SEVERANCE AGREEMENT
CTS
Corporation
Form 10-K
2007
This
SEVERANCE AGREEMENT (this “Agreement”), dated as of December 5, 2007, is made
and entered by and between CTS Corporation, an Indiana corporation (the
“Company”), and _____________________ (the “Executive”).(1)
W I T N E S S E T
H:
WHEREAS,
the Executive is a senior executive or a key employee of the Company or one or
more of its Subsidiaries and has made and is expected to continue to make major
contributions to the short- and long-term profitability, growth and financial
strength of the Company;
WHEREAS,
the Company recognizes that, as is the case for most publicly held companies,
the possibility of a Change in Control (as defined below) exists;
WHEREAS,
the Company desires to assure itself of both present and future continuity of
management and desires to establish certain minimum severance benefits for
certain of its senior executives and key employees, including the Executive,
applicable in the event of a Change in Control;
WHEREAS,
the Company wishes to ensure that its senior executives and key employees are
not practically disabled from discharging their duties in respect of a proposed
or actual transaction involving a Change in Control;
WHEREAS,
the Company desires to provide additional inducement for the Executive to
continue to remain in the ongoing employ of the Company; and
WHEREAS,
the Company and the Executive previously entered into a Severance Agreement
dated as of (the “Prior Agreement”), and wish to amend and completely restate
the Prior Agreement as set forth below.
NOW,
THEREFORE, the Company and the Executive agree as follows:
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1.
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Certain Defined
Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this
Agreement with initial capital
letters:
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(a)
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“Base
Pay” means the Executive’s annual base salary at a rate not less than the
Executive’s annual fixed or base compensation as in effect for the
Executive immediately prior to the occurrence of a Change in Control or
such higher rate as may be determined from time to time by the Board or a
committee thereof.
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(b) “Board”
means the Board of Directors of the Company.
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(c)
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“Cause”
means that, prior to any termination pursuant to Section 3(b), the
Executive:
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(i)
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has
been convicted of a criminal violation involving fraud, embezzlement or
theft in connection with his duties or in the course of his employment
with the Company or any Subsidiary;
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(ii)
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has
intentionally and wrongfully damaged property of the Company or any
Subsidiary;
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(iii)
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has
intentionally and wrongfully disclosed secret processes, trade secrets or
confidential information of the Company or any Subsidiary;
or
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(iv)
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has
intentionally and wrongfully engaged in any Competitive
Activity;
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and
any such act has been demonstrably and materially harmful to the
Company. For purposes of this Agreement, no act or failure to
act on the part of the Executive will be deemed to be “intentional” if it
was due primarily to an error in judgment or negligence, and will be
deemed to be “intentional” only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that his action
or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive will not
be deemed to have been terminated for “Cause” hereunder unless and until
there is delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than two-thirds of the Board then in
office at a meeting of the Board called and held for such purpose, after
reasonable notice to the Executive and an opportunity for the Executive,
together with his counsel (if the Executive 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 Executive committed an act
constituting “Cause” as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any
such determination.
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_______________________________________
(1) Two different
“tiers” of Executives will be eligible to enter into Severance Agreements, with
each tier providing for different levels of severance benefits.
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(d)
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“Change
in Control” means the occurrence during the Term of any of the following
events:
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(i)
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the
acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of
aggregate beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the combined voting
power of the then outstanding Voting Stock of the Company (including, for
this purpose, any Voting Stock of the Company acquired prior to the Term);
provided, however, that
for purposes of this Section 1(d)(i), the following will not be deemed to
result in a Change in Control: (A) any acquisition of
Voting Stock of the Company directly from the Company that is approved by
the Incumbent Board (as defined below), (B) any acquisition of Voting
Stock of the Company by the Company or any Subsidiary and any change in
the percentage ownership of Voting Stock of the Company that results from
such acquisition, (C) any acquisition of Voting Stock of the Company by
any employee benefit plan (or related trust) sponsored or maintained by
the Company or any Subsidiary, or (D) any acquisition of Voting Stock of
the Company by any Person pursuant to a Business Combination that complies
with clauses (I), (II) and (III) of Section 1(d)(iii);
or
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(ii)
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individuals
who, as of the date hereof, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a Director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the Directors then comprising
the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) will be deemed to have
been a member of the Incumbent Board, but excluding, for this purpose, any
such individual becoming a Director as a result of an actual or threatened
election contest (as described in Rule 14a-12(c) of the Exchange Act) with
respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (collectively, an “Election Contest”);
or
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(iii)
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consummation
of (A) a reorganization, merger or consolidation of the Company, or
(B) a sale or other disposition of all or substantially all of the
assets of the Company, (such reorganization, merger, consolidation or sale
each, a “Business Combination”), unless, in each case, immediately
following such Business Combination, (I) all or substantially all of the
individuals and entities who were the beneficial owners of Voting Stock of
the Company immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 75% of the then outstanding shares
of common stock and the combined voting power of the then outstanding
Voting Stock of the Company entitled to vote generally in the election of
Directors of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries), (II) no
Person (other than the Company, such entity resulting from such Business
Combination, or any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination) beneficially owns, directly or indirectly, 15%
or more of the then outstanding shares of Voting Stock of the entity
resulting from such Business Combination, and (III) at least a majority of
the members of the Board of the entity resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board providing
for such Business Combination; or
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(iv)
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approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company, except pursuant to a Business Combination that
complies with clauses (I), (II) and (III) of
Section 1(d)(iii).
