EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made
and entered into as of the 9th day of May, 1997, by and
among CTS Corporation, an Indiana corporation ("Parent"),
Dynamics Corporation of America, a New York corporation
(the "Company"), and Xxxxxxx X. Xxxxx (the "Executive").
WHEREAS, Parent, a wholly owned subsidiary of
Parent ("Merger Sub") and the Company have entered into
an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of May 9, 1997, pursuant to which, among other
things, the Company will be merged with and into Merger
Sub as of the "Effective Time," as defined in the Merger
Agreement;
WHEREAS, the Executive is currently serving as
Vice President and Chief Financial Officer of the Company
and the Boards of Directors of Parent and the Company
("Boards of Directors") desire to secure the continued
employment of the Executive in accordance herewith;
WHEREAS, the Company is party to an employment
agreement (the "Employment Agreement") with the
Executive, effective as of February 1, 1996 and amended
as of April 11, 1997;
WHEREAS, the Executive is willing to commit
himself to be employed by the Company on the terms and
conditions herein set forth and in lieu of the terms and
conditions of the Employment Agreement; and
WHEREAS, the parties desire to enter into this
Agreement as of the Effective Time, setting forth the
terms and conditions for the employment relationship of
the Executive with the Company;
NOW, THEREFORE, in consideration of the mutual
premises and the respective covenants and agreements of
the parties herein contained, the parties hereto agree as
follows:
1. Operation of Agreement; Employment and Term.
(a) This Agreement shall be effective and
binding immediately upon its execution, but anything in
this Agreement to the contrary notwithstanding, this
Agreement shall not be operative unless and until the
Effective Time occurs. Upon the occurrence of the
Effective Time, without further action, this Agreement
shall become immediately operative.
(b) Employment. The Company agrees to employ
the Executive, and the Executive agrees to be employed by
the Company, in accordance with the terms and provisions
of this Agreement.
(c) Term. The term of this Agreement (the
"Term") shall commence on the date (the "Effective Date")
on which the Effective Time occurs and shall continue
until the fifth (5th) anniversary of the Effective Date.
2. Duties and Powers of Executive.
(a) Position. For the period during which the
Executive provides services to the Company (the
"Employment Period"), the Executive shall serve in such
office and have such authority, duties and
responsibilities as specified in Exhibit A hereto.
During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is
entitled, the Executive shall devote substantially all of
his attention and time during normal business hours to
the business and affairs of the Company and shall use his
reasonable best efforts to carry out his responsibilities
faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on
corporate, industry, civic or charitable boards or
committees, as long as such activities do not materially
interfere with the performance of his responsibilities
with the Company in accordance with this Agreement.
(b) Board Membership. The Board of Directors
of Parent shall propose each of Messrs. Xxxxxxxx and
Dorme for reelection to the Board of Directors of Parent
throughout the Term, and shall continue each such person
and Xx. Xxxxxxx as a member of the Board of Directors of
the Company throughout the Term. The sole remedy for
breach of this provision shall be the remedy set forth in
Section 5(c) of this Agreement.
(c) Location. The Company's current office in
Greenwich, Connecticut shall remain in operation for at
least two (2) years following the Effective Date. The
Executive's services shall be performed primarily at such
current office, and in no event shall the Executive be
required to perform services at a location more than 25
miles from the Company's current office, in each case,
except for such reasonable travel obligations as are
substantially consistent with the Executive's present
travel obligations. Throughout the Employment Period,
the Executive shall be provided with appropriate office
space and secretarial services commensurate with his
title and position.
3. Compensation.
The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) Salary. During the Employment Period, the
Executive's monthly base salary ("Base Salary") shall be
$14,162, payable in accordance with the Company's general
payroll practices as in effect from time to time.
(b) Incentive Compensation. During the
Employment Period, the Executive shall be eligible to
participate in Parent's short-term and long-term
incentive compensation plans, including equity-based
compensation plans, on a basis no less favorable than
that of other senior executives of Parent.
(c) Split-Dollar Policy. Parent or the
Company shall (i) during the Employment Period, continue
to pay the annual premium, at the same annual rate and in
the same month as paid by the Company in 1997, on the
individual "split dollar" life insurance policy issued by
the Security Mutual Life Insurance Company of New York
and owned by the Executive or a trust created by the
Executive ("Policy"), and (ii), notwithstanding the
assignment of the Policy to the Company as collateral
heretofore executed by the Executive ("Collateral
Assignment"), not take any action to reduce the annual
premium, borrow against the cash surrender value of the
Policy or endanger in any way any benefit available to
the Executive or the trustee or trustees of any such
trust thereunder and shall not be entitled to be repaid
to the extent of its interest in the Policy until the
earlier of the death of the insured under the Policy or
the surrender of the Policy by the Executive.
