UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
For Quarter Ended Commission File Number
March 30, 1997 1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)293-7511
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of April 18, 1997: 5,228,396
Page 1 of 10
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months
Ended March 30, 1997, and March 31, 1996 3
Condensed Consolidated Balance Sheets -
As of March 30, 1997, and December 31, 1996 4
Condensed Consolidated Statements of Cash
Flows - For the Three Months Ended March 30,
1997, and March 31, 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Page 2 of 10
Part I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(In thousands of dollars, except per share amounts)
Three Months Ended
March 30, March 31,
1997 1996
Net sales $91,269 $80,186
Costs and expenses:
Cost of goods sold 65,978 60,387
Selling, general and administrative expenses 11,824 10,952
Research and development expenses 2,974 2,260
Operating earnings 10,493 6,587
Other expenses (income):
Interest expense 263 436
Other (808) (855)
Total other expenses (income) (545) (419)
Earnings before income taxes 11,038 7,006
Income taxes 4,084 2,592
Net earnings $ 6,954 $ 4,414
Net earnings per share $ 1.32 $ .83
Cash dividends declared per share $ .18 $ .15
Average common and common equivalent
shares outstanding 5,267,396 5,294,933
See notes to condensed consolidated financial statements.
Page 3 of 10
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 30, December 31,
1997 1996*
ASSETS (Unaudited)
Current Assets
Cash $ 46,556 $ 44,957
Accounts receivable, less allowances
(1997--$669; 1996--$622) 54,654 43,984
Inventories--Note C 37,197 38,761
Other current assets 5,500 3,787
Deferred income taxes 6,712 6,712
Total current assets 150,619 138,201
Property, Plant and Equipment, less accumulated
depreciation (1997--$132,386; 1996--$133,286) 56,919 56,103
Other Assets
Goodwill, less accumulated amortization
(1997--$8,531; 1996-$8,361) 3,861 4,039
Prepaid pension 51,826 50,152
Other 757 877
Total other assets 56,444 55,068
$263,982 $249,372
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $2,416 $2,427
Accounts payable 22,965 17,146
Accrued liabilities 35,793 31,818
Total current liabilities 61,174 51,391
Long-term Obligations 11,210 11,220
Deferred Income Taxes 16,146 16,146
Postretirement Benefits 4,315 4,383
Shareholders' Equity:
Common stock-authorized 8,000,000 shares
without par value; issued 5,807,031 shares 33,401 33,540
Retained earnings 150,125 144,112
Cumulative translation adjustment 349 1,373
183,875 179,025
Less cost of common stock held in treasury:
1997--579,635 shares; 1996--582,075 shares 12,738 12,793
Total shareholders' equity 171,137 166,232
$263,982 $249,372
*The balance sheet at December 31, 1996, has been derived from the
audited financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4 of 10
Part I. -- FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(In thousands of dollars)
Three Months Ended
March 30, March 31,
1997 1996
Cash flows from operating activities:
Net earnings $ 6,954 $ 4,414
Depreciation and amortization 3,768 3,250
(Increase) decrease in:
Accounts receivable (10,670) (2,153)
Inventories 1,564 784
Other current assets (1,713) (1,114)
Prepaid pension asset (1,674) (1,309)
Other 43 (105)
Increase in:
Accounts payable & accrued liabilities 9,794 4,624
Total adjustments 1,112 3,977
Net cash provided by operating activities 8,066 8,391
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 6 128
Capital expenditures (4,833) (4,247)
Net cash used in investing activities (4,827) (4,119)
Cash flows from financing activities:
Payments of long-term obligations (1)
Increase in notes payable 1,365
Dividend payments (940) (783)
Other (150) 113
Net cash (used in) provided by financing
activities (1,090) 694
Effect of exchange rate changes on cash (550) 66
Net increase in cash 1,599 5,032
Cash at beginning of year 44,957 37,271
Cash at end of period $46,556 $42,303
Supplemental cash flow information
Cash paid during the period for:
Interest $ 278 $ 429
Income Taxes--Net $ 852 $ 1,179
See notes to condensed consolidated financial statements.
Page 5 of 10
Part I. -- FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 30, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is
unaudited; however, in the opinion of management, the interim data
includes all adjustments considered necessary for a fair
presentation of the results for the interim period. Operating
results for the three-month period ended March 30, 1997, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's 1996 Annual Report on Form 10-K.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made to prior periods to
conform to the classifications adopted in 1997.
NOTE C--INVENTORIES
The components of inventory consist of the following:
(In thousands)
March 30, December 31,
1997 1996
Finished goods $ 6,838 $ 8,504
Work-in-process 16,374 17,138
Raw material 13,985 13,119
$37,197 $38,761
NOTE D--LITIGATION and CONTINGENCIES
Contested claims involving various matters, including environmental
claims brought by government agencies, are being litigated by CTS,
both in legal and administrative forums. In the opinion of
management, based upon currently available information, adequate
provision for potential costs has been made, or the costs which
could ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial
position of the Company or the results of operations.