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(e) “Code”
means the Internal Revenue Code of 1986, as amended.
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(f)
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“Competitive
Activity” means the Executive’s participation, without the written consent
of an officer of the Company, in the management of any business enterprise
if such enterprise engages in substantial and direct competition with the
Company and such enterprise’s sales of any product or service competitive
with any product or service of the Company amounted to 25% of such
enterprise’s net sales for its most recently completed fiscal year and if
the Company’s net sales of said product or service amounted to 25% of the
Company’s net sales for its most recently completed fiscal
year. “Competitive Activity” does not include (i) the mere
ownership of securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of any
such enterprise other than in connection with the competitive operations
of such enterprise.
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(g)
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“Employee
Benefits” means the perquisites, benefits and service credit for benefits
as provided under any and all employee benefit, including retirement
income and welfare benefit, policies, plans, programs or arrangements in
which the Executive is entitled to participate, including without
limitation any stock option, performance share, performance unit, stock
purchase, stock appreciation, restricted stock, savings, pension,
supplemental executive retirement, or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or other
life, health, medical/hospital or other insurance (whether funded by
actual insurance or self-insured by the Company), disability, salary
continuation, expense reimbursement and other employee benefit policies,
plans, programs or arrangements that may now exist or any equivalent
successor policies, plans, programs or arrangements that may be adopted
hereafter by the Company, providing perquisites, benefits and service
credit for benefits at least as great in the aggregate as are payable
thereunder prior to a Change in
Control.
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2
(h) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
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(i)
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“Incentive
Pay” means an annual amount equal to not less than the greater of:
(i) the average aggregate annual bonus, incentive or other payments
of cash compensation, in addition to Base Pay, made or to be made in
regard to services rendered during the three consecutive fiscal years
immediately preceding the fiscal year in which the Change in Control
occurred pursuant to any bonus, incentive, profit-sharing, performance,
discretionary pay or similar agreement, policy, plan, program or
arrangement (whether or not funded) of the Company, or any successor
thereto (including, without limitation, any matching cash payment made
with respect to restricted stock awards vesting during such three-year
period), providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control or (ii) the Target Annual
Incentive Pay. “Target Annual Incentive Pay” means the target
incentive pay for the Executive’s position as set forth in the CTS
Corporation Management Incentive Plan for the fiscal year in which the
Change in Control occurred (without regard to any amendment to such Plan
made subsequent to a Change in Control which adversely affects in any
manner the benefits or amounts payable thereunder) and calculated with
respect to the Executive’s Base Pay or, if the Management Incentive Plan
is no longer in effect, the target annual cash incentive compensation, in
addition to Base Pay, to be paid in regard to services rendered during the
fiscal year in which the Change in Control occurred as set forth in the
Company’s annual budget for such fiscal
year.
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(j)
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“Retirement
Plans” means the [CTS Corporation Pension Plan, the CTS Corporation 1996
Excess Retirement Benefit Plan, the CTS Corporation Retirement Plan, the
CTS Corporation Retirement Plan as Adopted by Electromechanical Division,
the Retirement Plan for Employees of Dynamics Corporation of America, and
the CTS Corporation Individual Excess Retirement Benefit Plan with respect
to the Executive adopted by the Company as of December 5, 2007,]2 and any successor plan
thereto.
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(k)
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“Separation
from Service” means the Executive’s separation from service within the
meaning of Section 409A of the
Code.
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(l)
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“Severance
Period” means the period of time commencing on the date of the first
occurrence of a Change in Control during the Term and continuing until the
earlier of (i) the [TIER 1: third/ TIER 2:
second] anniversary of the occurrence of the Change in Control, or
(ii) the Executive’s death [TIER 1 ONLY:; provided,
however, that on each
anniversary of the Change in Control, the Severance Period will
automatically be extended for an additional year unless, not later than 90
calendar days prior to such anniversary date, either the Company or the
Executive gives written notice to the other that the Severance Period is
not to be so extended].
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(m)
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“Specified
Employee” means a specified employee within the meaning of Section 409A of
the Code.
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(n)
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“Subsidiary”
means an entity in which the Company directly or indirectly beneficially
owns 50% or more of the outstanding Voting
Stock.
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(o)
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“Term”
means the period commencing as of the date hereof and expiring as of the
later of (i) the close of business on [December 31, 2011], or
(ii) the expiration of the Severance Period; provided, however, that, subject to the last sentence
of Section 9, if, prior to a Change in Control, the Executive incurs a
Separation from Service for any reason, thereupon without further action
the Term will be deemed to have expired and this Agreement will
immediately terminate and be of no further
effect.