(d) Supplemental Retirement Income. In order
to restore certain retirement income benefits which are
not available to the Executive under the Retirement Plan
for Employees of the Company ("Qualified Plan") by reason
of section 401(a)(17), section 415 and section 401(a)(4)
of the Internal Revenue Code of 1986, as amended (the
"Code"), Parent or the Company shall pay to the Executive
supplemental retirement income ("Supplemental Retirement
Income") commencing on his retirement date (normal,
early, disabled or postponed) as defined in and under the
Qualified Plan in an amount equal to the difference
between (i) the monthly amount of the retirement income
that would be payable to the Executive upon his
retirement under the Qualified Plan, assuming that such
plan continues in effect through the Executive's
retirement date on terms no less favorable to Executive
than the terms in effect on the date hereof, if such
benefit were calculated under the Qualified Plan without
giving effect to the compensation limit under section
401(a)(17) of the Code or to the limitations imposed by
the application of section 415 of the Code, and assuming
that the benefit described in section 4.01(d) of the
Qualified Plan continued to apply on and after January 1,
1989 notwithstanding the provisions of section 401(a)(4)
of the Code, expressed as a single life annuity, and (ii)
the monthly amount of retirement income payable to the
Executive upon his retirement under the Qualified Plan
and any similar plan maintained for Executive's benefit
by Parent ("Parent's Plan") based on his compensation up
to the said compensation limit and based on the
limitations imposed by the application of section 415 of
the Code, and the limitations imposed by the application
of section 401(a)(4) of the Code to section 4.01(d) of
the Qualified Plan and the applicable provision of
Parent's Plan, expressed as a single life annuity. Such
supplemental retirement income shall be paid to the
Executive in cash by Parent or the Company, to the extent
not so paid by the trustee ("Trustee") of the Trust
(defined in paragraph (g) of this Section 3), as an
Actuarial Equivalent single lump sum, as soon as
practical following the Executive's retirement.
"Actuarial Equivalent" shall mean the present value of a
life annuity, assuming the retirement age is the
Executive's age on his retirement date, which is the date
benefits hereunder are calculated; the interest rate is
the rate appearing in the table published in The Wall
Street Journal entitled "Markets Diary" under the heading
"Bond Buyer municipal", corresponding to 20-year Aaa
bonds, and reflecting the rate for the first day of the
month preceding the month in which the benefits hereunder
are calculated; and mortality is determined under the
1983 Group Annuity Mortality Table.
(e) Preretirement Death Benefit. If the
Executive dies while eligible for a retirement benefit
under paragraph (d) of this Section 3 and prior to his
retirement and/or the payment of such retirement benefit,
the Executive's surviving spouse shall be entitled to
receive a supplemental preretirement survivor benefit
equal to the difference between (i) the monthly amount of
retirement income to which the deceased Executive's
spouse would have been entitled under the Qualified Plan
if the Executive had retired on the day prior to his
death having elected a 100% joint and survivor annuity
option and if such benefit were calculated under the
Qualified Plan without giving effect to the compensation
limit under section 401(a)(17) of the Code or the
limitations imposed by the application of section 415 of
the Code, and assuming that the benefit described in
Section 4.01(d) of the Qualified Plan continued to apply
on and after January 1, 1989 notwithstanding the
provisions of section 401(a)(4) of the Code, and (ii) the
monthly amount of retirement income to which the deceased
Executive's spouse is entitled under the Qualified Plan
based on his compensation up to the said compensation
limit and based on the limitations imposed by the
application of section 415 of the Code, and the
limitations imposed by the application of section
401(a)(4) of the Code to Section 4.01(d) of the Qualified
Plan. Such supplemental preretirement survivor benefit
shall be paid to such surviving spouse in cash by Parent
or the Company, to the extent not so paid by the Trustee,
as an "Actuarial Equivalent" single lump sum, as above
defined, as soon as practicable following the Executive's
death.
