EXHIBIT 10.y
CHANGE IN CONTROL AGREEMENT
AGREEMENT made as of this 28th day of July, 1999 by and between MTS
Systems Corporation, a Minnesota corporation ("MTS") and Xxxxx X. Xxxxxxx (the
"Executive").
WHEREAS, MTS considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of MTS and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to
Executive's intimate knowledge of the business and affairs of MTS, its policies,
methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of MTS; and
WHEREAS, MTS, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of the Executive in the performance of the Executive's
duties to the detriment of MTS and its shareholders; and
WHEREAS, Executive is becoming employed by MTS upon the
understanding that MTS will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of MTS and its stockholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction and
to ensure the continued availability to MTS of the Executive in the event of a
Change in Control;
THEREFORE, in consideration of the foregoing and other respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until the earlier of (A) the date that any
and all benefits due to Executive under this Agreement upon the happening of the
events set forth herein have been paid and satisfied and all obligations of MTS
to the Executive have been performed or (B) the date the Executive and MTS agree
in writing to terminate this Agreement. Notwithstanding the preceding sentence,
if a Change in Control occurs, this Agreement shall remain in effect for a
period of 36 months from the date of the occurrence of a Change in Control.
2. Change in Control. If a Change in Control shall have occurred
during the term of this Agreement, the provisions of this Agreement shall become
operative and MTS agrees to employ the Executive and to provide the benefits
stated in this Agreement.
(a) Change in Control, shall, for purposes of this
Agreement, means a change in control of MTS which would be required
to be reported in response to Item 1 of Form 8-K promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not MTS is then subject to such reporting
requirement, including, without limitation, if:
(i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, including
any affiliate or associate as defined in Rule 12(b)-2
under the Exchange Act of such person, other than MTS,
any trustee or other fiduciary holding securities under
an employee benefit plan of MTS, or any corporation
owned, directly or indirectly, by the stockholders of
MTS in substantially the same proportions as their
ownership of stock of MTS) becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of MTS
representing 35% or more of the combined voting power of
MTS' then outstanding securities; or
(ii) the Board of Directors is comprised of
fewer than 65% of the individuals described in
subsection (b) below; or
(iii) the stockholders of MTS approve a
definitive agreement to merge or consolidate MTS with or
into another corporation or other enterprise in which
the holders of outstanding stock of MTS entitled to vote
in elections of directors immediately before such merger
or consolidation hold less than 80% of the voting power
of the survivor of such merger or consolidation or its
parent, or approve a plan of liquidation; or
(iv) at least 60% of MTS' assets are sold
and transferred to another corporation or other
enterprise that is not a subsidiary, direct or indirect,
or other affiliate of MTS; or
(v) the Board of Directors of MTS
determines, by a vote of a majority of its entire
membership, that a tender offer statement by any person
(as defined above) indicates an intention on the part of
such person to acquire control of MTS.
(b) Board of Directors shall, for purposes of subsection
(a), mean:
(i) individuals who on the date hereof
constituted the Board of MTS, and
(ii) any new director who subsequently was
elected or nominated for election by a majority of the
directors who held such office immediately prior to a
Change in Control.
(c) Friendly Change in Control shall mean a Change in
Control which arises from a transaction or series of transactions
authorized, recommended or approved at the time by formal action of
the Board of Directors.
(d) Unfriendly Change in Control shall mean a Change in
Control that is not a "Friendly Change in Control" as defined above.
An Unfriendly Change in Control shall not thereafter become a
Friendly Change in Control.
3. Termination by Reason of Death or Disability. If Executive's
employment shall be terminated by MTS by reason of death or disability, MTS
shall immediately commence payment to the Executive (or Executive's designated
beneficiaries or estate, if no beneficiary is designated) of any and all
benefits to which the Executive is entitled under MTS retirement and insurance
programs them in effect. Except for such benefits, MTS shall have no further
obligations to Executive under this Agreement.
4. Termination for Cause.
(a) If Executive's employment with MTS shall be
terminated by MTS for Cause as defined below, MTS shall pay to
Executive his full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and
MTS shall have no further obligation to Executive under this
Agreement.
(b) Termination by MTS of Executive's employment for
"Cause" shall mean termination as a result of:
(i) the conviction of the Executive by a
court of competent jurisdiction for felony criminal
conduct; or
(ii) willful gross misconduct or gross
negligence in the performance of his duties by the
Executive; or
(iii) material violation by the Executive of
any employment agreement applicable to the Executive.
