CTS Corporation
Form 10-Q
Third Quarter 2009

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EXHIBIT (10)

CTS CORPORATION EXECUTIVE SEVERANCE POLICY

Effective:  September 10, 2009

Purpose
CTS recognizes that there are times when it may become necessary to terminate
the employment of a corporate officer or other executive.  The purpose of this
policy is to provide an appropriate level of severance benefits to eligible
officers and executives.

Scope
Applies to CTS’ President and Chief Executive Officer and any other officers and
executives who are designated as eligible for Tier 1 and Tier 2 executive
severance under this policy.

Responsibility
CTS’ Board of Directors, Chief Executive Officer, and Senior Vice President,
Administration, as appropriate.

Procedure

A.
Eligibility.  CTS’ President and Chief Executive Officer is eligible for
Severance Benefits under the terms of this policy.  In addition, he may
recommend, and CTS’ Board of Directors will designate from time-to-time through
Board action, those other officers and executives who are eligible for severance
under this policy at the Tier 1 and the Tier 2 severance levels.  (The President
and CEO, and designated officers and executives are collectively referred to
herein as “Executive(s).”)  An eligible Executive will be paid Severance
Benefits unless his or her termination was due to one of the events listed in
paragraph A(1) below, provided also that the eligible Executive executes and
delivers the release required by this policy.

 
1.
Ineligibility.  Terminations not eligible for Severance Benefits are:

·  
Terminations for Cause or resulting from Gross or Willful Misconduct;

·  
Resignations (other than a resignation that qualifies as an “involuntary
separation from service” within the meaning of Section 409A of the Internal
Revenue Code of 1986 (the “Code”);

·  
Layoffs/ furloughs, unless the layoff or furlough is subsequently converted to a
termination;

·  
Deaths or transfers to a disability status;

·  
Retirements, except as provided in paragraph D(6) below;

·  
Inability to return from a medical leave even though unable to meet Disability
status requirements unless the cause for the medical leave was covered by
Worker’s Compensation;

·  
The sale of a CTS facility, division, or operation when the Executive has been
offered employment in a comparable position by the successor organization as a
part of the sale.  Executives who do not elect to accept employment by the new
employer and who desire to seek employment elsewhere within CTS shall not be
eligible for Severance Benefits if such employment cannot be provided.

·  
In the event of a change in control, as defined by the agreement, if the
Executive is the beneficiary of a change-in-control Severance Agreement and
eligible for payment under that agreement.

 
2.
Separation from Service.  For purposes of this policy, Executive will not be
considered to have a termination of employment unless the termination qualifies
as a separation from service within the meaning of Section 409A of the Internal
Revenue Code of 1986, as amended from time-to-time (“Separation from Service”).

B.
Tier 2 Severance Benefits.  Tier 2 Executives shall be eligible for the
following Severance Benefits:

 
1.
Severance Pay. Severance pay equal to 9 months of his or her base salary in
effect immediately prior to termination.  Such payment will be paid in a single
lump sum cash payment on the 60th day after the date of the Executive’s
Separation from Service.

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2.
Health and Dental Insurance. For a period of 9 months following the date of the
Executive’s termination, CTS will make available to the Executive the medical
and dental benefits (but not long-term or short-term disability benefits) that
the Executive had elected and was eligible to receive as of the date of the
Executive’s termination.  The cost of such coverage will be shared by CTS and
the Executive on the same basis as in effect prior to the Executive’s
termination, with the Executive required to make monthly premium payments.  If
the coverage described in this paragraph is not or cannot be paid or provided
under any policy, plan, program or arrangement by CTS or any subsidiary, then
CTS will itself pay or provide for such equivalent coverage to the Executive,
and his or her dependents and beneficiaries.  All payments of benefits under the
CTS’ medical and dental programs or other reimbursements shall be made no later
than December 31 of the year following the year in which the Executive incurs
the related expenses.  In no event will the benefits and reimbursements provided
by CTS in one taxable year affect the amount of expenses or reimbursements that
CTS is obligated to pay, or in-kind benefits to be provided in any other taxable
year.