(f) Supplemental Savings Plan Income. In
order to restore benefits which are not available to the
Executive under the Company's Employee Savings and
Investment Plan ("401(k) Plan") by reason of the
compensation limit under section 401(a)(17) of the Code,
Parent or the Company shall pay to the Executive on his
retirement date an amount ("Supplemental Savings Plan
Income") equal to two percent (2%) of his annual base
compensation in excess of $150,000 in calendar year 1997
and in each calendar year in the Employment Period in
which his annual base compensation exceeds $150,000
(subject to indexation by the Internal Revenue Service),
with interest at the annual rate of eight percent (8%) on
such excess amount from and after December 31 of each
such year. The aggregate of all such amounts and the
interest thereon shall be paid, to the extent not so paid
by the Trustee, to the Executive in cash by Parent or the
Company in a lump sum as soon as practical following the
Executive's retirement. If the Executive dies while
eligible for a benefit under this paragraph (f) and prior
to the payment of such benefit, the Executive's surviving
spouse shall be entitled to receive in cash from Parent
or the Company, to the extent not so received from the
Trustee, as soon as practical following the Executive's
death an amount equal to the amount the Executive would
have received under this paragraph (f) if he had retired
under the Qualified Plan on the day prior to his death.
(g) Rabbi Trust. Commencing no later than
December 31, 1997 and continuing on or before each
December 31 thereafter during the Employment Period,
Parent or the Company shall contribute additional cash or
other property to the trust established by the Company as
of December 31, 1996 (the "Trust") sufficient to pay all
of the supplemental retirement income, supplemental
preretirement survivor benefits, and the other benefits
to the Executive and his surviving spouse provided for in
paragraphs (d), (e) and (f) of this Section 3, but no
funds or assets of Parent or the Company shall be
segregated or physically set aside with respect to its
obligations under the benefit restoration plan set forth
in this paragraph (g) in a manner which would cause said
benefit restoration plan to be "funded" for purposes of
the Employee Retirement Income Security Act of 1974, as
amended. Neither the Executive nor his surviving spouse
shall have any interest in any specific asset of Parent
or the Company as a result of this paragraph (g) and any
rights to receive benefits hereunder shall be only the
right of an unsecured general creditor of Parent or the
Company. The Trust has been established in full
compliance with IRS Revenue Procedure 92-64, and the
Trustee shall continue to be the Bank of Boston
Connecticut or another financial institution reasonably
satisfactory to the Executive. Upon the last of Messrs.
Xxxxxxxx, Xxxxxxx and Dorme to receive payment from the
Trustee, any funds remaining in the Trust shall be
distributed pro rata in equal shares to such Executives
or their surviving spouses or heirs.
(h) Postretirement Medical Coverage. For the
period commencing on the date of the formal retirement of
the Executive under the Qualified Plan or Parent's Plan
and ending on the tenth anniversary thereof, or the
earlier death of the Executive, the Executive and his
wife, and their dependent children, if any, shall be
entitled to enroll in an insured health and
hospitalization plan or plans, including, without
limitation, plans offered by health maintenance
organizations, with benefits substantially equal to the
benefits of the health and hospitalization plans of the
Company in effect on the date of said retirement or, if
earlier, on the date immediately prior to the date as of
which such plans are terminated or amended adversely with
respect to the Executive, and Parent or the Company shall
pay to the Executive quarterly and in advance an amount
in cash grossed up so as to be sufficient, after the
payment by the Executive of all federal, state and local
income and all other taxes due by reason of the receipt
of said payment, if any, to pay when due the premiums for
such insured coverage ("Postretirement Medical
Coverage"); provided, however, that during all times in
such period of the Executive's retirement as either the
Executive or his wife shall be eligible for Medicare
coverage, in lieu of such participation by the Executive
or his wife, or both of them, as the case may be, in the
insured health and hospitalization plans referred to
above, Parent or the Company shall pay to the Executive
quarterly and in advance an amount in cash grossed up so
as to be sufficient, after the payment by the Executive
of all federal, state and local income and all other
taxes due by reason of the receipt of said payment, if
any, to pay when due the annual premiums for Medigap
supplementary coverage for the Executive and/or his wife
with an insurance carrier selected by the Executive or
his wife, with the extent of such coverage to be as
provided in Standard Plan J of the National Association
of Insurance Commissioners ("NAIC") or in the NAIC
Standard Plan hereafter adopted which provides the most
extensive benefit coverage at the time of the payment to
the Executive provided for under this Section 3(h). For
purposes of this Section 3(h), the amount of any required
gross up shall be calculated by utilizing the highest tax
rate for federal income tax in effect at the time of
calculation, and 5% for state and local income taxes, and
the then current rate for Federal Insurance Contributions
Act taxes for both the Executive's share and the
Company's share of such taxes. In the event that the
Executive dies within said ten (10) year period, his wife
shall continue to be entitled to said payments for a
period of six (6) months from the date of death of the
Executive.