5. Termination Following Friendly Change in Control.
(a) If, after a Friendly Change in Control, Executive's
employment with MTS shall be terminated (1) by MTS other than for
cause, death or disability or (2) by Executive for Good Reason, then
Executive shall be entitled to the following benefits:
(i) Severance. MTS shall pay the Executive
as a severance payment (the "Severance Payment") an
amount equal to the product of 18 multiplied by the
Executive's Monthly Gross Income as defined below. The
Severance Payment shall be made in a single lump sum
within 30 days after the Date of Termination, subject to
all applicable federal and state withholding.
For purposes of this Agreement, Monthly Gross Income
shall mean the sum of the following amounts:
(A) 1/12 of the highest average
base salary for any 12-consecutive month
period during the 36 calendar month period
ending immediately prior
to the Date of Termination (without taking
into account any reduction in such base
salary that would constitute Good Reason);
plus
(B) the monthly average of the
total Management Variable Compensation (MVC)
earned during the lesser of the 3 most
recent or the actual number of fiscal years
participating in the MVC plan ending
immediately prior to the Date of
Termination; plus
(C) the product of the average
percentage of MTS profit sharing
contributions to the MTS Systems Corporation
Profit Sharing Retirement Plan and Trust (as
a percent of Compensation as defined in the
Plan up to the federal limit) for the lesser
of the 3 most recent or the actual number of
participating Plan Years ending immediately
prior to the Date of Termination multiplied
by the sum of (A) and (B) above.
(ii) Benefits. For an 18-month period after
the Date of Termination, MTS shall continue to pay its
portion of Executive's life and health insurance
benefits which the Executive is receiving immediately
prior to the Notice of Termination. Executive shall be
responsible for payment of his portion of the premiums
for such benefits. The MTS portion and the Executive's
portion shall be the respective percentages of such
premiums paid immediately prior to the Date of
Termination. Benefits otherwise receivable by Executive
pursuant to this paragraph shall be reduced to the
extent comparable benefits are actually received by
Executive during this period, and any such benefits
actually received by Executive shall be reported to MTS.
At the expiration of said 18-month period, Executive
shall be entitled to continue any of said benefits which
qualify as group insurance benefits for continuation
coverage under the Comprehensive Omnibus Reconciliation
Act ("COBRA") or applicable state law.
(b) Good Reason. Executive shall be entitled to
terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean, without Executive's express
written consent, any of the following:
(i) the assignment to Executive of any
duties inconsistent with Executive's status or position
with MTS, or a substantial alteration in the nature or
status of Executive's responsibilities; or
(ii) a reduction by MTS in Executive's
annual base salary other than a reduction comparable to
other senior Executives of MTS in connection with a
company-wide cost reduction program; or
(iii) the relocation of MTS' principal
executive offices to a location more than fifty miles
from Eden Prairie, Minnesota or MTS requiring Executive
to be based anywhere other than MTS' principal executive
offices except for required travel on MTS' business to
an extent substantially consistent with Executive's
prior business travel obligations; or
(iv) the failure by MTS to continue to
provide Executive with benefits at least as favorable to
those enjoyed by Executive under any of MTS' pension,
life insurance, medical, health and accident,
disability, deferred compensation, incentive awards,
incentive stock options, or savings plans in which
Executive was participating at the time of the Change in
Control, the taking of any action by MTS which would
directly or indirectly materially reduce any of such
benefits or deprive Executive of any material fringe
benefit enjoyed by him at the time of the Change in
Control, or the failure by MTS to provide Executive with
the number of paid vacation days to which Executive is
entitled at the time of the Change in Control, provided,
however, that MTS may amend any such plan or programs as
long as such amendments do not reduce any benefits to
which Executive would be entitled upon termination; or
(v) the failure of MTS to obtain a
satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in
Section 12; or
(vi) MTS requests Executive's resignation
from employment; or
(vii) any purported termination of
Executive's employment which is not made pursuant to a
Notice of Termination satisfying the requirements of
this Agreement; for purposes of this Agreement, no such
purported termination shall be effective; or
(viii) any material violation by MTS of this
Agreement.
(c) Voluntary Termination Deemed Good Reason.
