CTS Corporation
Form 10-Q
First Quarter 2008

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EXHIBIT (10)(a)

CTS Corporation
2008-2009 Performance Restricted Stock Unit Plan
 

SECTION 1.   SUMMARY AND INTERPRETATION: The 2008-2009 Performance Restricted
Stock Unit Plan (the "Plan") is intended to provide financial and performance
incentives to executive officers and key employees through the use of Restricted
Stock Unit awards tied to specific performance incentives that management and
the Board believe will be beneficial to the Company and its shareholders over
the long-term. The CTS Corporation 2004 Omnibus Long-Term Incentive Plan (the
“2004 Omnibus Long-Term Incentive Plan”) is the governing document for the
Plan.  Capitalized terms not otherwise defined herein shall have the meanings
set forth in the 2004 Omnibus Long-Term Incentive Plan, as amended. The Plan is
subject to the terms and conditions of the 2004 Omnibus Long-term Incentive
Plan.  In the event of any inconsistency between the provisions of the Plan and
the 2004 Omnibus Long-Term Incentive Plan, the 2004 Omnibus Long-Term Incentive
Plan will govern.

SECTION 2.    PHILOSOPHY: The Board of Directors believes that compensation of
executive officers and key employees should be partially “at risk” and variable,
based in part on the Company’s performance against its peers in the marketplace,
as well as the Company’s performance against certain pre-established goals.  The
Plan, along with other compensation plans of the Company, is intended to focus
the efforts of the Participants on achieving those objectives in order to help
ensure the sustained profitability and continual long-term growth of the
Company.  The Plan is structured to provide Participants with Restricted Stock
Unit Awards based upon achievement of objectives that management and the Board
believe are beneficial to the Company and shareholders over the long
term.  Therefore, performance will be measured over a two (2) year performance
period, and Restricted Stock Units under the Plan will be awarded and earned
only after a two (2) year performance period.

SECTION 3.   OBJECTIVES:

·  
To attract and retain highly qualified personnel.

·  
To motivate improved financial performance, enhanced growth and shareholder
value creation.

·  
To align the interests of executive officers and key employees of the Company
with those of its shareholders.

SECTION 4.    ADMINISTRATION:  The Compensation Committee of the Board of
Directors (the “Committee”) shall administer the Plan.  The decision of the
Committee shall be final as to the interpretation of the Plan or any rule,
procedure or action related thereto.

SECTION 5.    ELIGIBILITY: Only the employees designated by the Committee (the
“Participants”) are eligible to participate in the Plan. The Committee has
determined that the Participants identified in Exhibit A, attached hereto and
incorporated herein by reference, are "Covered Employees" under this
Plan.  Awards to Covered Employees shall be subject to the provisions of Section
7 of the 2004 Omnibus Long-Term Incentive Plan.

To receive an Award under the Plan, a Participant must be an active, full-time
employee throughout the Performance Period and on the Determination Date, as
defined in Section 8.

SECTION 6.    DEFINITIONS:

Award:  means a grant of Restricted Stock Units.

Performance Period: means January 1, 2008 through December 31, 2009.
 
Performance Goals: means Two Year Sales Growth and Relative Total Stockholder
Return.

Two Year Sales Growth: means the 2009 Corporate Sales divided by 2007 Corporate
Sales, resulting in the expression of increase or decrease in Corporate Sales as
a percentage.

Corporate Sales: means the Company's Net Sales as stated in the Company’s
Consolidated Statement of Earnings for the relevant fiscal year.  In determining
Awards for Participants who are not Covered Employees, Corporate Sales may be
adjusted for unusual conditions, factors or events as determined by the
Committee, provided that no such adjustment shall be made for any condition,
factor or event which was specifically included in the 2007 CTS Corporation
Business Plan or 2008 or 2009 CTS Corporation Business Plans, as applicable.

Total Stockholder Return:  means the appreciation in price of a share of common
stock, plus reinvested dividends (paid in cash or other property), between
January 1, 2008 and December 31, 2009.
 

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Relative Total Stockholder Return:  means the total stockholder return of the
Company between January 1, 2008 and December 31, 2009, relative to the total
stockholder return of a Peer Group of 29 entities over that same period.  See
Exhibit B for calculation.

Peer Group:  means a benchmark group of 29 companies, the names of which are
attached hereto as Exhibit C, as the same may be adjusted from time-to-time in
accord with the Peer Group Adjustment Protocol (Exhibit D).

RSU: means a Restricted Stock Unit to be settled upon vesting on the basis of
one Share for each Restricted Stock Unit.  

Target RSU Incentive: means the number of RSUs assigned to each Participant as a
function of his or her position for purposes of calculating Awards.

Award Level: means the multiplier which is applied in calculating an Award based
on the level of achievement of a Performance Goal.

Weight: means the percentage of Target RSU Incentive allocated to each
Performance Goal.

