EXHIBIT 10.n
SEVERANCE AGREEMENT
AGREEMENT made as of this 24th day of March, 1998 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 and an orderly succession plan to be essential to protecting and
enhancing the best interests of MTS and its shareholders; and
WHEREAS, 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, Executive is willing to remain in the employ of MTS upon the
understanding that MTS will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, this Agreement is consistent with the requirements of the
executive/high policy-making exception to the Age Discrimination in Employment
Act, 29 U.S.C. Section 631(c)(1) (the "Executive Exemption"), benefits in
connection therewith are pursuant to pension, profit sharing and deferred
compensation plans as defined therein, and Executive, by virtue of his/her
duties and responsibilities on behalf of MTS, qualifies under said exception for
mandatory retirement on or after his/her 65th birthday; and
WHEREAS, MTS is providing Executive, simultaneously with this Agreement,
consideration in the form of a Change in Control Agreement, to provide
additional benefits to Executive in the event of a change in control;
NOW 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 on which the
Executive and MTS agree in writing to terminate this Agreement, or (b)
the Date of Termination indicated in paragraph 2, 3, or 4 hereunder. If
a change in control occurs, as defined in that certain agreement
between the Executive and MTS of even date herewith (the "Change in
Control Agreement", attached as Exhibit 1), this Agreement shall be
superseded by the provisions of the Change in Control Agreement except
as provided in the following sentence. MTS's right under this Agreement
to terminate the Executive's employment pursuant to the Executive
Exemption shall not be superseded by the Change in Control Agreement
and the Executive shall be entitled to receive the benefits to which
he/she is entitled under subparagraph 4(d) hereunder if such
termination occurs.
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2. Termination by Reason of Death or Disability. In the event of the
Executive's death or disability during the Term of this Agreement,
Executive shall be entitled to such benefits provided under any policy,
plan or program governing death or disability maintained by MTS and
covering such Executive and this Agreement shall not apply. The
determination of disability and the amount and entitlement of benefits
shall be governed by the terms of such policy, plan or program. In the
event of the Executive's disability, the Executive's Date of
Termination shall be the date on which Executive has been unable, by
reason of physical or mental disability, to perform the services
required of him/her for his/her position, even with reasonable
accommodation, for the period of time indicated in MTS's group long
term disability plan (in which the Executive is a participant) during
which a participant must be disabled before benefits become payable. In
connection with Executive's termination due to disability, a qualified
physician must certify the disability and MTS shall at all times comply
with the Americans With Disabilities Act and any other applicable
disability discrimination law.
3. Resignation or Termination for Cause.
(a) The Executive may resign his/her employment or MTS may
terminate the Executive's employment for Cause, effective as
of the Date of Termination set forth in the Notice of
Termination. If Executive resigns or his/her employment is
terminated by MTS for Cause, MTS shall pay to Executive
his/her full base salary through the Date of Termination at
the rate in effect at the time of 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 misconduct by the Executive; or
(iii) violation by the Executive of any employment
agreement applicable to the Executive.
4. Termination Other Than for Cause. MTS may terminate Executive's
employment for a reason other than Cause, including pursuant to the
Executive Exemption on or after Executive's 65th birthday, effective as
of the Date of Termination set forth in the Notice of Termination. If
Executive's employment is terminated by MTS other than for Cause, death
or disability, Executive shall be entitled, subject to subparagraph
4(d)(v) and paragraph 9 of this Agreement, to the benefits described in
subparagraphs (a), (b) and (c) below and, if applicable, subparagraph
(d) below.
(a) Executive shall be paid a monthly Severance Payment equal to
the Executive's Monthly Gross Income, as defined in
subparagraph (i) below for 12 months.
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(i) For purposes of this Agreement, Monthly Gross Income
shall mean the sum of the following amounts, subject
to applicable federal and state withholding.
(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; plus
(B) 1/36 of the total Management Variable
Compensation earned during the 3 most recent
fiscal years 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) for the
3 most recent Plan Years ending immediately
prior to the Date of Termination multiplied
by the sum of (A) and (B) above.
