UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of
Report (Date of Earliest Event Reported): December 5, 2007
CTS
CORPORATION
(Exact
Name of Company as Specified in Its Charter)
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Indiana
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1-4639
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35-0225010
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(State
or Other Jurisdiction of Incorporation)
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(Commission
File Numbers)
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(I.R.S.
Employer Identification Nos.)
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| |
|
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905
West Boulevard North
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|
|
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Elkhart,
Indiana
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46514
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Company’s
Telephone Number, Including Area
Code: (574)
523-3800
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the form 8-K filing is intended to simultaneously
satisfy the filing obligation of the Company under any of the following
provisions:
|
q
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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q
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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|
q
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR
240.14d-2(b))
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|
q
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR
240.13e-4(c))
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Item
5.02 Departure of
Directors or Certain Officers; Election of Directors; Appointment of
CertainOfficers; Compensatory Arrangements of
CertainOfficers.
On
December 5, 2007, CTS Corporation, an Indiana corporation (the “Company”),
entered into severance agreements with a number of CTS executive officers
(each
an “Executive”). Each of the following Executives has executed a
severance agreement (the “Severance Agreements”) with the Company, which becomes
operative only upon a change-in-control of the Company: Vinod M. Khilnani;
H.
Tyler Buchanan; James L. Cummins; Richard G. Cutter, III; Thomas A. Kroll;
Matthew W. Long; and Donald R. Schroeder.
There
are
two versions of the Severance Agreement. Each of Mr. Khilnani, Mr.
Buchanan, Mr. Cummins, Mr. Cutter, and Mr. Schroeder is a party to the first
version of the Severance Agreement.
Under
the
first version of the Severance Agreement, a “change-in-control” is defined
generally as: (1) the acquisition by any person of 25% or more of the Company’s
voting stock, subject to certain exceptions; (2) the incumbent board members
ceasing to constitute a majority of the board; (3) a reorganization, merger,
consolidation, or sale of all or substantially all of the Company’s assets,
subject to certain exceptions; or (4) the approval by the Company’s shareholders
of a complete liquidation or dissolution of the Company, subject to certain
exceptions.
The
Executive is entitled to severance compensation if within three years after
a
change-in-control, he terminates his employment for good reason or his
employment is terminated by the Company or its successor for any reason other
than cause, disability or death, provided that on each anniversary of a
change-in-control, such three-year period is automatically extended for one
year
unless either party provides notice otherwise. “Good reason” is
defined generally as: (1) the failure to maintain the Executive in his office
or
position or an equivalent or better office or position; (2) a significant
adverse change in the nature of the Executive's duties; (3) a reduction in
the
Executive's base or incentive pay or an adverse change in any employee benefits;
(4) the Executive's good faith determination that as a result of a change
in
circumstances following the change-in-control, he is unable to carry out
or has
suffered a substantial reduction in the duties he had prior to the
change-in-control; (5) a successor entity's failure to assume all obligations
of
the Company under the Severance Agreement; (6) the Company or its successor
moves the Executive's principal work location by more than 35 miles or requires
him to travel at least 20% more; (7) the Company or its successor commits
any
material breach of the Severance Agreement; or (8) the Company’s stock ceases to
be publicly traded or listed on the New York Stock Exchange. An
Executive who separates from service after the commencement of discussions
with
a third party that ultimately results in a change-in-control may be treated
as
separating from service following the change-in-control for purposes of the
Severance Agreement.
Under
the first version of the
Severance Agreement, the severance compensation to which the Executive is
entitled includes: (1) a lump sum equal to three times the sum of the
greater of the Executive's base salary at the time of the change-in-control
or
his average base salary over the three years prior to termination plus the
greater of his average incentive pay over the three years prior to the
change-in-control or his target incentive pay for the year in which the
change-in-control occurred; (2) continued availability of medical and dental
benefits for 36 months following termination at the Executive’s expense, with
the Company reimbursing the Executive for the portion of the premium in excess
of the employee share for such coverage (and if such coverage causes the
Executive to incur tax because it cannot be provided by a company plan, the
Company will reimburse the Executive for such additional tax), provided that
the
obligation to provide these benefits will be reduced to the extent medical
and
dental benefits are provided by another employer; (3) a lump sum payment
equal
to the increase in actuarial value of the benefits under the Company’s qualified
and supplemental retirement plans that the Executive would have received
had he
remained employed for 36 months following his termination date; (4) a lump
sum
payment equal to 0.90 times three times the Executive’s average matching
contribution percentage under the Company’s 401(k) plan for the three prior
years times the lesser of the Executive’s salary and incentive pay or the
maximum amount of compensation that may be taken into account under the 401(k)
plan, to compensate for
the amounts that the Company would have contributed to the Executive’s 401(k)
plan account had he remained employed for 36 months following his termination;
(5) reimbursement of up to $30,000 for outplacement services; (6) reimbursement
of legal, tax and estate planning expense related to the Severance Agreement;
(7) a lump sum payment equal to the Executive’s target incentive pay for the
year in which the termination occurs, prorated based on his number of months
of
actual service during the year; and (8) accelerated vesting, exercise rights
and
lapse of restrictions on all equity-based compensation
awards.