 
 
3.
Outplacement Assistance. Reimbursement of an amount up to $15,000 for
outplacement services that are obtained following Executive’s termination, by a
firm selected by the Executive; provided, however, that in no event shall
expenses incurred after December 31 of the second year following the year in
which the Executive’s Separation from Service occurs be eligible for
reimbursement hereunder, and all reimbursements hereunder shall be paid to
Executive no later than December 31 of the third year following the year in
which the Executive’s Separation from Service occurs.

 
C.
Tier 1 Severance Benefits. Tier 1 Executives shall be eligible for the following
Severance Benefits:

 
1.
Severance Pay. Severance Pay equal to 12 months of his or her base salary in
effect immediately prior to termination, payable in accord with the provisions
of paragraph B(1) above.

 
2.
Health and Dental Insurance. The continuing availability of medical and dental
benefits for a period of 12 months following the date of the Executive’s
termination, otherwise on the same terms of paragraph B(2) above.

 
3.
Outplacement Assistance. Reimbursement of an amount up to $30,000 for
outplacement services that are obtained following Executive’s termination,
otherwise on the same terms of paragraph B(3) above.

D.
President and Chief Executive Officer Severance Benefits. The President and
Chief Executive Officer shall be eligible for the following Severance Benefits:

 
1.
Severance Pay. Two times the sum of (a) Executive’s base salary in effect at the
time of termination of employment and (b) an amount equal to Executive’s target
annual incentive compensation for the calendar year ending prior to the date of
termination of employment under this subparagraph.   Such payment will be paid
in a single lump sum cash payment on the 60th day after the date of the
Executive’s Separation from Service.

 
2.
Health and Dental Insurance. The continuing availability of medical and dental
benefits for a period of twenty four (24) months following the date of the
Executive’s termination, otherwise on the same terms of paragraph B(2) above.

 
3.
Outstanding Time-Based Equity Awards. To the extent permitted by CTS’ equity
plans, the vesting of any outstanding unvested time-based restricted stock units
or other equity awards granted to Executive under CTS’ equity plans will be
accelerated and such equity awards will be fully vested as of the date of the
Executive’s termination of employment and payable in accordance with their
existing terms.

 
4.
Outstanding Performance-Based Equity Awards.  For any outstanding unvested
performance-based restricted stock units, outstanding unvested performance
shares, or any other outstanding unvested equity incentive available under any
then-current performance-based equity program, to the extent permitted by CTS’
equity plans, such awards will become non-forfeitable as of the date of the
Executive’s termination of employment.  At the end of the applicable performance
period, CTS shall calculate the degree to which the awards were earned based on
actual performance, and then settle any earned awards on a pro-rata basis, in
accordance with the portion of the actual performance period that elapsed prior
to the Executive’s termination, in accordance with the existing terms of such
awards.

 
5.
Outplacement Assistance. Reimbursement of an amount up to $30,000 for
outplacement services that are obtained following Executive’s termination,
otherwise on the same terms of paragraph B(3) above.

 
6.
Notice of Retirement.  In the event the President and Chief Executive Officer
gives the Board of Directors at least twelve (12) months formal notice of his
intent to terminate his employment voluntarily due to his retirement and
maintains continuous employment through such twelve month period, upon
retirement, the Executive will be entitled to the Severance Benefits described
in paragraphs (2), (3), and (4) of this Section.
 

E.
No Duplication of Benefits.  In general, it is the intent of the parties that
Severance Benefits under this policy shall not duplicate substantially similar
payments under any other agreement, policy, plan or arrangement.  Executive
shall not be eligible for benefits under CTS' Severance Pay-Exempt Salaried
Employees Policy or any successor policy.

In the event that an Executive is eligible under the terms of the
change-in-control Severance Agreement entered into by CTS and the Executive to
receive Severance Compensation, as defined in the Change-in-Control Agreement,
Executive shall not be eligible to receive Severance Benefits under this
policy.  The relationship between eligibility for benefits under this Agreement
and eligibility for benefits under any successor agreement to the
Change-in-Control Agreement shall be determined by reference to such successor
agreement.
 