(i) Other Matters. The provisions of this
Section 3 which take effect upon the termination of the
Employment Period, the expiration of the Term or the
formal retirement of the Executive under the Qualified
Plan shall survive such events and shall not be affected
by any Change in Control or the consummation of the
transactions contemplated by the Merger Agreement. The
parties agree that, notwithstanding any other provision
of this Employment Agreement, the Executive shall not be
entitled to retire under the Qualified Plan during the
Employment Period unless the Board of Directors of the
Company consents to such retirement, except that the
Executive may so retire without such consent upon
expiration of the Term or termination of the Employment
Period.
(j) Other Benefits. During the Employment
Period, the Executive shall be eligible to participate in
all other savings, retirement, welfare (including without
limitation medical, dental, hospitalization and life
insurance) and fringe benefit plans, practices, policies
and programs on a basis no less favorable to the
Executive than in effect on the date hereof. During the
Employment Period, Parent or the Company shall make
available to the Executive, at its cost and expense, an
automobile on a basis substantially similar to that in
effect on the date hereof.
4. Expenses. Parent or the Company shall
reimburse the Executive for all reasonable expenses,
including those for travel and entertainment, properly
incurred by him in the performance of his duties
hereunder in accordance with policies established from
time to time by the Board of Directors of the Company.
5. Termination of Employment.
(a) Death; Disability. The Employment Period
shall terminate automatically upon the Executive's death
or Disability during such period, in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(a) of this Agreement. For
purposes of this Agreement, "Disability" shall be deemed
to occur if, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall
have been absent from the full-time performance of his
duties with the Company for a period of six (6)
consecutive months, the Company shall have given the
Executive a Notice of Termination (as defined in
paragraph (e) of this Section 5) for Disability and,
within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the
full-time performance of his duties.
(b) By the Company for Cause. The Company may
terminate the Executive's employment hereunder for Cause,
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(b) of this
Agreement. For purposes of this Agreement, "Cause" shall
mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties
with the Company (other than any such failure resulting
from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after
the issuance of a Notice of Termination for Good Reason
by the Executive pursuant to paragraph (f) of this
Section 5) after a written demand for substantial
performance is delivered to the Executive by the Board of
Directors of the Company, which demand specifically
identifies the manner in which such Board believes that
the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially
injurious to Parent or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act,
or failure to act, was in the best interest of the
Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company
that Cause exists shall be given effect unless the
Company establishes to the Board of Directors of Parent
by clear and convincing evidence that Cause exists.
(c) By the Executive for Good Reason. The
Executive may terminate his employment during the
Employment Period for Good Reason (unless Cause exists),
in which case the Executive shall be entitled to the
payments and benefits set forth in Section 6(a) of this
Agreement. For purposes of this Agreement, "Good Reason"
shall mean (i) the occurrence, without the written
consent of the Executive, of an event constituting a
material breach of this Agreement (including without
limitation a breach of Section 2(b) or 2(c) of this
Agreement) by the Company that has not been fully cured
within ten (10) days after written notice thereof has
been given by the Executive to the Company, or (ii) any
reason, at the Executive's discretion, during the three-
month period following (A) the closing of the Greenwich
office following the second anniversary of the Effective
Date or (B) the occurrence of a "Change in Control," as
defined in paragraph (d) of this Section 5.
