EXHIBIT 10.8
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of April 11,
1997, is made and entered by and between CTS Corporation, an Indiana corporation
(the "Company"), and (the "Executive").
WITNESSETH:
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
and that the possibility of a Change in Control exists with respect to the
Company's principal stockholder;
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; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. 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:
(a) "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 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.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b), the Executive:
(i) 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;
(ii) has intentionally and wrongfully damaged property of the
Company or any Subsidiary;
(iii) has intentionally and wrongfully disclosed secret processes,
trade secrets or confidential information of the Company or any Subsidiary;
or
(iv) has intentionally and wrongfully engaged in any Competitive
Activity;
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.
(d) "Change in Control" means the occurrence during the Term of any
of the following events:
(i) the attainment 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
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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 directly from the
Company that is approved by the Incumbent Board (as defined below), (B) any
acquisition by the Company and any change in the percentage ownership of
Voting Stock of the Company that results from such acquisition, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition by any
Person pursuant to a Business Combination that complies with clauses (I),
(II) and (III) of Section 1(d)(iii), (E) the beneficial ownership by
Dynamics Corporation of America ("DCA") of Voting Stock of the Company
equal to less than 25% of the combined voting power then outstanding Voting
Stock of the Company ("Exempt DCA Percentage"), or (F) the beneficial
ownership by The Gabelli Group, Inc., GAMCO Investors, Inc. and Gabelli
Funds, Inc. (collectively, "Gabelli") of Voting Stock of the Company equal
to less than 25% of the combined voting power of the then outstanding
Voting Stock of the Company ("Exempt Gabelli Percentage"); and provided
further that, for purposes of computing the Exempt DCA Percentage and the
Exempt Gabelli Percentage, the denominator, but not the numerator, will
include all outstanding shares of stock of the Company that, by operation
of law, are not entitled to vote; or
(ii) 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 (within
the meaning of Rule 14a-11 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
(iii) consummation of (A) a reorganization, merger or
consolidation of the Company, (B) a sale or other disposition of all or
substantially all of the assets of the Company, or (C) a sale or other
disposition of all or substantially all of the assets ("Automotive Group
Assets") of the Company used in its Automotive Strategic Business Unit
(such reorganization, merger, consolidation or sale each, a "Business
Combination"), unless, in each case,
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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 a majority 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, all or substantially all of the
Company's assets either directly or through one or more subsidiaries or the
Automotive Group Assets), (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, or DCA
or Gabelli to the extent of the Exempt DCA Percentage or Exempt Gabelli
Percentage, respectively) 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; provided, however, that if the Business Combination is
initiated by the Company and the Chief Executive Officer of the Company
immediately prior to such Business Combination constitutes the Chief
Executive Officer of the entity resulting from the Business Combination
immediately following the Business Combination and throughout the
twelve-month period thereafter, this Section 1(d)(iii) will be applied
without regard to clauses (I) and (II);
(iv) 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); or
(v) if and so long as DCA beneficially owns 15% or more of the
combined voting power of the outstanding Voting Stock of the Company, (A)
the attainment by any Person of beneficial ownership of 20% or more of the
combined voting power of the then outstanding Voting Stock of DCA ("DCA
Voting Stock") (other than as the result of an acquisition of DCA Voting
Stock by (x) DCA (and any change in the percentage ownership of DCA Voting
Stock that results from such acquisition), (y) any employee benefit plan
(or related trust) sponsored or maintained by DCA or any subsidiary of DCA,
or (z) the Company or any Subsidiary that is approved by the Incumbent
Board), or (B) individuals who, as of the date hereof, constitute the Board
of Directors of DCA (the "Incumbent DCA Board") cease for any reason to
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constitute at least a majority of the Board of Directors of DCA; provided,
however, that any individual becoming a Director subsequent to the date
hereof whose election, or nomination for election by DCA's shareholders,
was approved by a vote of at least a majority of the Directors of DCA then
comprising the Incumbent DCA Board (either by a specific vote or by
approval of the proxy statement of DCA 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 DCA Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened Election Contest.
(e) "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
completely 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.
(f) "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 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
(including "split dollar" 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.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(h) "Incentive Pay" means an annual amount equal to not less than 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.
(i) "Retirement Plans" means the retirement income, supplemental
executive retirement, excess benefits and retiree medical, life and similar
benefit plans providing retirement perquisites, benefits and service credit
for benefits at least as great in the aggregate as are payable thereunder
prior to a Change in Control.