SECTION 7.     PERFORMANCE GOALS AND CALCULATION OF AWARDS:

The Target RSU Incentive for each Participant is set forth in the 2008-2009
Target RSU Incentive Statement provided to each Participant.

The settlement of an Award for any Participant may be as much as twice the
Target RSU Incentive or as little as zero depending upon achieved
results.  After the 7% Sales Growth threshold is met, Award Levels for the
Two-Year Sales Growth Performance Goal will be interpolated between established
steps or levels.  There will be no interpolation of Awards for Sales Growth
between 0% and 7%.  Award Levels for the Relative Total Stockholder Return
Performance Goal will not be interpolated for performance achievement between
any established steps or levels.

The Performance Goals, Weight and Award Levels for the Performance Period are as
follows:

Performance Goal No. 1: Two Year Sales Growth
Weight: 40%

Two Year Sales Growth
Achievement                                                                                                                  
Award Level

Two Year Sales Growth less than
7%                                                                                                                       
0% (No Award)

Two Year Sales Growth greater than or equal to 7%, but less than
15%                                                            50% - 99% of
Target Award

Two Year Sales Growth greater than or equal to 15%, but less than
23%                                                          100% - 149% of
Target Award

Two Year Sales Growth greater than or equal to 23%, but less than
31%                                                          150% - 199% of
Target Award

Two Year Sales Growth greater than or equal to
31%,                                                                                         
200% of Target Award
·  
Above the 7% threshold (below which there will be no Award) actual awards will
be interpolated between established sales growth measurements.

Performance Goal No. 2: Relative Total Stockholder Return (“RTSR”)
Weight: 60%

Relative Total Stockholder
Return                                                                                                                   Award
Level

RTSR less than 30% of Peer
Group                                                                                                                   0%
(No Award)

RTSR better than or equal to 30% of Peer
Group                                                                                           50%
of Target Award
but less than or equal to 50% of Peer Group

RTSR better than 50% of Peer
Group                                                                                                               100%
of Target Award
but less than or equal to 70% of Peer Group

RTSR better than 70% of Peer
Group                                                                                                               150%
of Target Award
but less than or equal to 90% of Peer Group

RTSR better than 90% of Peer
Group                                                                                                               200%
of Target Award

·  
Awards will not be interpolated between established Award Levels.

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Example:

Participant has a Target RSU Incentive of 1,000 shares.

Goal #1:
·  
Results – Two Year Sales Growth is 15%.

·  
1,000 Target RSU Incentive times 40% (Weight) times 100% Award Level equals 400
RSUs.

Goal #2:
·  
Results – RTSR is 51% of Peer Group.

·  
1,000 Target RSU Incentive times 60% Weight times 100% Award Level equals 600
RSUs.

 Participant earns 1,000 RSUs.

The Committee may, in its discretion, adjust a Participant’s payout of an Award
downward after consideration of other business factors, including overall
performance of the Company and the individual Participant’s contribution to
Company performance. The Committee may adjust a payout of an Award in its
discretion to prevent the enlargement or dilution of the Award because of
extraordinary events or circumstances as determined by the Committee.  The
Committee shall make no such adjustment with respect to the Award of a Covered
Employee, however, if the effect of such adjustment would be to cause the
related compensation to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code.  In no event shall the
reduction of any Participant’s potential Award have the effect of increasing an
Award payout payable to a Covered Employee.  For purposes of Section 7(b) of the
CTS Corporation 2004 Omnibus Long-term Incentive Plan, Awards shall constitute
awards of Performance Shares and no Award to a Covered Employee may result in
the Covered Employee receiving more than 125,000 Shares for the Performance
Period.

SECTION 8.     APPROVAL AND PAYMENT OF AWARDS:  Participants must remain in
continuous employ with the Company throughout the Performance Period, December
31, 2009, and the Determination Date, in order to earn an Award. Upon completion
of Performance Period, the Compensation Committee shall certify to what extent
the Performance Goals for the Performance Period were met and determine each
Participant's Award. The date of such certification and determination shall be
the "Determination Date".  The Committee's certification shall be subject to
completion of the annual audit and certification of results by the Company's
independent auditor.  Awards shall be made in the form of a grant of Restricted
Stock Units under the terms and conditions of the form of Restricted Stock Unit
Agreement attached hereto as Exhibit E.  Restricted Stock Units granted under
the 2008- 2009 Performance Stock Unit Plan will vest on the Determination Date,
and shall be settled as soon as practicable after the Determination Date,
subject to the exceptions set forth in Exhibit E.