(d) Definition of Change in Control. A
"Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following
paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of Parent (not
including in the securities beneficially owned by
such Person any securities acquired directly from
Parent or its affiliates) representing 25% or more
of the combined voting power of Parent's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for any reason
to constitute a majority of the number of directors
then serving: individuals who, on the date hereof,
constitute the Board and any new director (other
than a director whose initial assumption of office
is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of Parent) whose appointment or election
by the Board or nomination for election by Parent's
stockholders was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then
still in office who either were directors on the
date hereof or whose appointment, election or
nomination for election was previously so approved
or recommended; or
(III) there is consummated a merger or
consolidation of Parent or any direct or indirect
subsidiary of Parent with any other corporation,
other than (i) a merger or consolidation which would
result in the voting securities of Parent
outstanding immediately prior to such merger or
consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof) at least 60% of the combined voting
power of the securities of Parent or such surviving
entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a
recapitalization of Parent (or similar transaction)
in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
Parent (not including in the securities Beneficially
Owned by such Person any securities acquired
directly from Parent or its Affiliates) representing
25% or more of the combined voting power of Parent's
then outstanding securities; or
(IV) the stockholders of Parent approve a plan of
complete liquidation or dissolution of Parent or
there is consummated an agreement for the sale or
disposition by Parent of all or substantially all of
Parent's assets, other than a sale or disposition by
Parent of all or substantially all of Parent's
assets to an entity, at least 60% of the combined
voting power of the voting securities of which are
owned by stockholders of Parent in substantially the
same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 5(d): "Beneficial Owner"
shall have the meaning set forth in Rule 13d-3 under the
Exchange Act; "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time; and
"Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (i) Parent or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of Parent or any of its
"affiliates," within the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act, (iii)
an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of
Parent in substantially the same proportions as their
ownership of stock of Parent.
(e) By the Company Other Than for Cause or by
the Executive without Good Reason. Notwithstanding any
other provision of this Agreement, the Company may
terminate the Executive's employment other than for
Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(a) of
this Agreement, and the Executive may terminate his
employment other than for Good Reason (as defined in
paragraph (c) of this Section 5), in which case the
Executive shall be entitled to the payments and benefits
set forth in Section 6(b) of this Agreement.
(f) Notice of Termination. Any termination by
the Company or by the Executive shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (f) of this Section
5) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not
more than thirty (30) days after the giving of such
notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such
fact or circumstance in enforcing the Executive's rights
hereunder. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the membership of the Board of Directors of
Parent (excluding the Executive if the Executive is then
a member of such Board) at a meeting of such Board which
was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and
an opportunity for the Executive, together with the
Executive's counsel, to be heard before such Board)
finding that, in the good faith opinion of such Board,
the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(g) Date of Termination. "Date of
Termination" means (i) if the Executive's employment is
terminated by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company, the
date on which the Company notifies the Executive of such
termination (except in the event of a termination for
Cause), (iii) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall
not have returned to the full-time performance of his
duties during such thirty (30) day period), and (iv) if
the Executive's employment is terminated by reason of
death, the date of death.
6. Obligations of Parent or the Company Upon
Termination.
(a) Termination for Good Reason or Other Than
for Cause. If the Executive shall terminate his
employment for Good Reason or the Company shall terminate
the Executive's employment for any reason other than
Cause, including Disability, or if such employment shall
be terminated by reason of death, the Executive shall be
entitled to the following benefits:
i) Parent or the Company shall pay
to the Executive a lump sum amount in cash
equal to the sum of (A) the Executive's Base
Salary through the Date of Termination to the
extent not theretofore paid, (B) any
compensation previously deferred by the
Executive (together with any accrued interest
or earnings thereon) and any accrued vacation
pay and (C) any other amounts due the Executive
as of the Date of Termination, in each case to
the extent not theretofore paid. (The amounts
specified in clauses (A), (B) and (C) shall be
hereinafter referred to as the "Accrued
Obligation"). The amounts specified in this
Section 6(a)(i) shall be paid within thirty
(30) days after the Date of Termination; and
ii) in lieu of any severance benefit
otherwise payable to the Executive,
(A) if the Executive shall terminate his employment
for Good Reason or the Company shall terminate the
Executive's employment for any reason other than
