CTS
Corporation
SEVERANCE AGREEMENT
This
SEVERANCE AGREEMENT (this “Agreement”), dated as
of December 5, 2007, is made and entered by and between CTS
Corporation, an Indiana corporation (the
“Company”), and _____________________ (the
“Executive”). (1)
W I T N E S S E T H :
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;
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;
WHEREAS,
the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the
Company; and
WHEREAS,
the Company and the Executive previously entered into a
Severance Agreement dated as of (the “Prior
Agreement”), and wish to amend and completely restate
the Prior Agreement as set forth below.
NOW,
THEREFORE, the Company and the Executive agree as
follows:
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1.
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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:
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(a)
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“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 the Executive immediately prior to
the occurrence of a Change in Control or such higher rate as may be
determined from time to time by the Board or a committee
thereof.
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(b)
“Board”
means the Board of Directors of the Company.
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(c)
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“Cause”
means that, prior to any termination pursuant to Section 3(b),
the Executive:
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(i)
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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;
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(ii)
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has
intentionally and wrongfully damaged property of the Company or any
Subsidiary;
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(iii)
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has
intentionally and wrongfully disclosed secret processes, trade
secrets or confidential information of the Company or any
Subsidiary; or
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(iv)
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has
intentionally and wrongfully engaged in any Competitive
Activity;
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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.
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_______________________________________
(1) Two
different “tiers” of Executives will be eligible
to enter into Severance Agreements, with each tier providing
for different levels of severance benefits.
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(d)
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“Change
in Control” means the occurrence during the Term of any of
the following events:
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(i)
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the
acquisition 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 of Voting Stock of the
Company directly from the Company that is approved by the Incumbent
Board (as defined below), (B) any acquisition of Voting Stock of
the Company by the Company or any Subsidiary and any change in the
percentage ownership of Voting Stock of the Company that results
from such acquisition, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any Subsidiary, or (D) any
acquisition of Voting Stock of the Company by any Person pursuant
to a Business Combination that complies with clauses (I), (II) and
(III) of Section 1(d)(iii); or
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(ii)
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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 (as described in Rule
14a-12(c) 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
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(iii)
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consummation
of (A) a reorganization, merger or consolidation of the
Company, or (B) a sale or other disposition of all or
substantially all of the assets of the Company, (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 75% 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 or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries), (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)
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; or
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(iv)
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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).
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(e)
“Code”
means the Internal Revenue Code of 1986, as amended.
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(f)
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“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 completed 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.
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(g)
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“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 the 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, 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.
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(h)
“Exchange
Act” means the Securities Exchange Act of 1934, as
amended.
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(i)
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“Incentive
Pay” means an annual amount equal to not less than the
greater of: (i) 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 or (ii) the Target
Annual Incentive Pay. “Target Annual Incentive
Pay” means the target incentive pay for the Executive’s
position as set forth in the CTS Corporation Management Incentive
Plan for the fiscal year in which the Change in Control occurred
(without regard to any amendment to such Plan made subsequent to a
Change in Control which adversely affects in any manner the
benefits or amounts payable thereunder) and calculated with respect
to the Executive’s Base Pay or, if the Management Incentive
Plan is no longer in effect, the target annual cash incentive
compensation, in addition to Base Pay, to be paid in regard to
services rendered during the fiscal year in which the Change in
Control occurred as set forth in the Company’s annual budget
for such fiscal year.
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(j)
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“Retirement
Plans” means the [CTS Corporation Pension Plan, the CTS
Corporation 1996 Excess Retirement Benefit Plan, the CTS
Corporation Retirement Plan, the CTS Corporation Retirement Plan as
Adopted by Electromechanical Division, the Retirement Plan for
Employees of Dynamics Corporation of America, and the CTS
Corporation Individual Excess Retirement Benefit Plan with respect
to the Executive adopted by the Company as of December 5, 2007,]
2 and any
successor plan thereto.
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(k)
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“Separation
from Service” means the Executive’s separation from
service within the meaning of Section 409A of the
Code.
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(l)
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“Severance Period” means the period of time commencing
on the date of the first occurrence of a Change in Control during
the Term and continuing until the earlier of (i) the
[TIER 1: third/
TIER 2: second] anniversary of the occurrence of the Change
in Control, or (ii) the Executive’s death [TIER 1 ONLY:;
provided
,
however
, that 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] .
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(m)
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“Specified
Employee” means a specified employee within the meaning of
Section 409A of the Code.
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(n)
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“Subsidiary”
means an entity in which the Company directly or indirectly
beneficially owns 50% or more of the outstanding Voting
Stock.