(b) Following the Executive's Date of Termination and while
severance payments are being paid to the Executive or, if
earlier, until Executive is covered under other group plans,
MTS shall continue to pay the employer share of the
Executive's MTS group life and health insurance premiums. All
premium payments made on Executive's behalf following his/her
Date of Termination and Executive's continued participation in
the plans are contingent upon Executive making the appropriate
timely written elections to continue his/her group benefits
following his/her Date of Termination, said group benefits
continuing in effect for active MTS employees, Executive
continuing to be eligible under the terms of the plans and
applicable laws, and Executive's payment of the employee
portion of the premiums for such benefits. MTS will deduct
these amounts from its payments to the Executive. Benefits
otherwise receivable by Executive pursuant to this
subparagraph (b) shall be reduced or eliminated to the extent
comparable benefits are actually received by Executive during
such period from a source outside MTS, and any such benefits
actually received by Executive shall be reported to MTS.
Following the severance pay period, Executive shall be
entitled to continue any of said benefits which qualify as
group health and life insurance benefits for continuation
coverage under the Comprehensive Omnibus Budget Reconciliation
Act ("COBRA") or applicable state law and pursuant to the
terms of the plan.
(c) The Executive's rights under any existing Employee Stock
Option Agreement and any future such agreements, including
particularly his/her right to exercise his/her options
following his/her termination of employment, shall continue to
be fully effective hereunder. In addition, if the Executive's
termination of employment occurs pursuant to the Executive
Exemption on or after he/she has reached his/her 65th
birthday, the Executive shall continue to vest in any stock
options in which he/she is not fully vested, as though he/she
were continuing his/her employment with MTS as an active
employee, subject at all times to the exercise times and
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other terms and conditions set forth in said Stock Option
Agreements and to Executive's signing the release agreement
described in paragraph 9 herein.
(d) If Executive's termination of employment occurs pursuant to
the Executive Exemption on or after he/she has reached his/her
65th birthday, Executive shall be entitled to receive the lump
sum equivalent of the amount necessary to purchase a $44,000
pre-tax straight life annuity, said lump sum to be taken from
MTS contributions and earnings thereon to Executive's accounts
in MTS sponsored pension, profit sharing, and deferred
compensation plans, as applicable. If Executive is entitled to
less than that amount from the applicable MTS plans in which
he/she is a participant as of his/her Date of Termination,
then MTS shall make an additional contribution on Executive's
behalf to Executive's Deferral Account in the MTS Systems
Corporation Executive Deferred Compensation Plan, pursuant to
Section 3.4 of said Plan. The amount to which Executive is
entitled under subparagraph 4(a) of this Agreement shall be
reduced by MTS's Section 3.4 contribution to the MTS Systems
Corporation Executive Deferred Compensation Plan, as described
in subparagraph (v) below. Calculation of the Executive's
benefit shall be as follows:
(i) The benefits to which Executive is entitled, as of
his/her Date of Termination, under all MTS sponsored
pension, profit sharing and deferred compensation
plans shall be added together.
(ii) Amounts in said plans, as determined in accordance
with 29 Code of Federal Regulations ss. 1627.17,
attributable to Social Security, employee
contributions, contributions of prior employers, and
rollover contributions, shall be subtracted from the
subparagraph (i) amount and the resulting figure
shall be the "Qualified Retirement Benefit".
(iii) MTS shall determine the lump sum equivalent of the
amount necessary to purchase a straight life annuity
for Executive, effective as of his/her Date of
Termination, which would provide Executive with
$44,000 a year for life (the "ADEA Benefit"). MTS
shall retain a certified actuary to determine said
lump sum equivalent amount, using the applicable
mortality table and applicable interest rate under
Section 417(e) of the Internal Revenue Code and
Regulations issued thereunder.