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(p)
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“Voting
Stock” means securities entitled to vote generally in the election of
directors.
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2.
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Operation of
Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a
Change in Control at any time during the Term, without further action,
this Agreement will become immediately operative, including without
limitation, for purposes of the last sentence of Section 9 notwithstanding
that the Term may have theretofore
expired.
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3. Separation Following a
Change in Control.
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(a)
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In
the event of the occurrence of a Change in Control, the Company may
terminate Executive’s employment during the Severance Period and, provided
such termination of employment constitutes a Separation from Service, the
Executive will be entitled to the severance compensation provided by
Section 4 unless such Separation is the result of the occurrence of
one or more of the following
events:
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(i) The
Executive’s death;
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(ii)
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The
Executive becoming permanently disabled within the meaning of, and
beginning to actually receive disability benefits pursuant to, the
Company’s long-term disability plan in effect for, or applicable to, the
Executive immediately prior to the Change in
Control;
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(iii) Cause.
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(b)
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In
the event of the occurrence of a Change in Control, the Executive may
terminate employment with the Company during the Severance Period upon the
occurrence of one or more of the following events (regardless of whether
any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment) and, provided such termination of employment constitutes a
Separation from Service will be entitled to severance compensation as
provided in Section 4:
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(i)
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Failure
to elect or reelect or otherwise to maintain the Executive in the office
or the position, or a substantially equivalent or better office or
position, of or with the Company and/or a Subsidiary, as the case may be,
which the Executive held immediately prior to a Change in Control, or the
removal of the Executive as a member of the Board of Directors of the
Company (or any successor thereto) if the Executive was a Director of the
Company immediately prior to the Change in
Control;
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(ii)
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(A) A
significant adverse change in the nature or scope of the authorities,
powers, functions, responsibilities or duties attached to the position
with the Company and any Subsidiary which the Executive held immediately
prior to the Change in Control, (B) a reduction in the aggregate of
the Executive’s Base Pay and Incentive Pay received from the Company and
any Subsidiary, or (C) the termination or denial of the Executive’s
rights to Employee Benefits or a reduction in the scope or value thereof,
any of which is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
change, reduction or termination, as the case may
be;
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(iii)
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A
determination by the Executive (which determination will be conclusive and
binding upon the parties hereto provided the determination was made in
good faith and, in all events, will be presumed to have been made in good
faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following a Change
in Control, including, without limitation, a change in the scope of the
business or other activities for which the Executive was responsible
immediately prior to the Change in Control, which has rendered the
Executive substantially unable to carry out, has substantially hindered
Executive’s performance of, or has caused Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the Executive
immediately prior to the Change in Control, which situation is not
remedied within 10 calendar days after written notice to the Company from
the Executive of such
determination;
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(iv)
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The
liquidation, dissolution, merger, consolidation or reorganization of the
Company or transfer of all or substantially all of its business and/or
assets unless the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which all or
substantially all of its business and/or assets have been transferred
(directly or by operation of law) assumed all duties and obligations of
the Company under this Agreement pursuant to Section
11(a);
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(v)
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The
Company requires the Executive to have his principal location of work
changed to any location that is in excess of 35 miles from the location
thereof immediately prior to the Change in Control, or requires the
Executive to travel away from his office in the course of performing his
responsibilities or duties attached to his position at least 20% more (in
terms of aggregate days in any calendar year or in any calendar quarter
when annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior to
the Change in Control without, in either case, his prior written
consent;
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(vi)
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Without
limiting the generality or effect of the foregoing, any material breach of
this Agreement by the Company or any successor thereto which is not
remedied by the Company within 10 calendar days after receipt by the
Company of written notice from the Executive of such breach;
or
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(vii)
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Without
limiting the generality or effect of the foregoing, any Change in Control
that results in (A) the Company’s Voting Stock ceasing to be
(x) registered under Section 12 of the Exchange Act or
(y) listed on the New York Stock Exchange or (z) authorized for
quotation on the Nasdaq National Market System, or (B) the Company no
longer being required to file periodic reports with the Securities and
Exchange Commission pursuant to Sections 13(a) or 15(d) of the Exchange
Act, shall be conclusively presumed to give rise to the Executive’s right
to terminate employment pursuant to subsections (ii) and (iii) of this
Section 3(b).
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(c)
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A
Separation from Service pursuant to Section 3(a) or Section 3(b) that
entitles the Executive to the benefits provided by Section 4 will not
affect any rights that the Executive may have pursuant to any agreement,
policy, plan, program or arrangement of the Company providing Employee
Benefits, which rights will be governed by the terms thereof; provided, however, that
if the Executive also becomes entitled to receive severance payments under
any employment or severance agreement (other than this Agreement) in
existence prior to the date hereof, then the Executive’s termination
payments under this Agreement shall be reduced by any corresponding
payments made to the Executive under such other
agreement. [FOR TIER 1 ONLY: For the
avoidance of doubt, payments made as reimbursement or for outplacement
advice of the type described in Paragraphs (5) and (6) of Annex A to this
Agreement shall not be considered as corresponding to severance payments
calculated with respect to Base Pay or Incentive Pay, or any multiple
thereof.]