Notwithstanding anything herein to the contrary, during the period
commencing on the 30th day following a Change in Control (whether
Friendly or Unfriendly) and ending on the 180th day following a
Change in Control, Executive may voluntarily terminate his
employment for any reason, and such termination shall be deemed
"Good Reason" for all purposes of this Agreement.
6. Termination - Unfriendly Change in Control.
(a) If, after an Unfriendly Change in Control,
Executive's employment with MTS is terminated (1) by MTS other than
for Cause, death or disability, or (2) by Executive for Good Reason,
the Executive shall be entitled to the following benefits:
(i) Severance. MTS shall pay the Executive
as a severance payment (the "Severance Payment") an
amount equal to the product of 36 multiplied by the
Executive's Monthly Gross Income as defined in Section
5(a)(i) above. The Severance Payment shall be made in a
single lump sum within 30 days after the Date of
Termination, subject to all applicable federal and state
withholding.
(ii) Benefits. For a 36-month period after
the Date of Termination, MTS shall continue to pay its
portion of Executive's life and health insurance
benefits which the Executive is receiving immediately
prior to the Notice of Termination.
Executive shall be responsible for payment of his
portion of the premiums for such benefits. The MTS
portion and the Executive's portion shall be the
responsive percentages of such premiums paid immediately
prior to the Date of Termination. Benefits otherwise
receivable by Executive pursuant to this paragraph shall
be reduced to the extent comparable benefits are
actually received by Executive shall be reported to MTS.
At the expiration of said 36-month period, Executive
shall be entitled to continue any of said benefits which
qualify as group insurance benefits for continuation
coverage under the Comprehensive Omnibus Budget
Reconciliation Act ("COBRA") or applicable state law.
(b) If the Executive voluntarily terminates his
employment other than for Good Reason but more than 180 days after
an Unfriendly Change in Control, Executive shall be entitled to the
following benefits:
(i) Severance. MTS shall pay to Executive as
a severance payment (the "Severance Payment") an amount
equal to the product of 18 multiplied by the Executive's
monthly Gross Income as defined in Section 5(a)(i)
above. The Severance Payment shall be made in a single
lump sum within 30 days after the Date of Termination,
subject to all applicable federal and state withholding.
(ii) Benefits. For 18-month period after the
Date of Termination, MTS shall continue to pay its
portion of Executive's life and health insurance
benefits which the Executive is receiving immediately
prior to the Notice of Termination. Executive shall be
responsible for payment of his portion of the premiums
for such benefits. The MTS portion and the Executive's
portion shall be the respective percentages of such
premiums paid immediately prior to the Date of
Termination. Benefits otherwise receivable by Executive
pursuant to this paragraph shall be reduced to the
extent comparable benefits are actually received by
Executive during such period, and any such benefits
actually received by Executive shall be reported to MTS.
At the expiration of said 18-month period, Executive
shall be entitled to continue any of said benefits which
qualify as group insurance benefits for continuation
coverage under the Comprehensive Omnibus Budget
Reconciliation Act ("COBRA") or applicable state law.
7. Additional Benefits. In addition to all other amounts payable and
benefits receivable to Executive upon termination of employment covered under
this Agreement, Executive shall be entitled to the following benefits:
(a) Legal Fees. In the event of any termination of
employment under this Agreement, other than termination for Cause,
MTS shall pay to Executive all legal fees and expenses reasonably
incurred by Executive in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(b) Retirement Plan. Executive shall, upon termination
of employment, be entitled to receive all benefits payable to the
Executive under the MTS Systems Corporation Profit Sharing
Retirement Plan and any other plan or agreement relating to
retirement benefits.
(c) Employee Stock Option Certificate. The Executive's
rights under any existing Employee Stock Option Agreement and any
future such agreements, including particularly his right to exercise
his option rights following his termination of employment, shall
continue to be fully effective hereunder.
8. No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by Executive as the result
of employment by another employer or by retirement benefits after the Date of
Termination, or except as otherwise provided in this Agreement.
9. Potential Excise Tax; Indemnification
(a) Excise Tax. Should any payments hereunder or
contemplated hereby be subject to excise tax pursuant to Section
4999 of the Internal Revenue Code of 1986, as may be amended, or any
successor or similar provision thereto, or comparable state or local
tax laws, MTS shall pay to the Executive such additional
compensation as is necessary (after taking into account all federal,
state and local income taxes payable by the Executive as a result of
the receipt of such compensation) to place the Executive in the same
after-tax position he would have been in had no such excise tax (or
any interest or penalties thereon) been paid or incurred. MTS shall
pay such additional compensation upon the earlier of:
(i) the time at which MTS withholds such excise
tax from any payments to the Executive; or
(ii) 30 days after the Executive notifies MTS
that the Executive has paid such excise tax
pursuant to a tax return filed by the
Executive which takes the position that such
excise tax is due and payable in reliance on
a written opinion of the Executive's tax
counsel that it is more likely than not that
such excise tax is due and payable, or, if
later, the date the IRS notifies Executive
that such amount is due and payable.