(iv) If the Qualified Retirement Benefit exceeds the ADEA
Benefit, the Executive shall have the option (but is
not required) to receive the Qualified Retirement
Benefit in a lump sum, as provided under the
applicable plans, within 60 days following his/her
Date of Termination. The Executive may elect to
receive the Qualified Retirement Benefit in either a
lump sum or a series of periodic payments pursuant to
the terms of the applicable plans. The Executive may
also receive the payments and benefits set forth in
subparagraphs 4(a) and (b) of this Agreement provided
he/she executes the release agreement required in
paragraph 9 of this Agreement. The benefits set forth
in subparagraph 4(c) shall at all times be available
to the Executive.
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(v) If the Qualified Retirement Benefit is less than the
ADEA Benefit, MTS shall make a contribution to
Executive's Deferral Account in the MTS Systems
Corporation Executive Deferred Compensation Plan,
pursuant to Section 3.4 of said Plan, in an amount
equal to the difference between the Qualified
Retirement Benefit and the ADEA Benefit (the
"Qualified Retirement Benefit Supplement"). The
Executive shall have the option (but is not required)
to receive the Qualified Retirement Benefit and, if
applicable, the Qualified Retirement Benefit
Supplement from said Plan within 60 days following
his/her Date of Termination. The Executive may elect
to receive the Qualified Retirement Benefit and, if
applicable, the Qualified Retirement Benefit
Supplement, in either a lump sum or a series of
periodic payments pursuant to the terms of the
applicable plans. The payments to Executive described
in subparagraph 4(a) of this Agreement shall be
reduced by the amount of MTS's contribution to
Executive's Deferral Account in the MTS Systems
Corporation Executive Deferred Compensation Plan,
pursuant to Section 3.4 of said Plan, to create the
Qualified Retirement Benefit Supplement. All payments
remaining in subparagraph 4(a) after this reduction
and the subparagraph 4(b) and (c) benefits shall be
paid to Executive in accordance with the terms of
those subparagraphs, provided Executive executes the
release agreement required in paragraph 9 of this
Agreement.
(vi) Executive's Qualified Retirement Benefit and, if
applicable, the Qualified Retirement Benefit
Supplement, shall be nonforfeitable and not subject
to reduction or elimination by MTS for any reason.
5. 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 otherwise except
as specifically provided herein.
6. Non-Competition and Confidentiality
(a) Executive agrees that, as a condition of receiving benefits
under this Agreement, he/she will not render services directly
or indirectly to any competing organization located in any
market in which MTS is doing business as of Executive's Date
of Termination for the period of time during which Executive
is receiving benefits under this Agreement or the Change in
Control Agreement, 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
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usage allied to, a product, process, system, or service
produced, developed, or used by MTS.
(b) Executive further agrees and acknowledges his/her existing
obligation that, at all times during and subsequent to his/her
employment with MTS, he/she will not divulge or appropriate to
his/her own use or the uses of others any secret or
confidential information pertaining to the business of MTS, or
any of its subsidiaries, obtained during his/her employment by
MTS or any of its subsidiaries.
(c) If Executive violates his/her obligations under subparagraphs
(a) and (b) above, any remaining payments or benefits
otherwise due Executive pursuant to subparagraphs 4(a) and (b)
of this Agreement shall not be paid. This subparagraph (c)
specifically does not apply to the subparagraph 4(a) reduction
amount equal to the Qualified Retirement Benefit Supplement,
as described in subparagraph 4(d)(v).
7. Binding Agreement. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, 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.
8. Notice of Termination.
(a) Any purported termination of Executive's employment by either
Executive or MTS under this Agreement, except as otherwise
provided in paragraph 2 of this Agreement, shall be
communicated by written notice to the other party.
(b) For purposes of this Agreement, "Date of Termination" shall
mean the date specified in the written Notice of Termination
which shall not be less than 10 nor more than 60 days from the
date such Notice of Termination is given.
(c) Notice of Termination and all other communications provided
for in the Agreement shall be deemed to have been duly given
when delivered or mailed by United States registered or
certified mail, return receipt requested, postage pre-paid,
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.