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4. Severance
Compensation.
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(a)
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If
the Executive incurs a Separation from Service pursuant to
Section 3(a) or Section 3(b) that entitles the Executive to severance
benefits hereunder, the Company will pay to the Executive (or other Person
as appropriate) as severance benefits the appropriate amounts described on
Annex A and will continue to provide to the Executive the continuing
and other benefits described on Annex A at the times and for the
periods described therein.
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(b)
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Without
limiting the rights of the Executive at law or in equity, if the Company
fails to make any payment or provide any benefit required to be made or
provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the
so-called composite “prime rate” as quoted from time to time during the
relevant period in the Midwest Edition of The Wall Street
Journal. Any change in such prime rate will be effective
on and as of the date of such
change.
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(c)
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If
the Executive incurs a Separation from Service pursuant to
Section 3(a) or Section 3(b) that entitles the Executive to severance
benefits hereunder, notwithstanding anything to the contrary contained in
this Agreement or in the CTS Corporation Management Incentive Plan, the
Company will pay in cash to the Executive a lump sum amount equal to
(a) the Executive’s target incentive pay for Executive’s position
under the CTS Corporation Management Incentive Plan for the year in which
the Executive’s Separation from Service occurs, and (b) prorated on
the basis of the ratio of the number of months of the Executive’s
participation during the applicable performance period to which the
incentive pay related to the aggregate number of months in such
performance period, taking into account service rendered through the date
of the Executive’s Separation from Service. Such payment shall
be made as soon as practicable but not more than 90 days after the date of
the Executive’s Separation from Service; provided, however, that
if the Executive is a Specified Employee such payment shall be made on the
first day of the seventh month following the date of the Executive’s
Separation from Service.
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(d)
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Notwithstanding
anything to the contrary contained in this Agreement or in any applicable
plan, program or agreement, immediately upon the occurrence of a Change in
Control, all equity awards (including restricted stock awards, stock
options and appreciation rights) held by the Executive will become fully
vested and any risk of forfeiture and prohibitions or restrictions on
transfer pertaining to any restricted shares granted to the Executive will
lapse and all stock options held by the Executive will become fully
exercisable.
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(e)
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Notwithstanding
any provision of this Agreement to the contrary, the parties’ respective
rights and obligations under this Section 4 and under Sections 5, 7
and 8 will survive any termination or expiration of this Agreement or the
Executive’s Separation from Service following a Change in Control for any
reason whatsoever.
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5. [FOR TIER 1 ONLY] Certain Additional Payments
by the Company.
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(a)
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Anything
in this Agreement to the contrary notwithstanding, in the event that this
Agreement becomes operative and it is determined (as hereafter provided)
that any payment or distribution by the Company or any of its affiliates
to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option,
performance share, performance unit, stock appreciation right or similar
right, or the lapse or termination of any restriction on, or the vesting
or exercisability of, any of the foregoing (a “Payment”), would be subject
to the excise tax imposed by Section 4999 of the Code (or any successor
provision thereto) by reason of being considered “contingent on a change
in ownership or control” of the Company, within the meaning of Section
280G of the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such
interest and penalties, being hereafter collectively referred to as the
“Excise Tax”), the Executive will be entitled to receive an additional
payment or payments (collectively, a “Gross-Up Payment”); provided, however, that
no Gross-up Payment will be made with respect to the Excise Tax, if any,
attributable to (i) any incentive stock option, as defined by
Section 422 of the Code (“ISO”) granted prior to the execution of
this Agreement, or (ii) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause
(i). The Gross-Up Payment will be 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
Payment.
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(b)
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Subject
to the provisions of Section 5(f), all determinations required to be made
under this Section 5, including whether an Excise Tax is payable by the
Executive and the amount of such Excise Tax and whether a Gross-Up Payment
is required to be paid by the Company to the Executive and the amount of
such Gross-Up Payment, if any, will be made by a nationally recognized
accounting firm (the “Accounting Firm”) selected by the Executive in his
sole discretion. The Executive will direct the Accounting Firm
to submit its determination and detailed supporting calculations to both
the Company and the Executive within 30 calendar days after the date of
Executive’s Separation from Service, if applicable, and any such other
time or times as may be requested by the Company or the
Executive. If the Accounting Firm determines that any Excise
Tax is payable by the Executive, the Company will pay the required
Gross-Up Payment to the Executive within five business days after receipt
of such determination and calculations with respect to any Payment to the
Executive. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it will, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his
federal, state or local income or other tax return. As a result
of the uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made (an “Underpayment”), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts or
fails to pursue its remedies pursuant to Section 5(f) and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive
will direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly
paid by the Company to, or for the benefit of, the Executive within five
business days after receipt of such determination and
calculations.