Without limiting the obligation of MTS hereunder, the Executive
agrees, in the event the Executive makes any payment pursuant to the
preceding sentence, to negotiate with MTS in good faith with respect
to procedures reasonably requested by MTS which would afford MTS the
ability to contest the imposition of such excise tax; provided,
however, that the Executive will not be required to afford MTS any
right to contest the applicability of any such excise tax to the
extent that the Executive reasonably determines that such contest is
inconsistent with the overall tax interests of the Executive.
MTS agrees to hold in confidence and not to disclose, without the
Executive's prior written consent, any information with regard to
the Executive's tax position which MTS obtains pursuant to this
subsection.
(b) Indemnification. MTS will indemnify the Executive
(and his legal representative or other successors) to the fullest
extent permitted (including payment of
expenses in advance of final disposition of the proceeding) by the
laws of the State of Minnesota, as in effect at the time of the
subject act or omission, or the Articles of Incorporation and
By-Laws of MTS as in effect at such time or on the date of this
Agreement, whichever affords or afforded greater protection to the
Executive; and the Executive shall be entitled to the protection of
any insurance policies MTS may elect to maintain generally for the
benefit of its directors and officers, against all costs, charges
and expenses whatsoever incurred or sustained by him or his legal
representatives in connection with any action, suit or proceeding to
which he (or his legal representative or other successors) may be
made a party by reason of his being or having been a director,
officer or employee of MTS or any of its subsidiaries or his serving
or having served any other enterprise as a director, officer or
employee at the request of MTS, provided that MTS shall cause to be
maintained in effect for not less than six years from the date of a
Change in Control (to the extent available) policies of directors'
and officers' liability insurance of at least the same coverage as
those maintained by MTS on the date of this Agreement and containing
terms and conditions which are no less advantageous than such
policies.
10. Non-Competition and Confidentiality.
(a) Noncompetition. Except as provided in subsection (c)
below, Executive agrees that, as a condition of receiving benefits
under this Agreement, he will not render services directly or
indirectly to any competing organization, wherever located, for a
period of one year following the Date of Termination, in connection
with the design, implementation, development, manufacture,
marketing, sale, merchandising, leasing, servicing or promotion of
any "Conflicting Product" which as used herein means any product,
process, system or service of any person, firm, corporation,
organization other than MTS, in existence or under development,
which is the same as or similar to or competes with, or has a usage
allied to, a product, process, system, or service produced,
developed, or used by MTS. Executive agrees that violation of this
covenant not to compete with MTS shall result in immediate cessation
of all benefits hereunder, other than insurance benefits, which
Executive may continue where permitted under federal and state law
at his own expense.
(b) Confidentiality. Executive further agrees and
acknowledges his existing obligation that at all times during and
subsequent to his employment with MTS, he will not divulge or
appropriate to his own use or the uses of others any secret or
confidential information or knowledge pertaining to the business of
MTS, or any of its subsidiaries, obtained during his employment by
MTS or any of its subsidiaries.
(c) Waiver - Unfriendly Change in Control.
Notwithstanding anything herein to the contrary: the restriction on
competition under subsection (a) shall not apply if the Executive's
employment terminates following an Unfriendly Change in Control.
Furthermore, in such event, MTS waives any other restriction on
Executive's employment and consents unconditionally to any
employment Executive may subsequently obtain.