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F.
Section 409A.

 
1.
The provisions of this paragraph F shall apply notwithstanding any provision to
the contrary in this policy.  In the event of any inconsistency between a
provision in this paragraph F and another provision in this policy, the
provision in this paragraph F shall be the controlling provision.

 
2.
The intent of the parties is that payments and benefits under this policy comply
with or be exempt from Section 409A and, accordingly, to the maximum extent
permitted, this policy shall be interpreted to be in compliance therewith.  To
the extent that there is a material risk that any payments under this policy may
result in the imposition of an additional tax to the Executive under Section
409A, CTS will reasonably cooperate with the Executive to amend this policy such
that payments hereunder comply with Section 409A without materially changing the
economic value of this policy to either party.  Notwithstanding the foregoing,
CTS does not guarantee to the Executive any specific tax consequences relating
to entitlement to or receipt of payments or benefits pursuant to the
policy.  The Executive shall be solely responsible for payment of any taxes or
penalties in connection with this policy.

 
3.
Each payment and benefit to be made or provided to the Executive pursuant to
this policy will be considered to be a separate payment and not one of a series
of payments for purposes of Section 409A.  Coverages provided during one taxable
year will not affect the degree to which coverages will be provided in any other
taxable year.

 
4.
If the Executive is a “specified employee” (within the meaning of Section 409A
and determined pursuant to the identification methodology selected by CTS from
time to time) on the Executive’s Separation from Service and if any portion of
the payments or benefits to be received by the Executive upon Separation from
Service would be considered deferred compensation (within the meaning of Section
409A) the payment or provision of which is required to be delayed pursuant to
the six-month delay rule set forth in Section 409A in order to avoid taxes or
penalties under Section 409A, then CTS will not pay or provide the amount or
benefit on the otherwise scheduled date, but such payments or benefits will
instead be accumulated and paid or made available on the earlier of (a) the
first day of the seventh month following the Executive’s Separation from Service
and (b) the Executive’s death.  Any remaining payments and benefits due under
this policy shall be paid or provided in accordance with the normal payment
dates specified for them herein.

 
5.
Any reimbursement provided under this policy will be made no later than December
31 of the calendar year following the calendar year in which the related expense
was incurred; provided, however, that in no event will the reimbursements in one
taxable year affect the amount of reimbursements in any other taxable year, nor
shall the right to reimbursement be subject to liquidation or exchange for
another benefit.
 

G.
Release.  In order to receive the Severance Benefits contemplated by this
policy, the Executive must execute and return to CTS a valid and binding
release.  The release shall contain such terms and conditions as are
satisfactory to CTS, including, but not limited to, the release of any and all
claims that the Executive may then have, as of the signing of such release,
against the corporation, its employees, officers, and directors.  The Executive
generally shall have up to twenty one (21) days following the date the release
is given to the Executive to sign and return the release to CTS.  Further, the
Executive shall have seven (7) calendar days after delivery of the release to
CTS to revoke the release by sending written notice to that effect to the
corporation’s Secretary, Vice President, and General Counsel.

H.
Competitive Activity and Non-solicitation.  During a period ending one year
following the Executive’s Separation from Service, if the Executive has received
severance benefits under this policy, the Executive will not, without the prior
written consent of CTS, which consent will not be unreasonably withheld, engage
in the management of any business enterprise if such enterprise engages in
substantial and direct competition with CTS.  In addition, for such one year
period, the Executive shall not, either alone or in association with others (i)
solicit, or facilitate any organization with which the Executive is associated
in soliciting, any CTS employee or any of its subsidiaries to leave the employ
of the company or any of its subsidiaries; (ii) solicit for employment, hire or
engage as an independent contractor, or facilitate any organization with which
the Executive is associated in soliciting for employment, hire or engagement as
an independent contractor, any person who was employed by CTS or any of its
subsidiaries at any time during the term of the Executive's employment with the
Company or any of its subsidiaries; provided, however that this clause shall not
apply to any individual whose employment with CTS or any of its subsidiaries has
been terminated for a minimum of one year preceding any such solicitation.