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(c)
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The
Company and the Executive will each provide the Accounting Firm access to
and copies of any books, records and documents in the possession of the
Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will be
binding upon the Company and the
Executive.
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(d)
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The
federal, state and local income or other tax returns filed by the
Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax
payable by the Executive. The Executive will make proper
payment of the amount of any Excise Payment, and at the request of the
Company, provide to the Company true and correct copies (with any
amendments) of his federal income tax return as filed with the Internal
Revenue Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive’s federal
income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, the Executive will, within five business days,
pay to the Company the amount of such
reduction.
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(e)
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The
fees and expenses of the Accounting Firm for its services in connection
with the determinations and calculations contemplated by Section 5(b) will
be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company will reimburse the Executive
the full amount of such fees and expenses within five business days after
receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
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(f)
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The
Executive will notify the Company in writing of any claim by the Internal
Revenue Service or any other taxing authority that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification will be given as promptly as practicable but no later than
10 business days after the Executive actually receives notice of such
claim and the Executive will further apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid (in
each case, to the extent known by the Executive). The Executive
will not pay such claim prior to the earlier of (i) the expiration of
the 30-calendar-day period following the date on which he gives such
notice to the Company and (ii) the date that any payment of amount
with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive
will:
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(i)
|
provide
the Company with any written records or documents in his possession
relating to such claim reasonably requested by the
Company;
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(ii)
|
take
such action in connection with contesting such claim as the Company
reasonably requests in writing from time to time, including without
limitation accepting legal representation with respect to such claim by an
attorney competent in respect of the subject matter and reasonably
selected by the Company;
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(iii)
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cooperate
with the Company in good faith in order effectively to contest such claim;
and
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(iv)
|
permit
the Company to participate in any proceedings relating to such
claim;
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provided, however, that
the Company will bear and pay directly all costs and expenses (including
interest and penalties) incurred in connection with such contest and will
indemnify and hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and
payment of costs and expenses pursuant to Section 5(g). Without
limiting the foregoing provisions of this Section 5(f), the Company will
control all proceedings taken in connection with the contest of any claim
contemplated by this Section 5(f) and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim (provided, however, that
the Executive may participate therein at his own cost and expense) and
may, at its option, either direct the Executive to pay the tax claimed and
xxx for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company determines; provided, however, that
any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of any such
contested claim will be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive will be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing
authority.
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(g)
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Notwithstanding
any other provision of this Section 5 to the contrary, any Gross-Up
Payment, Underpayment or other payment or reimbursement made pursuant to
this Section 5 shall be paid or reimbursed no later than December 31st of
the year following the year in which the applicable taxes are remitted or,
in the case of reimbursement of expenses incurred due to a tax audit or
litigation to which there is no remittance of taxes, no later than the end
of the year following the year in which the audit is completed or there is
a final and nonappealable settlement or other resolution of the litigation
in accordance with Treasury Regulation Section
1.409A-3(i)(1)(v).
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6
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5.
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[FOR TIER 2
ONLY] Limitation on Payments
and Benefits. Notwithstanding any provision of this
Agreement to the contrary, if any amount or benefit to be paid or provided
under this Agreement would be an “Excess Parachute Payment,” within the
meaning of Section 280G of the Code (or any successor provision thereto),
but for the application of this sentence, then the payments and benefits
to be paid or provided under this Agreement will be reduced to the minimum
extent necessary (but in no event to less than zero) so that no portion of
any such payment or benefit, as so reduced, constitutes an Excess
Parachute Payment; provided, however, that
the foregoing reduction will be made only if and to the extent that such
reduction would result in an increase in the aggregate payment and
benefits to be provided, determined on an after-tax basis (taking into
account the excise tax imposed pursuant to Section 4999 of the Code,
or any successor provision thereto, any tax imposed by any comparable
provision of state law, and any applicable federal, state and local income
and employment taxes). Whether requested by the Executive or
the Company, the determination of whether any reduction in such payments
or benefits to be provided under this Agreement or otherwise is required
pursuant to the preceding sentence will be made at the expense of the
Company by the Company’s independent accountants. The fact that
the Executive’s right to payments or benefits may be reduced by reason of
the limitations contained in this Section 5 will not of itself limit
or otherwise affect any other rights of the Executive other than pursuant
to this Agreement. The Company shall effect such reduction in
the order in which payments are due to be paid or provided, beginning with
the latest payment.
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6.
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No Mitigation
Obligation. The Company hereby acknowledges that it will
be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Executive’s Separation from Service
and that the non-competition covenant contained in Section 8 will further
limit the employment opportunities for the
Executive. Accordingly, the payment of the severance
compensation by the Company to the Executive in accordance with the terms
of this Agreement is hereby acknowledged by the Company to be reasonable,
and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise, nor will any profits, income, earnings or other benefits from
any source whatsoever create any mitigation, offset, reduction or any
other obligation on the part of the Executive hereunder or otherwise,
except as expressly provided in Paragraph 2 set forth on
Annex A.
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7.