SECTION 9.     NO CONTRACT: The Plan is not and shall not be construed as an
employment contract or as a promise or contract to pay Awards to Participants or
their beneficiaries.  The Plan shall be approved by the Committee and may be
amended from time to time by the Committee without notice.  No Participant or
beneficiary may sell, assign, transfer, discount or pledge as collateral for a
loan, or otherwise anticipate any right to payment of an Award under this Plan.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
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EXHIBIT A

COVERED EMPLOYEES

Vinod M. Khilnani

Donald R. Schroeder
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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EXHIBIT B

Determining Relative Total Stockholder Return
 

For purposes of calculating Relative Total Stockholder Return (rounding shall be
to the nearest tenth of a percent, with all hundredths of a percent equal to or
greater than 5 rounded up to the nearest tenth of a percent):

·  
Company Return.  For the Performance Period, the Company’s Total Stockholder
Return will be a percentage amount determined based on (1) the average closing
price of the Shares for the 20 business days immediately preceding the last
trading day of the Performance Period (including aggregate dividends for the
Performance Period) compared to (2) the average closing price of the Shares for
the 20 business days immediately preceding the first trading day of the
Performance Period.

 
·  
Peer Return.

 
 
For the Performance Period, the Total Stockholder Return for each company in the
Peer Group, (each a “Peer”) will be a percentage amount determined based on (1)
the closing stock price on the last trading day of the Performance Period
(including aggregate dividends for the Performance Period and adjusted for stock
splits) compared to (2) the closing stock price on the first trading day of the
Performance Period (including aggregate dividends for the Performance Period and
adjusted for stock splits.)

 
·  
Company Ranking.  For each Performance Period, the Company’s and each Peer’s
Total Stockholder Return will be ranked in decreasing order.  Relative Total
Stockholder Return equals the percentile rank (expressed as a percentage) of the
Company’s Total Stockholder Return when compared to the rankings, from lowest to
highest, of the Total Stockholder Returns of the Peers comprising the Peer Group
for the Performance Period.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
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EXHIBIT C

Peer Group (29 Peers)

 

NAME SYMBOL STOCK EXCHANGE
ArvinMeritor, Inc.
ARM
New York Stock Exchange
AVX Corporation
AVX
New York Stock Exchange
Benchmark Electronics, Inc.
BHE
New York Stock Exchange
BorgWarner Inc.
BWA
New York Stock Exchange
Celestica Inc.
CLS
New York Stock Exchange
EPCOS AG
EPC
New York Stock Exchange
Flextronics International Ltd.
FLEX
Nasdaq Global Select Market
Frequency Electronics, Inc.
FEIM
Nasdaq Global Market
Gentex Corporation
GNTX
Nasdaq Global Select Market
Jabil Circuit, Inc.
JBL
New York Stock Exchange
KEMET Corporation
KEM
New York Stock Exchange
Key Tronic Corporation
KTCC
Nasdaq Global Market
Kimball International, Inc.
KBALB
Nasdaq Global Select Market
LaBarge, Inc.
LB
American Stock Exchange
Lear Corporation
LEA
New York Stock Exchange
LittelFuse, Inc.
LFUS
Nasdaq Global Select Market
Methode Electronics, Inc.
METH
Nasdaq Global Select Market
Molex Incorporated
MOLX
Nasdaq Global Select Market
Plexus Corp.
PLXS
Nasdaq Global Select Market
RF Micro Devices, Inc.
RFMD
Nasdaq Global Select Market
Sanmina-Sci Corporation
SANM
Nasdaq Global Select Market
Sparton Corporation
SPA
New York Stock Exchange
Spectrum Control, Inc.
SPEC
Nasdaq Global Market
Stoneridge, Inc.
SRI
New York Stock Exchange
Sypris Solutions, Inc.
SYPR
Nasdaq Global Market
Technitrol, Inc.
TNL
New York Stock Exchange
Triquint Semiconductors, Inc.
TQNT
Nasdaq Global Select Market
Vishay Intertechnology, Inc.
VSH
New York Stock Exchange
Williams Controls, Inc.
WMCO
Nasdaq Global Market

 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
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EXHIBIT D

Peer Group Adjustment Protocol
 

If, as of the last date of the Performance Period, all of the common equity of
any Peer has been delisted from the stock exchange on which any of its common
equity was listed as of the date of this Agreement (and all such common equity
(or the common equity of a successor to all or substantially all of the business
of such Peer) has not been, within 30 days of such delisting, subsequently
listed on any of the New York Stock Exchange, the Nasdaq Stock Market LLC, the
London Stock Exchange or the American Stock Exchange), then:
 
·  
such Peer will be removed from the Peer Group for purposes of the Performance
Period; and

 
·  
the Relative Total Stockholder Return for the Performance Period will be
calculated as if such Peer had never been a member of the Peer Group.

 
For purposes of this Agreement, Peer includes any successor to all or
substantially all of the business of an entity as set forth on Exhibit B,
whether or not the same legal entity at end of the Performance Period.

If a company files for bankruptcy or is operating under bankruptcy protection,
it clearly shows bad performance and will, therefore, stay in the Peer Group as
a bottom performer.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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