9. Release of Claims. Executive's right to the benefits and payments
described in subparagraphs 4(a), (b) and (c) of this Agreement, except
as otherwise provided in
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subparagraph 4(d)(v) hereof, is contingent upon Executive's execution
of a severance release agreement which shall be provided to Executive
by MTS with or following his/her Notice of Termination. The severance
release agreement shall require a full release of all claims which
Executive may have against MTS or any MTS affiliate or individual
associated with MTS, to the extent permitted by and consistent with
applicable laws. Such release agreement shall prohibit Executive from
recovering any amount in connection with a charge or lawsuit filed
against MTS or any MTS affiliate, employee, shareholder, officer,
director or other agent by Executive, EEOC or any other agency or
entity on Executive's behalf based upon any act occurring prior to
execution of said release agreement. The release agreement will be
available for Executive's review, consideration and execution at least
45 days prior to his/her Date of Termination.
10. Injunctive Relief. Executive consents that, in the case of any
violation or threatened violation of paragraph 6 of this Agreement, MTS
may apply for and secure injunctive relief, temporary or provisional,
in court, without bond but upon due notice, pending final resolution on
the merits pursuant to arbitration as set forth in paragraph 11 hereof.
No waiver of any violation of this Agreement shall be implied from any
failure by MTS to take action under this paragraph.
11. Arbitration. Any and all claims or disputes between Executive and MTS
(including the validity, scope, and enforceability of this paragraph),
except as otherwise provided under paragraph 10 or prohibited under
applicable law, shall be submitted for arbitration and resolution to an
arbitrator. No demand for arbitration may be made after the date when
the institution of legal or equitable proceedings based on such claim
or dispute would be barred by the applicable statute of limitation. The
arbitrator shall be selected by mutual agreement of the parties. Unless
otherwise provided for in this Agreement, the Expedited Labor
Arbitration Rules of the American Arbitration Association shall apply.
If the parties are unable to agree upon an arbitrator, any such dispute
shall be solely and finally settled by arbitration in accordance with
the Expedited Labor Arbitration Rules of the American Arbitration
Association ("AAA"). The parties agree that no punitive damages shall
be awarded hereunder. The parties also agree that all awards, decisions
and remedies in favor of a winning party hereunder with respect to any
issue shall be proportional to the violation caused by the losing party
with respect to that issue. All costs in conducting the arbitration,
including but not limited to the arbitration filing fee, the
arbitrator's fees and expenses, and the reasonable attorney's fees and
expenses of the prevailing party (including the attorney's fees and
costs incurred by the prevailing party in seeking or resisting
temporary or provisional court relief as set out in paragraph 10
above), shall be the responsibility of the losing party. In the event
there is more than one issue in dispute and there is no one prevailing
party with respect to all issues in dispute, costs and attorney's fees
shall be prorated by the arbitrator according to the relative dollar
value of each issue. The arbitrator's Award shall be final and binding.
In the event either party must resort to the judicial process to
enforce the provisions of this Agreement, the award of an arbitrator or
equitable relief granted by an arbitrator, the party seeking
enforcement shall be entitled to recover from the other
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party all costs of litigation including, but not limited to, reasonable
attorney's fees and court costs. The arbitration proceedings and Award
shall be maintained by both parties as strictly confidential, except as
otherwise required by court order and with respect to the parties'
attorneys and tax advisors, and, with respect to MTS, members of its
management, and, with respect to Executive, his/her family.
12. Miscellaneous.
(a) 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) 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) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of
Minnesota.
(d) Any provision of this Agreement which conflicts with
applicable law shall be modified to the extent necessary to
ensure its enforceability. 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.
This Agreement supersedes any and all prior oral and written understandings and
agreements between the Executive and MTS, including specifically the Employment
Agreement between MTS and the Executive dated April 1, 1991 and attached as
Exhibit 2.
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/ Xxxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxx
Its Chairman
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