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Legal Fees and
Expenses. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of the
Executive’s rights under this Agreement by litigation or otherwise because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive
that the Company has failed to comply with any of its obligations under
this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Executive the benefits provided
or intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel
of the Executive’s choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any
such interpretation, enforcement or defense, including without limitation
the initiation or defense of any litigation or other legal action, whether
by or against the Company or any Director, officer, stockholder or other
person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Executive’s entering into an
attorney-client relationship with such counsel and, in that connection,
the Company and the Executive agree that a confidential relationship will
exist between the Executive and such counsel. Without respect
to whether the Executive prevails, in whole or in part, in connection with
any of the foregoing, the Company will pay and be solely financially
responsible for or will reimburse any and all attorneys’ and related fees
and expenses incurred by the Executive in connection with any of the
foregoing, regardless of amount. Any such payment or
reimbursement shall be for expenses incurred by the Executive during his
lifetime, and such payment or reimbursement shall be made not later than
December 31st of the year following the year in which the Executive incurs
the expense; provided, that in no
event will the amount of expenses eligible for payment or reimbursement in
one year affect the amount of expenses to be paid or reimbursed in any
other taxable year.
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8.
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Competitive
Activity. During a period ending one year following the
Executive’s Separation from Service, if the Executive has received or is
receiving benefits under Section 4, the Executive will not, without the
prior written consent of the Company, which consent will not be
unreasonably withheld, engage in any Competitive
Activity.
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9.
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Employment
Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive
to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any
Separation from Service of the Executive or the removal of the Executive
from the office or position in the Company or any Subsidiary that follows
the commencement of any discussion with a third person that ultimately
results in a Change in Control will be deemed to be a Separation from
Service or removal of the Executive following the Change in Control for
purposes of this Agreement; provided, however, that
for purposes of determining the timing of any payments to be made pursuant
to Section 4(c) or Paragraphs (1) through (5) of Annex A, the schedules of
payments described therein shall be measured from the date of the Change
in Control rather than from the date of the Executive’s Separation from
Service.
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10.
|
Withholding of
Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government
regulation or ruling.
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7
11. Successors and Binding
Agreement.
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(a)
|
The
Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform if no such succession had
taken place. This Agreement will be binding upon and inure to
the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise (and such
successor will thereafter be deemed the “Company” for the purposes of this
Agreement), but will not otherwise be assignable, transferable or
delegable by the Company.
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(b)
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This
Agreement will inure to the benefit of and be enforceable by the
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and
legatees.
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(c)
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This
Agreement is personal in nature and neither of the parties hereto will,
without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly
provided in Sections 11(a) and 11(b). Without limiting the
generality or effect of the foregoing, the Executive’s right to receive
payments hereunder is not assignable, transferable or delegable, whether
by pledge, creation of a security interest, or otherwise, other than by a
transfer by Executive’s will or by the laws of descent and distribution
and, in the event of any attempted assignment or transfer contrary to this
Section 11(c), the Company will have no liability to pay any amount
so attempted to be assigned, transferred or
delegated.
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12. Section 409A of the
Code.
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(a)
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To
the extent applicable, it is intended that the compensation arrangements
under this Agreement be in full compliance with Section 409A of the
Code. This Agreement shall be construed in a manner to give
effect to such intention. Reference to Section 409A of the Code
includes any proposed, temporary or final regulations, or any other
guidance, promulgated with respect to such Section by the U.S. Department
of the Treasury or the Internal Revenue
Service.
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(b)
|
Notwithstanding
any provision of this Agreement to the contrary, in light of the
uncertainty with respect to the proper application of Section 409A of the
Code, the Company reserves the right to make amendments to this Agreement
as the Company deems necessary or desirable to avoid the imposition of
taxes or penalties under Section 409A of the Code. In any case,
the Executive shall be solely responsible and liable for the satisfaction
of all taxes and penalties that may be imposed on the Executive or for the
Executive’s account in connection with this Agreement (including any taxes
and penalties under Section 409A of the Code), and neither the Company nor
any of its affiliates shall have any obligation to indemnify or otherwise
hold the Executive harmless from any or all such taxes or
penalties.
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13.
|
Notices. For
all purposes of this Agreement, all communications, including without
limitation notices, consents, requests or approvals, required or permitted
to be given hereunder will be in writing and will be deemed to have been
duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business
days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or one business day after
having been sent by a nationally recognized overnight courier service such
as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive
office and to the Executive 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 changes of address will be
effective only upon receipt.
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14.
|
Governing
Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Indiana, without
giving effect to the principles of conflict of laws of such
State.
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15.
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Validity. If
any provision of this Agreement or the application of any provision hereof
to any person or circumstances is held invalid, unenforceable or otherwise
illegal, the remainder of this Agreement and the application of such
provision to any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal
will be reformed to the extent (and only to the extent) necessary to make
it enforceable, valid or legal.
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16.
|
Miscellaneous. No
provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, expressed or implied
with respect to the subject matter hereof have been made by either party
which are not set forth expressly in this Agreement. References
to Sections are to references to Sections of this
Agreement.