Page 6 of 10
Part I. -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Material Changes in Financial Condition: Comparison of March 30,
1997, to December 31, 1996
The following table highlights significant changes in balance sheet
captions and ratios and other information related to liquidity and
capital resources:
(Dollars in thousands)
March 30, December 31, Increase
1997 1996 (Decrease)
Cash $ 46,556 $ 44,957 $1,599
Accounts receivable, net 54,654 43,984 10,670
Inventories, net 37,197 38,761 (1,564)
Current assets 150,619 138,201 12,418
Accounts payable 22,965 17,146 5,819
Current liabilities 61,174 51,391 9,783
Working capital 89,445 86,810 2,635
Current ratio 2.46 2.69 (.23)
Interest bearing debt 13,408 13,428 (20)
Net tangible worth 167,276 162,193 5,083
Ratio of interest bearing debt
to net tangible worth .08 .08 --
From December 31, 1996, to March 30, 1997, working capital of CTS
Corporation and its subsidiaries ("CTS" or "Company") increased
$2.6 million. The improved working capital position primarily
reflects a general increase in business activity which resulted in
higher cash and accounts receivable balances. These effects were
offset by related, but lower, increases in accounts payable and
accrued liabilities. The current ratio decreased due to the
relative increase in current liabilities, primarily accounts
payable.
Capital expenditures were $4.8 million during the first quarter,
compared with $4.2 million for the same period a year earlier.
These capital expenditures were primarily for increased
manufacturing capacity, new products and manufacturing improvement
programs.
Page 7 of 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
Quarter 1997 to First Quarter 1996
The following table highlights changes in significant components of
the consolidated statements of earnings for the three-month periods
ending March 30, 1997, and March 31, 1996:
(Dollars in thousands)
March 30, March 31, Increase
1997 1996 (Decrease)
Net sales $91,269 $80,186 $11,083
Gross earnings 25,291 19,799 5,492
Gross earnings as a percent
of sales 27.71% 24.69% 3.02%
Selling, general and
administrative expenses 11,824 10,952 872
Selling, general and
administrative expenses as
a percent of sales 12.96% 13.66% (0.70)%
Research and development
expenses 2,974 2,260 714
Operating earnings 10,493 6,587 3,906
Operating earnings as a
percent of sales 11.50% 8.21% 3.29%
Interest expense 263 436 (173)
Earnings before income taxes 11,038 7,006 4,032
Income taxes 4,084 2,592 1,492
Income tax rate 37.00% 37.00%
Net sales increased by $11.1 million, or 13.8% from the first
quarter of 1996. Sales increases occurred principally as a result
of increased customer demand for interconnect, automotive sensor,
resistor networks and microelectronics products in the North
American and European markets.
Gross earnings improved primarily due to the sales and production
volume increases, as well as continuing efforts to control
manufacturing expenses.
Selling, general and administrative expenses in dollars increased
slightly as a result of the increased business levels, but
decreased as a percentage of sales due to continued expense
controls.
Research and development expenses increased 31.6% as the Company
continued investment efforts in new product development and
improvements.
Page 8 of 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Results of Operations: Comparison of First
Quarter 1997 to First Quarter 1996 (Continued)
The increase in operating earnings is principally due to the higher
sales volume, higher absorption of manufacturing expenses and continued
control of operating expenses.
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
CTS is involved in litigation and in other administrative
proceedings with government agencies regarding the protection of
the environment, and other matters, the results of which are not
yet determinable. In the opinion of management, based upon
currently available information, adequate provision for anticipated
costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect
the consolidated financial position of the Company or the results
of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(99) Additional exhibit
Severance Agreement, dated April 11, 1997, between CTS
Corporation and Joseph P. Walker, Philip T. Christ, Stanley
J. Aris, Jeannine M. Davis, James L. Cummins, James N.
Hufford, Donald R. Schroeder, George T. Newhart, Gary N.
Hoipkemier, Ian M. Archer, James K. C. Chen, R. Clayton
Crum, George A. Harding, Timothy L. Hartigan, William J.
Kaska and John D. Watson.
b. Forms 8-K
None
Page 9 of 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CTS CORPORATION CTS CORPORATION
/s/ Jeannine M. Davis /s/ Stanley J. Aris
Jeannine M. Davis Stanley J. Aris
Vice President, Secretary Vice President Finance
and General Counsel and Chief Financial Officer
Dated: April 22, 1997
Page 10 of 10
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 46,556
<SECURITIES> 0
<RECEIVABLES> 55,323
<ALLOWANCES> 669
<INVENTORY> 37,197
<CURRENT-ASSETS> 150,619
<PP&E> 189,305
<DEPRECIATION> 132,386
<TOTAL-ASSETS> 263,982
<CURRENT-LIABILITIES> 61,174
<BONDS> 0
0
0
<COMMON> 33,401
<OTHER-SE> 137,736
<TOTAL-LIABILITY-AND-EQUITY> 263,982
<SALES> 91,269
<TOTAL-REVENUES> 91,269
<CGS> 65,978
<TOTAL-COSTS> 80,776
<OTHER-EXPENSES> (808)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 11,038
<INCOME-TAX> 4,084
<INCOME-CONTINUING> 6,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,954
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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.
(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
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,
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
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.
(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
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
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
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
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
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
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
tax claimed and sue 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 sue 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
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
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
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.
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:
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)
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.
