Ousted Servotronics presidents wins $4.7 million arbitration

Oct. 15--The former president of Servotronics Inc. has been awarded $4.7 million in damages by an arbitrator, who ruled that his ouster two years ago from the Elma motion control equipment and cutlery maker was "a sham."

Nicholas D. Trbovich Jr., a son of the company founder and a 36-year employee at Servotronics, had argued that he had been wrongfully removed from his post as the No.2 executive at the Elma company. In a feud that split the Trbovich family, the company, which was founded by Trbovich's father, Nicholas D. Trbovich Sr., appointed the former executive's younger brother, Kenneth D. Trbovich, to the president's position and also named him CEO of its Ontario Knife Co. cutlery business.

Arbitrator Jack P. Levin ruled that Trbovich's dismissal was "a sham" and "not justifiable."

The arbitrator awarded Tvbovich $4 million, covering the present value of his estimated total compensation from the time of his dismissal in September 2012 through the end of his employment agreement with Servotronics in December 2018. The arbitrator also ordered Servotronics to pay 9 percent interest on the award, adding $700,000 to the damages.

Trbovich also has filed a request to be reimbursed for about $850,000 in attorney's fees and other expenses, although that request has not been approved by the arbitrator. If that request were approved, it would boost the arbitrator's award to more than $5.5 million.

Servotronics said in a filing with the Securities and Exchange Commission that it has filed a request to have the arbitration award reduced, arguing that the $4 million awarded to Trbovich was improperly calculated, overstating the value of his compensation by more than $450,000 by including bonus payments and other incentive compensation that Trbovich was not guaranteed to receive during the course of his employment agreement.

"The arbitrator's ruling is not supported by the facts of this case or the terms of the employment agreement," Servotronics said in the filing. The arbitratror's award also must be confirmed in State Supreme Court.

Servotronics said that it has insurance coverage in place that it believes could cover the arbitrator's award but that the carrier has made a preliminary determination to deny coverage. Servotronics said that it continues to pursue the claim with its carrier.

The arbitrator's award, if it is upheld, could have serious financial ramifications for Servotronics. The company has not set up a reserve that would help cover the award because Servotronics' lawyers believed that it was "not probable" that the arbitrator would rule in favor of Trbovich Jr., Servotronics said in the filing.

If Trbovich Jr. is awarded all of the $5.5 million in damages and expenses he is seeking, the company would be forced to pay its former president a sum equal to more than Servotronics' profits during the last four fiscal years combined. The potential damages are equal to about a quarter of Servotronics' annual sales of $22.1 million during its last full fiscal year, and exceed the $3.3 million that the company had in cash at the end of June.

A damage award of that size could have a "material adverse" effect on the company's finances and its liquidity, Servotronics warned in the SEC filing.

But Edward C. Cosgrove, a Buffalo attorney who joined Servotronics' board in November 2012, following Trbovich Jr.'s dismissal as president, said the award was not a threat to Servotronics' financial well-being. "The resources within the company are so strong, this is not a problem," he said.

Trbovich Jr. began working at Servotronics while he was in high school and has served on the company's board of directors since 1990. He became the company's chief operating officer in 2007 and was named its president in 2010. He was removed from the board in May 2013.

"While this legal fight has ended with justice served, I'm disappointed with the direction the board has taken the company over the last two years," Trbovich Jr., 54, said in a statement Wednesday. He urged the Servotronics board to "put their self-interest aside and focus the company on improved profitability and shareholder value creation."

email: drobinson@buffnews.com

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