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(o)
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“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, 2011], or (ii) the expiration of the
Severance Period;
provided ,
however
, that, subject to the
last sentence of Section 9, if, prior to a Change in Control, the
Executive incurs a Separation from Service for any reason,
thereupon without further action the Term will be deemed to have
expired and this Agreement will immediately terminate and be of no
further effect.
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(p)
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“Voting
Stock” means securities entitled to vote generally in the
election of directors.
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2.
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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, including without limitation,
for purposes of the last sentence of Section 9 notwithstanding that
the Term may have theretofore expired.
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3.
Separation Following a Change in Control .
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(a)
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In
the event of the occurrence of a Change in Control, the Company may
terminate Executive’s employment during the Severance Period
and, provided such termination of employment constitutes a
Separation from Service, the Executive will be entitled to the
severance compensation provided by Section 4 unless such
Separation is the result of the occurrence of one or more of the
following events:
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(i) The
Executive’s death;
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(ii)
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The
Executive becoming permanently disabled within the meaning of, and
beginning to actually receive disability benefits pursuant to, the
Company’s long-term disability plan in effect for, or
applicable to, the Executive immediately prior to the Change in
Control;
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(iii)
Cause.
(2) Adjust as
appropriate for individual executive.
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(b)
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In
the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company during the Severance
Period 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) and, provided such
termination of employment constitutes a Separation from Service
will be entitled to severance compensation as provided in Section
4:
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(i)
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Failure
to elect or reelect or otherwise to maintain the Executive in the
office or the position, or a substantially equivalent or better
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 member of
the Board of Directors of the Company (or any successor thereto) if
the Executive was a Director of the Company immediately prior to
the Change in Control;
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(ii)
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(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;
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(iii)
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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;
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(iv)
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The
liquidation, dissolution, merger, consolidation or reorganization
of the Company or transfer of all or substantially all of its
business and/or assets 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 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);
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(v)
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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;
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(vi)
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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; or
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(vii)
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Without
limiting the generality or effect of the foregoing, any Change in
Control that results in (A) the Company’s Voting Stock
ceasing to be (x) registered under Section 12 of the Exchange
Act or (y) listed on the New York Stock Exchange or (z)
authorized for quotation on the Nasdaq National Market System, or
(B) the Company no longer being required to file periodic
reports with the Securities and Exchange Commission pursuant to
Sections 13(a) or 15(d) of the Exchange Act, shall be conclusively
presumed to give rise to the Executive’s right to terminate
employment pursuant to subsections (ii) and (iii) of this Section
3(b).
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(c)
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A
Separation from Service pursuant to Section 3(a) or Section
3(b) that entitles the Executive to the benefits provided by
Section 4 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 if the Executive also becomes entitled to receive severance
payments under any employment or severance agreement (other than
this Agreement) in existence prior to the date hereof, then the
Executive’s termination payments under this Agreement shall
be reduced by any corresponding payments made to the Executive
under such other agreement. [FOR TIER 1 ONLY: For the
avoidance of doubt, payments made as reimbursement or for
outplacement advice of the type described in Paragraphs (5) and (6)
of Annex A to this Agreement shall not be considered as
corresponding to severance payments calculated with respect to Base
Pay or Incentive Pay, or any multiple thereof.]
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4.
Severance Compensation .
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(a)
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If
the Executive incurs a Separation from Service pursuant to
Section 3(a) or Section 3(b) that entitles the Executive to
severance benefits hereunder, the Company will pay to the Executive
(or other Person as appropriate) as severance benefits the
appropriate amounts described on Annex A and will continue to
provide to the Executive the continuing and other benefits
described on Annex A at the times and for the periods
described therein.
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(b)
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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 . Any change in such prime rate will be
effective on and as of the date of such change.
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(c)
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If
the Executive incurs a Separation from Service pursuant to
Section 3(a) or Section 3(b) that entitles the Executive to
severance benefits hereunder, notwithstanding anything to the
contrary contained in this Agreement or in the CTS Corporation
Management Incentive Plan, the Company will pay in cash to the
Executive a lump sum amount equal to (a) the Executive’s
target incentive pay for Executive’s position under the CTS
Corporation Management Incentive Plan for the year in which the
Executive’s Separation from Service occurs, and
(b) prorated on the basis of the ratio of the number of months
of the Executive’s participation during the applicable
performance period to which the incentive pay related to the
aggregate number of months in such performance period, taking into
account service rendered through the date of the Executive’s
Separation from Service. Such payment shall be made as
soon as practicable but not more than 90 days after the date of the
Executive’s Separation from Service; provided ,
however ,
that if the Executive is a Specified Employee such payment shall be
made on the first day of the seventh month followi
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