I.
Amendment and Termination.  CTS’ Board of Directors has the right in its sole
and absolute discretion to amend this policy or terminate it prospectively,
provided that this policy may not be amended by the Board in any manner which is
materially adverse to any named executive officers without the Executive’s
written consent.  Notwithstanding the foregoing, CTS’ Board may amend this
policy at any time to reflect changes required by the Internal Revenue Code, or
other federal or state laws.    Notwithstanding any provision of this policy to
the contrary, this policy will remain in effect until, and will not be revoked
or earlier terminated prior to three (3) years from its effective date.
 
 

J.
Excess Parachute Payments- All payments and benefits under this policy are
subject to the Excess Parachute Payment limitation described in Addendum A of
this policy.

 
 
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ISSUED AND APPROVED BY:
 
 

         
/s/ James L. Cummins
   
 
 
James L. Cummins
   
 
 
Senior Vice President Administration
   
 
 

 
 
 

         
/s/ Vinod M. Khilnani
   
/s/ Patricia K. Collawn
 
Vinod M. Khilnani
   
Patricia K. Collawn
 
Chairman, President and Chief Executive Officer
   
Chairperson
CTS Corporation
Compensation Committee
 

 

 
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ADDENDUM A

LIMITATION ON EXCESS PARACHUTE PAYMENTS

Notwithstanding any provision of this policy to the contrary, if any amount or
benefit to be paid or provided under this policy would be an “Excess Parachute
Payment,” within the meaning of Section 280G of the Internal Revenue Code of
1986 (or any successor provision thereto), but for the application of this
sentence, then the payments and benefits to be paid or provided under this
policy will be reduced to the minimum extent necessary (but in no event to less
than zero) so that no portion of any such payment or benefit, as so reduced,
constitutes an Excess Parachute Payment; provided, however, that the foregoing
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 thereto, any
tax imposed by any comparable provision of state law, and any applicable
federal, state and local income and employment taxes).  Whether requested by the
Executive or the company, the determination of whether any reduction in such
payments or benefits to be provided under this policy or otherwise is required
pursuant to the preceding sentence will be made at the expense of the company by
the company’s independent accountants.  The fact that the Executive’s right to
payments or benefits may be reduced by reason of the limitations contained in
this addendum will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this policy.  The company shall effect such
reduction in the order in which payments are due to be paid or provided,
beginning with the latest payment.

 
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ADDENDUM B
DEFINITIONS
 
 

 
 
“Cause” means that 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 CTS
or any Subsidiary;

 
(ii)  has intentionally and wrongfully damaged property of CTS or any
Subsidiary;

 
(iii)  has intentionally and wrongfully disclosed secret processes, trade
secrets or confidential information of CTS or any Subsidiary; or

 
(iv)  has intentionally and wrongfully engaged in any Competitive Activity.

 
“Change in Control” has the meaning ascribed to such term in CTS’ prototype
Severance Agreement.

 
 
“Code” means the Internal Revenue Code of 1986, as amended.

 
“Disability” means that the Executive has become permanently disabled within the
meaning of, and has begun to actually receive disability benefits pursuant to,
CTS’ long-term disability plan in effect for, or applicable to, the
Executive.  A conclusive determination of the Executive's permanent disability
shall occur when the Executive is placed on Permanent Inactive Disability Status
under the CTS Corporation Pension Plan or a similar plan in which Executive is
then a participant.

 
“Gross or Willful Misconduct” means willful neglect by the Executive of the
duties of the Executive or the Executive's gross dishonesty which materially
prejudices the interests of CTS.

 
“Section 409A” means Section 409A of the Code.  References in this policy to
Section 409A are intended to include any proposed, temporary, or final
regulations, or any other guidance, promulgated with respect to Section 409A by
the U.S. Department of the Treasury or the Internal Revenue Service.

 
“Subsidiary” means an entity in which CTS directly or indirectly beneficially
owns 50% or more of the outstanding securities entitled to vote generally in the
election of directors.

 
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