) Oo Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due __.
(3) Oo Answer brief to motion due___. Reply to answer brief due___-
(4) im] Ruling/Hearing on __set for at
(5) a Status hearing[held/continued to] [set for/re-set for] on set for at
(6) o Pretrial conference[held/continued to] {set for/re-set for] on set for at_
(7) Oo Trial[set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
DIFRCP4(m) General Rule 2! CIFRCP41(a)(1) CU FRCP41(a)(2).
qo) [Other docket entry] The motion to dismiss [7-1] is denied. Defendant is directed to answer the
complaint by August 27, 2001.
13 . Coke
a) [For further detail see order attached to the original minute order.]

Docum
Number

No notices required, advised in open court.

No notices require:
o quired, number of notices

Notices mailed by judge’s staff.

AUG 2 3 200%

diate docketed

wba itias

8/17/2001

Notified counsel by telephone.

Docketing to mail notices

\5

Mail AO 450 form. wap us bas

Copy to judge/magistrate judge.

GL AUG 22 Pi 7:19
dae aed notice
courtroom:
deputy’s
initials

SB cB

Date/time received in
central Clerk's Office

nailing deputy initials



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
REG G. GARRATT )
)
Plaintiff, ) | No. 01 C4099

)

v. ) Suzanne B. Conlon, Judge
)
SUPPLEMENTAL EXECUTIVE )
RETIREMENT PLAN OF )
KNOWLES ELECTRONICS, INC. )
)
Defendants. )

MEMORANDUM OPINION AND ORDER
Reg G. Garratt sues the Supplemental Executive Retirement Plan of Knowles Electronics,
Ine. (“the SERP”) for breach of the SERP, under the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. § 1001 et seg. The SERP moves to dismiss the complaint, pursuant to
Fed.R.Civ.P. 12(b)(6).

BACKGROUND

For purposes of a motion to dismiss, the court accepts all well-pleaded allegations in the
complaint as true and draws all reasonable inferences in favor of the nonmovant. Stachon v.
United Consumers Club, Inc., 229 F.3d 673, 675 (7" Cir. 2000). On June 21, 1993, Garratt and
Knowles entered into an employment agreement whereby Garratt would serve as Knowles’ CEO
until June 30, 1998. When his CEO tenure ended, he would serve in an executive or consulting
capacity. The agreement further provided that Garratt would receive a set salary and certain

benefits upon the sale of Knowles. A subsequent amendment to the agreement guaranteed

1 \


Garratt would receive a portion of the deferred compensation account’s balance. On July 1,
1997, Garratt became chairman of Knowles’ board of directors (“the board”). He held this
position while acting as the CEO.

On March 15, 1998, Garratt and Knowles amended the employment agreement to adda
sale of company provision. This provision provided that Knowles would make a special
incentive payment to Garratt in return for Garratt’s assistance in furthering the corporation’s
future sale. Knowles was to give Garratt the special incentive payment no later than ten days
after the closing.

On March 16, 1998, the board created the SERP. The SERP’s purpose was to provide
benefits for highly paid executives whose benefits under Knowles’ pension plan were limited by
the Internal Revenue Code. Pursuant to Article 7.1 of the SERP, the plan would terminate upon
the sale of Knowles and all benefits would be distributed. In late 1998 and early 1999, nationally
recognized pension design consultant William M. Mercer, Inc. (“Mercer”) calculated the amount
Garratt was scheduled to receive under the SERP. Mercer concluded Garratt was entitled to a
lump sum cash payment of $1,349,000. Mercer’s calculations did not include Garratt’s special
incentive payment because the sale of Knowles was not imminent.

On February 23, 1999, Garratt and Knowles again amended the employment agreement.
The amended provided in part that:

In the event the Company or its stockholders enter into a definitive

agreement . . . providing for the sale or other complete disposition of

the Company . . . the Company shall make a special incentive

payment to [Garratt] in recognition of his past service and continuing

cooperation and assistance in furthering the sale in an amount equal

to 0.42% of the sale price.

At some point between March 15, 1999 and June 25, 1999, Knowles agreed to sale the

2