(j) "Severance Period" means the period of time commencing on the
date of the first occurrence of a Change in Control and continuing until
the earlier of (i) the second anniversary of the occurrence of the Change
in Control, or (ii) the Executive's death; provided, however, that
commencing 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.
(k) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(l) "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, 2000,
or (ii) the expiration of the Severance Period; provided, however, that
(A) commencing on January 1, 1998 and each January 1 thereafter, the term
of this Agreement will automatically be extended for an additional year
unless, not later than September 30 of the immediately preceding year, the
Company or the Executive gives written notice that it or the Executive, as
the case may be, does not wish to have the Term extended and (B) subject to
the last sentence of Section 9, if, prior to a Change in Control, the
Executive ceases for any reason to be an employee of the Company and any
Subsidiary, thereupon without further action the Term will be deemed to
have expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(l), the Executive will not
be deemed to have ceased to be an
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employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among any
Subsidiaries.
(m) "Termination Date" means the date on which the Executive's
employment is terminated, (the effective date of which will be the date of
termination, or such other date that may be specified by the Executive if
the termination is pursuant to Section 3(b)).
(n) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. 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.
3. Termination Following a Change in Control. (a) In
the event of the occurrence of a Change in Control, the Executive's employment
may be terminated by the Company during the Severance Period and the Executive
will be entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) The Executive becoming permanently disabled within the
meaning of, and beginning to actually receive disability benefits pursuant
to, the long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 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):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the
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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 Director of the Company (or any successor thereto) if the Executive
was a Director of the Company immediately prior to the Change in Control;
(ii) (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;
(iii) 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;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, or all or substantially all of the Automotive
Group Assets, as the case may be, 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, or all or
substantially all of the Automotive Group Assets, as the case may be, 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);
(v) 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
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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; or
(vi) 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.
(c) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) that entitles the Executive to the benefits
provided by Section 4 (a "Qualifying Termination") 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 any rights to severance
benefits to which Executive may be entitled upon a Qualifying Termination under
any employment or severance agreement (other than this Agreement) to which
Executive is a party at the time of such Qualifying Termination will be
superseded by this Agreement.
4. Severance Compensation. (a) If, following the occurrence of a
Change in Control, the Executive's employment is terminated during the Severance
Period other than pursuant to Sections 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the
Executive terminates his employment pursuant to Section 3(b), the Company will
pay to the Executive (or other Person as appropriate) as severance benefits the
appropriate amounts described on Annex A within five business days after the
Termination Date and will continue to provide to the Executive the continuing
benefits described on Annex A for the periods described therein.
(b) 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. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary,
the parties' respective rights and obligations under this Section 4 and under
Sections 5 and 7 will survive any termination or expiration of this Agreement or
the termination of
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the Executive's employment following a Change in Control for any reason
whatsoever.
5. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, but subject to Section 5(h), 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 Internal Revenue Code of 1986, as amended (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.
(b) 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 Termination Date, 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
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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.
(c) 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.
(d) 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.
(e) 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
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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.
(f) 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:
(i) provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;
(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;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
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. 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
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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 if the
Company directs the Executive to pay the tax claimed and xxx for a refund, the
Company will advance the amount of such payment to the Executive on an
interest-free basis and will indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, 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.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive will (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive will not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to be
repaid and the amount of any such advance will offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid by the Company to the
Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary,
if (i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, and (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided to the Executive under this
Agreement or otherwise does not exceed 1.12 multiplied by three times the
Executive's "base amount," 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 payment or benefit to the
Executive, as so reduced, constitutes an "excess parachute payment." For
purposes of this Section 5(h), the terms "excess parachute payment," "present
value," "parachute payment," and "base amount" will have the meanings assigned
to them by Section 280G of the Code. The determination of whether any reduction
in such payments or
13
benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or otherwise
affect any other rights of the Executive other than pursuant to this Agreement.
In the event that any payment or benefit intended to be provided under this
Agreement or otherwise is required to be reduced pursuant to this Section 5(h),
the Executive will be entitled to designate the payments and/or benefits to be
so reduced in order to give effect to this Section 5(h). The Company will
provide the Executive with all information reasonably requested by the Executive
to permit the Executive to make such designation. In the event that the
Executive fails to make such designation within 10 business days of the
Termination Date, the Company may effect such reduction in any manner it deems
appropriate.
6. 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 Termination Date 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 the
penultimate sentence of Paragraph 2 set forth on Annex A.
7. 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 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 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
14
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 any and all attorneys' and related
fees and expenses incurred by the Executive in connection with any of the
foregoing.