Disability or Cause, Parent or the Company shall pay
the Executive a lump sum amount, in cash, within
five days following the Date of Termination, equal
to three and one-third (3 1/3) times the sum of (1)
twelve (12) times Base Salary, and (2) $139,500,
which is equal to the largest aggregate amount
earned by the Executive as stock and cash bonuses
for any of the five fiscal years preceding that in
which the Effective Date occurs;
(B) if the termination of the Executive's employment
is by reason of death or Disability, or, if the
Executive so elects, in lieu of the payments
described in paragraph (A) of this Section 6(ii),
Parent or the Company shall continue to pay the
Executive (or, in the event of his death, his legal
representative) for the remainder of the Term (1)
the Base Salary as in effect immediately prior to
the Date of Termination, in accordance with the
Company's general payroll practices, and (2) for
each full twelve-month period remaining in the Term,
the highest annual aggregate cash and stock bonuses
earned by the Executive pursuant to any annual bonus
or incentive plan maintained by the Parent or
Company in respect of any of the five fiscal years
of the Parent or Company ending immediately prior to
the fiscal year in which occurs the Date of
Termination, payable in accordance with the
Company's practices with respect to the payment of
bonuses; and
(C) if the Executive's employment is terminated by
reason of death and if his wife shall survive him,
Parent or the Company shall pay to his wife the sum
of $50,000 per year, payable semi-monthly, during
the period commencing on the expiration of the Term
and ending on the tenth anniversary of date of the
death of the Executive or such earlier date of the
death of his wife; and
(D) if the Executive's employment is terminated by
reason of Disability and the Executive has not
attained the age of 65 at the expiration of the
Term, then Parent or the Company shall pay him 40%
of Base Salary, payable semi-monthly, until the date
on which he attains the age of 65; and
iii) Parent or the Company shall pay
in a single lump sum to Security Mutual Life
Insurance Company of New York, to be held in a
side fund in escrow by said carrier to pay when
due (or, at the option of the Executive, to
prepay) the annual premiums on the Policy, an
amount equal to ten (10) times the amount of
the last annual premium payment on the Policy
made prior to the date of termination, and
Parent and the Company shall forfeit all rights
under the Collateral Assignment to be repaid
the aggregate amount of all premiums paid on
the Policy prior to, on or after the Date of
Termination, and shall release and waive all
rights under the Collateral Assignment, shall
not endanger in any way any benefit available
to the Executive under the Policy and shall not
be entitled to any further rights or interest
in the Policy; and
iv) the Executive shall be entitled to
retire under the Qualified Plan and shall
immediately thereafter become entitled to payment of
his Supplemental Retirement Income and Supplemental
Savings Plan Income and shall be entitled to
Postretirement Medical Coverage; and
v) for the remainder of the Term, Parent
or the Company shall arrange to provide the
Executive and his dependents life and disability
insurance benefits substantially similar to those
provided to the Executive and his dependents as of
the date hereof, at no greater cost to the Executive
than the cost to the Executive immediately prior to
the Date of Termination.
(b) Termination for Other Reason. If the
Executive's employment shall be terminated by the Company
for Cause or by the Executive other than for Good Reason,
death or Disability, neither Parent nor the Company shall
have any further obligations to the Executive under this
Agreement other than the obligation to pay to the
Executive the Accrued Obligation and any postemployment
benefits to which the Executive is entitled under the
terms of Parent's or the Company's employee benefit
plans.
(c) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in New York, New York,
in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
(d) Legal Fees. Parent or the Company shall
also pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in disputing in good
faith any issue hereunder relating to the termination of
the Executive's employment, in seeking in good faith to
obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit
provided hereunder. Such payments shall be made within
five (5) business days after delivery of the Executive's
written requests for payment accompanied with such
evidence of fees and expenses incurred as is reasonable.
(e) Gross-Up. If any of the payments or
benefits received or to be received by the Executive
(whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Parent or the
Company, any Person (as defined in Section 5(d) of this
Agreement) whose actions result in a Change in Control or
any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up
Payment (as defined below), being hereinafter referred to
as the "Total Payments") will be subject to the excise
tax imposed under section 4999 of the Code ("Excise
Tax"), Parent or the Company shall pay to the Executive
an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, shall be equal to the
Total Payments.
For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) all of the Total Payments
shall be treated as "parachute payments" (within the
meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the date
hereof, the Company's independent auditor, or in the
event of a Change in Control, was, immediately prior to
the Change in Control, Parent's independent auditor (the
"Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
(within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the "Base Amount," as defined in section
280G(b)(3) of the Code, allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of
the Executive's residence on the Date of Termination (or
if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of
this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from
deduction of such state and local taxes.