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8
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17.
|
Non-solicitation.
Executive agrees that beginning on the date of Separation from Service and
continuing until the first anniversary of the last day of the Severance
Period, he/she shall not, either alone or in association with others (i)
solicit, or facilitate any organization with which the Executive is
associated in soliciting, any employee of the Company or any of its
subsidiaries to leave the employ of the Company or any of its
subsidiaries; (ii) solicit for employment, hire or engage as an
independent contractor, or facilitate any organization with which the
Executive is associated in soliciting for employment, hire or engagement
as an independent contractor, any person who was employed by the Company
or any of its subsidiaries at any time during the term of the Executive's
employment with the Company or any of its subsidiaries; provided, however that
this clause shall not apply to any individual whose employment with the
Company or any of its subsidiaries has been terminated for a minimum of
one year preceding any such
solicitation.
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18.
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Counterparts. This
Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original but all of which together will constitute one
and the same agreement.
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[FOR
EXECUTIVES WHO ARE PARTIES TO SEVERANCE AGREEMENTS:
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19.
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Prior
Agreement. This Agreement
amends and restates the Prior Agreement, which will, without further
action, be superseded as of the date first above
written.]
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IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and
delivered as of the date first above written.
| CTS CORPORATION | |||
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By:
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| Name | |||
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Title
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| Executive | |||
9
Annex
A
Severance
Compensation
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(1)
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A
lump sum payment in an amount equal to [TIER 1: 3/
TIER 2: 1.5] times the sum of (A) Base Pay (at
the rate in effect immediately prior to the Change in Control or, if
greater, the average Base Pay over the three years prior to the date of
the Executive’s Separation from Service), plus (B) Incentive Pay
(determined in accordance with Section 1(i)). Such payment
shall be made as soon as practicable after the Executive’s Separation from
Service, but not more than 90 days after the date of the Executive’s
Separation from Service; provided, however, that
if the Executive is a Specified Employee, such payment shall be made on
the earlier of (a) the first day of the seventh month following the
date of the Executive’s Separation from Service, or (b) the
Executive’s death.
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(2)
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For
a period of [TIER 1: 36/ TIER 2:
12] months following the date of the Executive’s Separation
from Service (the “Continuation Period”), the Company will make available
to the Executive at the Executive’s expense the medical and dental
benefits (but not long-term or short-term disability benefits) that the
Executive was eligible to receive as of the date of the Executive’s
Separation from Service (or, if greater, immediately prior to the
reduction, termination or denial described in Section
3(b)(ii)). The Company will reimburse the Executive, on a
taxable basis, for the amount of the premiums paid for such coverage that
is in excess of the contribution rate established by the Company for
active employees necessary to maintain such coverage for such period,
provided that the Executive makes a payment to the Company in an amount
equal to the full monthly premium payments (taking into account employer
and employee contributions) required to maintain such coverage on the
first day of each calendar month commencing with the first calendar month
following the date of the Executive’s Separation from
Service. If and to the extent that the coverage described in
this Paragraph 2 is not or cannot be paid or provided under any policy,
plan, program or arrangement of the Company or any Subsidiary, as the case
may be, then the Company will itself pay or provide for such coverage to
the Executive, his dependents and beneficiaries. In the case of
any benefit described in this Paragraph 2 which is subject to tax
only because it is not or cannot be paid or provided under any such
policy, plan, program or arrangement of the Company or any Subsidiary,
Company shall reimburse Executive or his dependents or beneficiaries, as
the case may be, an amount equal to the additional amount of income taxes
incurred by the Executive, dependents or beneficiaries therefor; provided, however, that
any such reimbursement shall be made no later than December 31st of the
year following the year in which the applicable taxes are
remitted. All payments of benefits or reimbursements of
premiums under the Company’s medical and dental programs or other
reimbursements shall be made no later than December 31 of the year
following the year in which the Executive incurs the related
expenses. In no event will the benefits and reimbursements
provided by the Company in one taxable year affect the amount of expenses
or reimbursements that the Company is obligated to pay, or in-kind
benefits to be provided in any other taxable year. The
Executive’s right to reimbursements of premiums and benefits shall not be
subject to liquidation or exchange for another
benefit. Notwithstanding the foregoing, or any other provision
of the Agreement, for purposes of determining the period of continuation
coverage to which the Executive or any of his dependents is entitled
pursuant to Section 4980B of the Code under the Company’s medical,
dental and other group health plans, or successor plans, the Executive’s
“qualifying event” will be the termination of the Continuation Period and
for such purpose the Executive will be considered to have remained
actively employed on a full-time basis through that
date. Without otherwise limiting the purposes or effect of