In
addition, if any payments made to the Executive are subject to excise tax
under
the “golden parachute” rules of Sections 280G and 4999 of the Internal Revenue
Code (the “Code”), he will receive an additional payment to put him in the same
after-tax position as if no excise tax had been imposed.
The
payment scheme is designed to comply with Section 409A of the Code; lump
sum
payments of severance compensation are generally to be made as soon as
practicable but not more than ninety days after the Executive separates from
service, provided however, that if the Executive is a “Specified Employee”
within the meaning of Section 409A of the Code, then the payment shall be
made
on the earlier of the first day of the seventh month following the date of
the
Executive’s separation from service or the Executive’s death. Payment
of severance compensation under the change-in-control Severance Agreement
will
be reduced to the extent of any corresponding payments under any other
agreement.
To
the
extent that the Executive receives severance benefits under the Severance
Agreement, the Executive may not, for a period of one year following his
termination date, participate in the management of any business which engages
in
substantial and direct competition with the Company or its
successor. In addition, for a period of three years after separation
from service, the Executive may not solicit any Company employee to leave
employment with the Company or any of its subsidiaries, may not hire or engage
any person who was employed with the Company or any of its subsidiaries,
and may
not assist any organization with whom the Executive is associated in taking
such
actions. The Executive is generally entitled to be reimbursed by the
Company for legal fees incurred to enforce his rights under the Severance
Agreement.
The
term of the Severance Agreement
begins December 5, 2007 and ends December 31, 2011.
Mr.
Kroll and Mr. Long are each a party
to the second version of the Severance Agreement. The second version
is similar to the first version described above except that certain eligibility
periods and severance amounts are different.
Specifically,
pursuant to the second version of the Severance Agreement, the Executive
will be
entitled to severance compensation if within two years after the
change-in-control, he terminates his employment for good reason or the Company
or its successor terminates him for any reason except cause, disability,
or
death. This severance eligibility period does not automatically
extend.
Further,
under the second version of the Severance Agreement, the severance compensation
to which the Executive is entitled includes: (1) a lump sum equal to
one and one half (1.5) times the sum of the greater of the Executive's base
salary at the time of the change-in-control or his average base salary over
the
three years prior to termination plus the greater of his average incentive
pay
over the three years prior to the change-in-control or his target incentive
pay
for the year in which the change-in-control occurred; (2) continued availability
of medical and dental benefits for 12 months following termination at the
Executive’s expense, with the Company reimbursing the Executive for the portion
of the premium in excess of the employee share for such coverage, (and if
such
coverage causes the Executive to incur tax because it cannot be provided
by a
Company plan, the Company will reimburse the Executive for such additional
tax),
provided that the obligation to provide these benefits will be reduced to
the
extent medical and dental benefits are provided by another employer; (3)
a lump
sum payment equal to the increase in actuarial value of the benefits under
the
Company’s qualified and supplemental retirement plans that the Executive would
have received had he remained employed for 12 months following his termination
date; (4) a lump sum payment equal to 0.96 times the Executive’s average
matching contribution percentage under the Company’s 401(k) plan for the three
prior years times the lesser of the Executive’s salary and incentive pay or the
maximum amount of compensation that may be taken into account under the 401(k)
plan, to compensate for the amounts that the Company would have contributed
to
the Executive’s 401(k) plan account had he remained employed for 12 months
following his termination; (5) reimbursement of up to $15,000 for outplacement
services; (6) a lump sum payment equal to the Executive’s target incentive pay
for the year in which the termination occurs, prorated based on his number
of
months of actual service during the year; and (7) accelerated vesting, exercise
rights and lapse of restrictions on all equity-based compensation
awards.
In
addition, the second version of the Severance Agreement does not provide
for an
additional payment if any amount or benefit to be paid to the Executive would
constitute an excess parachute payment within the meaning of Section 280G
of the
Code. Instead, the payments and benefits under the Severance
Agreement will be reduced to the minimum extent necessary so that no portion
of
any payment or benefit will constitute an excess parachute payment, provided
however, that the reduction will be made only if and to the extent that such
reduction would result in an increase in the aggregate payment and benefits
to
be provided, determined on an after tax basis (taking into account the excise
tax imposed pursuant to Section 4999 of the Code, or any successor provision,
or
any other tax).
The
period of non-solicitation of Company employees under this second version
is two
years from separation of service.
In
all
other material respects, this second version of the Severance Agreement is
consistent with the terms of the above-described first version of the
Agreement.
As
previously reported on a Form 8-K filed by the Company on September 18, 2007,
the Board of Directors approved the form of an individual excess benefit
retirement plan to be entered into with certain Company personnel. On
December 5, 2007, in accord with the approved form, the Company adopted
individual excess benefit retirement plans for Vinod M. Khilnani, H. Tyler
Buchanan, James L. Cummins, Richard G. Cutter, III, Thomas A. Kroll, Matthew
W.
Long, and Donald R. Schroeder.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has
duly
caused this report to be signed on its behalf by the undersigned hereunto
duly
authorized.
CTS
CORPORATION
/s/ Richard
G. Cutter, III
By:
Richard G. Cutter, III
Vice
President, Secretary, and General Counsel
Date: December
11, 2007