In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the
Executive shall repay to Parent or the Company, as the
case may be, within five (5) business days following the
time that the amount of such reduction in the Excise Tax
is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and employment taxes
imposed on the Gross-Up Payment being repaid by the
Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar
reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and
employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including
by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), Parent or the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business
days following the time that the amount of such excess is
finally determined. The Executive, Parent and the
Company shall each reasonably cooperate with the other in
connection with any administrative or judicial
proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
7. Full Settlement; Mitigation.
Parent's and the Company's obligation to make
the payments provided for in this Agreement and otherwise
to perform their obligations hereunder shall not be
subject to any set-off, counterclaim, recoupment, defense
or other claim, right or action which Parent or the
Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation
of the amounts (including amounts for damages for breach)
payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
8. Confidential Information.
The Executive shall hold in a fiduciary
capacity for the benefit of Parent and the Company all
secret, confidential information, knowledge or data
relating to the Company or any of its affiliated
companies and their respective businesses which shall
have been obtained by the Executive during his employment
by the Company or any of their affiliated companies and
that shall not have been or now or hereafter have become
public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this
Agreement). The Executive shall not, without the prior
written consent of Parent or as may otherwise be required
by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than
Parent and those designated by it.
9. Successors.
(a) Assignment by Executive. This Agreement
is personal to the Executive and, without the prior
written consent of Parent or the Company, shall not be
assignable by the Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon Parent
and the Company, and their respective successors and
assigns.
(c) Assumption. Parent or the Company, as the
case may be, shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets thereof to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Parent or the Company, as the case may be,
would be required to perform this Agreement if no such
succession had taken place. In the event of the
liquidation of the Company, the Executive shall be an
employee of Parent and Parent shall be solely liable for
all obligations of the Company hereunder. As used in
this Agreement, Parent and the "Company" shall mean
Parent and the Company, respectively, as hereinbefore
defined and any successor to their businesses and/or
assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of
New York, without reference to its principles of conflict
of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
This Agreement may not be amended, modified, repealed,
waived, extended or discharged except by an agreement in
writing signed by the party against whom enforcement of
such amendment, modification, repeal, waiver, extension
or discharge is sought. No person, other than pursuant
to a resolution of its respective Board of Directors (or
a committee thereof), as the case may be, shall have
authority on behalf of Parent or the Company to agree to
amend, modify, repeal, waive, extend or discharge any
provision of this Agreement or take any other action in
respect thereto.
(b) Notices. All notices and other
communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by
registered or certified mail, return-receipt requested,
postage prepaid, addressed, in the case of Parent, to
Parent's headquarters, in the case of the Company, to the
Company's headquarters and, in the case of the Executive,
to the address on the signature page of this Agreement
or, in either case, to such other address as any party
shall have subsequently furnished to the other parties in
writing. Notice and communications shall be effective
when actually received by the addressee.
(c) Severability. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any
amounts due and payable under this Agreement such
federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. Any party's failure to insist
upon strict compliance with any provision hereof or the
failure to assert any right such party may have
hereunder, including, without limitation, the right of
the Executive to terminate employment for Good Reason
pursuant to Section 5(c) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) Entire Agreement; Survival. This
Agreement entered into as of the date hereof among
Parent, the Company and the Executive contains the entire
agreement of the Executive, Parent and the Company or
their respective predecessors or subsidiaries with
respect to the subject matter of the Agreement, and all
promises, representations, understandings, arrangements
and prior agreements, including without limitation the
Employment Agreement, are merged into, and superseded by,
the Agreement. Any provision hereof which by its terms
applies in whole or part after a termination of the
Executive's employment hereunder shall survive such
termination.
IN WITNESS WHEREOF, the Executive has executed
this Agreement and, pursuant to due authorization from
its Board of Directors, each of Parent and the Company
has caused this Agreement to be executed, as of the day
and year first above written.
CTS CORPORATION
By /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chairman, President and
Chief Executive Officer
DYNAMICS CORPORATION OF AMERICA
By /s/ Xxxxxx Xxxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxxx
Title: President
/s/ Xxxxxxx X. Xxxxx
-------------------------------------
XXXXXXX X. XXXXX
Address: 000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
EXHIBIT A
XXXXXXX X. XXXXX
Xx. Xxxxx will be the Vice President and Chief
Financial Officer of the Company and, in connection
therewith, will have such duties, responsibilities and
authority as are customarily incident to the principal
financial officer of a corporation that is a wholly owned
U.S. subsidiary of a publicly traded U.S. company,
subject to the oversight of the Chief Executive Officer
of the Company and the Board of Directors of the Company.
Xx. Xxxxx will report to the Chief Executive Officer of
the Company and will consult with and coordinate the
discharge of his activities with the Chief Financial
Officer of Parent.