Section 6, the medical and dental benefit coverage otherwise available to
the Executive pursuant to this Paragraph 2 will be terminated to the
extent that the Executive is covered under a comparable welfare benefit
plan maintained by another employer during the Continuation Period
following the Executive’s Separation from Service. The
Executive agrees to notify the Company within 14 days of becoming covered
under a medical or dental plan maintained by another employer. [In addition to
the medical and dental benefit coverage made available under this
Paragraph 2, the Executive will be deemed to have completed an additional
period of service equal to the Continuation Period for purposes of
determining eligibility service under the CTS Post-Retirement Life
Insurance Benefit.]3
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(3)
|
In
addition to the retirement, supplemental executive retirement, and other
benefits, if any, to which the Executive is entitled under the Company’s
Retirement Plans, a lump sum payment in an amount equal to the excess of
(x) the actuarial present value of the retirement benefits to which
the Executive would have been entitled under the Retirement Plans, without
regard to any amendment to the Retirement Plans made subsequent to a
Change in Control which affects in any way the computation of retirement
benefits thereunder in a manner adverse to the Executive, if the Executive
had continued to be employed, and had been credited with age and service
credits for all purposes under the Retirement Plans, through the
Continuation Period, and to have received during such Continuation Period
the Executive’s Base Pay (as determined in Paragraph 1 of this Annex A)
and Incentive Pay (as determined in Paragraph 1 of this Annex A); and
provided that (i) to the extent that a cash bonus earned under the
1988 Restricted Stock and Cash Bonus Plan (as amended and restated on
May 9, 1997) and payable upon a Change in Control is not otherwise
included in determining the Executive’s compensation for purposes of
calculating the amount of the Executive’s aggregate benefits under the CTS
Corporation Pension Plan and the Executive’s Individual Excess Retirement
Benefit Plan, the amount of such cash bonus shall be included in
determining compensation for purposes of such plans in the calculations
under this subparagraph (x), and (ii) the calculations under this
subparagraph (x) shall be made as if the Executive were fully vested in
such benefits, over (y) the actuarial present value of the retirement
benefits that the Executive is entitled to receive (either immediately or
on a deferred basis) under the Retirement Plans. For purposes
of this subsection, “actuarial present value” will be determined as of the
date of payment by applying a discount factor equal to the annual rate of
interest provided by applying a discount factor equal to the annual rate
of interest provided by 30-year Treasury securities, determined for the
second calendar month preceding the first day of the Plan Year which
includes the date on which the distribution is paid, and by using the
mortality table as prescribed in Revenue Ruling 2001-62. Such payment
shall be made as soon as practicable after the Executive’s Separation from
Service, but not more than 90 days after the date of the Executive’s
Separation from Service; provided, however, that
if the Executive is a Specified Employee, such payment shall be made on
the earlier of (a) the first day of the seventh month following the
date of the Executive’s Separation from Service, or (b) the
Executive’s death.
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10
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(4)
|
A
lump sum payment in an amount equal to [TIER 1: [0.90]/TIER 2:
[0.96]] multiplied by the number of months in the Continuation
Period multiplied by 1/12th
of the product of (x) the annual average of the portion of the Executive’s
actual contribution percentage (within the meaning of Section 401(m) of
the Code) under the CTS Corporation Retirement Savings Plan (the “401(k)
Plan”) that is attributable to Company matching contributions for the
three plan years preceding the date of the Executive’s Separation from
Service (or, if less, for the number of plan years that the Executive was
eligible to participate in the 401(k) Plan) and (y) the lesser of (i) the
sum of the Executive’s Base Pay (as determined in Paragraph 1 of this
Annex A) and Incentive Pay (as determined in Paragraph 1 of this Annex A)
and (ii) the maximum amount of compensation permitted to be taken into
account under the 401(k) Plan for the year containing the date of the
Executive’s Separation from Service under Section 401(a)(17) of the
Code. Such payment shall be made as soon as practicable after
the Executive’s Separation from Service, but not more than 90 days after
the date of the Executive’s Separation from Service; provided, however, that
if the Executive is a Specified Employee, such payment shall be made on
the earlier of (a) the first day of the seventh month following the
date of the Executive’s Separation from Service, or (b) the
Executive’s death.
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(5)
|
Reimbursement
of an amount up to [TIER 1: $30,000/ TIER 2:
$15,000] for outplacement services that are obtained during the
Continuation Period by a firm selected by the Executive; provided, however, that
in no event shall expenses incurred after December 31 of the second
year following the year in which the Executive’s Separation from Service
occurs be eligible for reimbursement hereunder, and all reimbursements
hereunder shall be paid to Executive no later than December 31 of the
third year following the year in which the Executive’s Separation from
Service occurs.
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(6)
|
[FOR TIER 1 ONLY]
Reimbursement for fees and expenses incurred during the Continuation
Period by the Executive in seeking legal, tax and estate planning advice
in connection with the regular operation of this Agreement and the payment
of benefits and amounts hereunder. Any such reimbursement shall
be made not later than December 31 of the calendar year following the
calendar year in which the Executive incurs the expense. In no
event may the amount of expenses reimbursed by the Company in one calendar
year affect the amount of expenses eligible for reimbursement in any other
calendar year.
|
3
Include where applicable – coordinate with insurer.
11