11. Funding of Payments. In order to assure the performance of MTS
or its successor of its obligations under this Agreement, MTS may deposit in a
so-called "rabbi" trust an amount equal to the maximum payment that will be due
the Executive under the terms hereof; provided, however,
that MTS shall deposit in trust the amount equal to the maximum payment due
Executive immediately upon an Unfriendly Change in Control. Under such written
trust instrument, the Trustee shall be instructed to pay to the Executive (or
the Executive's legal representative, as the case may be) the amount to which
the Executive shall be entitled under the terms hereof, and the balance, if any,
of the trust not so paid or reserved for payment shall be repaid to MTS. If MTS
deposits funds in trust, payment shall be made no later than the occurrence of a
Change in Control. The written instrument governing the trust shall be
irrevocable from and after such Change in Control and shall contain such
provisions protective of the Executive as are contained in similar trust
agreements approved by the Internal Revenue Service in published private letter
rulings (provided that the assets of the trust shall be reachable by creditors
of MTS as required by such rulings). The trustee shall be a national bank
selected by MTS with the consent of the Executive, with trust powers and whose
principal officers are located in the Minneapolis/St. Xxxx metropolitan area.
The trustee shall invest the assets of the trust in any readily marketable
securities of U.S. corporations (other than MTS, its successor, or any affiliate
of MTS or its successor). If and to the extent there are not amounts in trust
sufficient to pay Executive under this Agreement, MTS shall remain liable for
any and all payments due to Executive.
12. Successors; Binding Agreement.
(a) Successors. MTS will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of MTS to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that MTS would be required to perform
it if no such succession had taken place. Failure of MTS to obtain
such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
Executive to compensation from MTS in the same amount and on the
same terms as he would be entitled hereunder if he terminated his
employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which
any such succession becomes effective shall be deemed the Date of
Termination.
(b) Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, successors, heirs, and designated beneficiaries. If
Executive should die while any amount would still be payable to
Executive hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
designated beneficiaries or, if there is no such designated
beneficiary, to the Executive's estate.
13. Notice.
(a) Form and Delivery. All notices and other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the last known residence
address of the Executive or in the case of MTS, to its principal
office to the attention of each of the then directors of MTS with a
copy to its Secretary, or to such other address as either party may
have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(b) Notice of Termination. Any purported termination of
Executive's employment by MTS or by Executive shall be communicated
by written Notice of Termination to the other party hereto, which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth the facts and circumstances claimed
to provide a basis for termination of Executive's employment.
(c) Date of Termination. For purposes of this Agreement,
"Date of Termination" shall mean the date specified in the Notice of
Termination which shall not be less than 10 nor more than 30 days,
respectively, from the date such Notice of Termination is given.
(d) Dispute of Termination. If, within 10 days after any
Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
written agreement of the parties, or by a final judgment, order or
decree of a court of competent jurisdiction (which is not appealable
or the time for appeal therefrom having expired and no appeal having
been perfected); provided, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence in accordance with Section 14
below. Notwithstanding the pendency of any such dispute, MTS shall
continue to pay Executive full compensation in effect when the
notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue Executive as a participant in
all compensation, benefit and insurance plans in which the Executive
was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
subsection or at the end of a period of 180 days, whichever first
occurs. Amounts paid under this subsection are in addition to all
other amounts due under this Agreement and shall not be offset
against or reduce any other amounts under this Agreement.
14. Arbitration. Any dispute arising under or in connection with
this Agreement (including without limitation, the making of this Agreement or
the Executive's termination of employment) shall be resolved by final and
binding arbitration to be held in Minneapolis, Minnesota in accordance with the
rules and procedures of the American Arbitration Association. The parties shall
select a mutually acceptable single arbitrator to resolve the dispute or if they
fail or are unable to do so, each side shall within the following ten business
days select a single arbitrator and the two so selected shall select a third
arbitrator within the following ten business days. The arbitrator shall have no
power to award any punitive or exemplary damages. The arbitrator may construe or
interpret, but shall not ignore or vary the terms of this Agreement, and shall
be bound by controlling law. The arbitration award or other resolution may be
entered as a judgment at the request of the prevailing party by any court of
competent jurisdiction in Minnesota or elsewhere.
15. Miscellaneous.
(a) Modification and Waiver. Except as otherwise
specifically provided in this Agreement, no provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the
parties. No waiver by either party hereto at any time of any breach
by the other party to this Agreement of, or compliance with, any
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or similar
time.
(b) Entire Agreement. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not expressly
set forth in this Agreement.
(c) Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Minnesota.
(d) Severability. The invalidity or unenforceability or
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
IN WITNESS WHEREOF, MTS, through its authorized officer, and the
Executive have executed this Agreement as of the day and date first above
written.
EXECUTIVE: MTS SYSTEMS CORPORATION
/s/ Xxxxx X. Xxxxxxx By /s/ X. X. Xxxxx, Xx.
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Xxxxx X. Xxxxxxx
Its Chairman and CEO
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