8. Competitive Activity. During a period ending one year following
the Termination Date, 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.
9. 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 termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
discussion with a third person that ultimately results in a Change in Control
will be deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
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.
11. Successors and Binding Agreement. (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
15
will not otherwise be assignable, transferable or delegable by the Company.
(b) 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.
(c) 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.
12. 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.
13. 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.
14. 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.
16
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
CTS CORPORATION
By:________________________________
________________________________
17
Annex A
Severance Compensation
(1) A lump sum payment in an amount equal to _____ times the sum of
(A) Base Pay (at the highest rate in effect for any period prior to the
Termination Date), plus (B) Incentive Pay (determined in accordance with the
standards set forth in Section 1(h)).
(2) For a period of _____ months following the Termination Date (the
"Continuation Period"), the Company will arrange to provide the Executive with
Employee Benefits that are welfare benefits (but not stock option, performance
share, performance unit, stock purchase, stock appreciation, restricted stock or
similar compensatory benefits) substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 3(b)(ii)). During the Continuation Period, the Company
will continue benefits available to Executive under the Company's "split dollar"
life insurance program and will pay the premiums thereon. If and to the extent
that any benefit 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
the payment to the Executive, his dependents and beneficiaries, of such Employee
Benefits. Employee Benefits otherwise receivable by the Executive pursuant to
this Paragraph 2 will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the Continuation
Period following the Executive's Termination Date, and any such benefits
actually received by the Executive will be reported by the Executive to the
Company. The notification period applicable to Executive under the Consolidated
Omnibus Budget Reconciliation Act of 1986 (COBRA) will not commence until
termination of the Continuation Period.
(3) In addition to the retirement income, supplemental executive
retirement, and other benefits to which Executive is entitled under the
Company's Retirement Plans, a lump sum payment in an amount equal to the
actuarial equivalent of the excess of (x) the retirement pension and the
medical, life and other benefits that would be payable to the Executive under
the Retirement Plans if Executive had continued to be employed through the
Continuation Period given the Executive's Base Pay (at the highest rate in
effect for any period prior to the Termination Date) (without regard to any
amendment to the Retirement Plans made subsequent to a Change in Control which
adversely affects in any manner the computation of retirement or welfare
benefits thereunder), over (y) the retirement pension and the medical, life and
other benefits that the Executive is entitled to receive (either immediately or
on a deferred basis)
18
under the Retirement Plans. For purposes of this subsection, "actuarial
equivalent" will be determined using the same methods and assumptions utilized
under the Company's qualified retirement plan for salaried employees in effect
immediately prior to the Change in Control.
(4) In lieu of Executive's right, if any, to receive benefits
constituting non-cash "perquisites," including annual physicals, tax return
preparation and car allowances, a lump sum payment in an amount equal to the
lesser of (a) $50,000, or (b) 10% of the aggregate of Executive's Base Pay and
Incentive Pay.
(5) An amount up to $15,000 for outplacement services by a firm
selected by the Executive.
19
CTS CORPORATION
000 Xxxx Xxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Phone: (000)000-0000
Fax: (000)000-0000
{Date}
{Employee name and address}
Dear _________________:
A question has arisen regarding the operation of the severance and option
agreements (collectively, the "Agreements") between the Company and you. This
letter agreement constitutes a binding interpretation of and amendment to the
Agreements, effective as of the date hereof.
Notwithstanding anything in the Agreements to the contrary, in addition to
any of the other events or circumstances set forth in Section 1(d), a "Change in
Control" will be deemed to have occurred for all purposes thereof in the event
of a Board Shift. For this purpose, (I) a "Board Shift" will be deemed to have
occurred if 50% or more of the members of the Board of the Company, or of any
entity resulting from a Business Combination, are persons who (A) are employees
of any beneficial owner of 20% or more of the Voting Stock (a "20+% Holder") or
(B) were nominated for election, or voted for, by any such 20+% Holder unless
such nomination or vote was approved by a majority of the Unrelated Directors
and (ii) "Unrelated Directors" means Xxxxxx X. Xxxxxxxx, Xx., Xxxxxxxx X.
Xxxxxxx and Xxxxxx X. Xxxxxx or any successors thereto nominated with the
approval of such of the foregoing (or their successors nominated as aforesaid)
as may remain members of the Board of the Company, or of any entity resulting
from a Business Combination, at the time of such nomination.
Very truly yours,
CTS CORPORATION
BY:
---------------------------
{Title of officer}
Acknowledged and Agreed to
as of the date first above
written:
----------------------------
{Name of Employee}
