Document:

exv10w1

 

    Exhibit 10.1

 

    INCREASE JOINDER, dated as of August 24, 2007 (this
    “Increase Joinder”), among Nuance
    Communications, Inc., a Delaware corporation (the
    “Borrower”), UBS AG, Stamford Branch as
    administrative agent (in such capacity, the
    “Administrative Agent”), Citicorp North
    America, Inc. as syndication agent (in such capacity, the
    “Syndication Agent”), Lehman Commercial Paper
    Inc. and Goldman Sachs Credit Partners L.P.
    (“GSCP”) as co-documentation agents (in such
    capacities, the “Co-Documentation Agents” and,
    together with the Administrative Agent and the Syndication
    Agent, the “Agents’)), Citigroup Global Markets
    Inc. (“CGMI”) and Lehman Brothers Inc.
    (“Lehman Brothers”) as joint lead arrangers (in
    such capacities, the “Arrangers”), CGMI, Lehman
    Brothers and GSCP as joint bookrunners (in such capacities, the
    “Bookrunners”) and Banc of America Securities
    LLC as co-arranger and each Additional Lender listed on the
    signature pages hereto, to the Amended and Restated Senior
    Secured Credit Facility dated as of April 5, 2007 (as
    amended, supplemented, amended and restated or otherwise
    modified from time to time) (the “Credit
    Agreement”) among the Borrower, the Administrative
    Agent, the Syndication Agent and the Lenders. Capitalized terms
    used and not otherwise defined herein shall have the meanings
    assigned to them in the Credit Agreement.

 

    WHEREAS, the Borrower has requested the borrowing of
    $225,000,000 of Incremental Term Loans (i) to pay a portion
    of the purchase price necessary to consummate the acquisition of
    VoiceSignal Technologies, Inc. (the “VoiceSignal
    Acquisition”), (ii) to pay related fees and
    expenses on or prior to the date the VoiceSignal Acquisition is
    consummated and (iii) for general corporate purposes;

 

    WHEREAS, the Additional Lenders party hereto have agreed to make
    the Incremental Term Loans to the Borrower on the terms set
    forth herein;

 

    NOW, THEREFORE, in consideration of the premises and covenants
    contained herein and for other good and valuable consideration,
    the receipt and sufficiency of which are hereby acknowledged,
    the parties hereto, intending to be legally bound hereby, agree
    as follows:

 

    Section 1.  Increase
    Joinder.  Each Additional Lender committed to
    an Incremental Term Loan as set forth in Schedule 1 hereto
    severally agrees (i) that it shall be considered a Lender
    for all purposes under the Loan Documents and agrees to be bound
    by the terms thereof and (ii) to make its pro rata portion
    of the Incremental Term Loans to the Borrower in the aggregate
    amount set forth in the Borrowing Request for Incremental Term
    Loans delivered to the Administrative Agent no less than one
    Business Days prior to such proposed borrowing date. The terms
    and provisions of the Incremental Term Loans shall, except as
    set forth below, be identical to the
    Tranche B-1
    Term Loans. The aggregate amount of all such Incremental Term
    Loans issued under this Increase Joinder shall not exceed
    $225,000,000. The Incremental Term Loans shall be repaid in
    installments on each Installment Payment Date, commencing on
    September 30, 2007, in an aggregate amount equal to
    (i) $562,500, on each March 31, June 30,
    September 30 and December 31 of each year, ending on (and
    including) December 31, 2012 and (ii) $212,625,000, on
    the Term Facility Maturity Date. The Applicable Margins of the
    Incremental Term Loans as well as the existing Term Loans are
    hereby increased by 0.25% above the rates in effect or
    immediately prior hereto for each category of the Pricing Grid.
    The Borrower shall use the proceeds of the Incremental Term
    Loans as set forth in the first recital to this Increase Joinder.

 

    Section 2.  Representations
    and Warranties.  The Loan Parties represent
    and warrant to the Additional Lenders as of the date hereof and
    the Increase Joinder Effective Date that:

 

    (a) The Borrower and each of the Subsidiaries (a) is a
    limited partnership, limited liability company or corporation
    duly organized, validly existing and in good standing (or, if
    applicable in a foreign jurisdiction, enjoys the equivalent
    status under the laws of any jurisdiction of organization
    outside the United States) under the laws of the jurisdiction of
    its organization, (b) has all requisite power and authority
    to own its property and assets and to carry on its business as
    now conducted, (c) is qualified to do business in each
    jurisdiction where such qualification is required, except where
    the failure so to qualify could not reasonably be expected to
    have, individually or in the aggregate, a material adverse
    effect on the business, property, operations or condition of the
    Borrower and the Subsidiaries, taken as a

 

    whole, or the validity or enforceability of any of the Loan
    Documents or the rights and remedies of the Administrative Agent
    and the Lenders thereunder and (d) has the power and
    authority to execute, deliver and perform its obligations under
    each of the Loan Documents and each other agreement or
    instrument contemplated thereby to which it is or will be a
    party and, in the case of the Borrower, to borrow and otherwise
    obtain credit hereunder and under the Credit Agreement.

 

    (b) The execution, delivery and performance by the Borrower
    and each Subsidiary Loan Party of this Increase Joinder, and the
    borrowing of the Incremental Term Loans under the Credit
    Agreement and the transactions forming a part of the VoiceSignal
    Acquisition (a) have been duly authorized by all corporate,
    stockholder, limited partnership or limited liability company
    action required to be obtained by the Borrower and such
    Subsidiary Loan Parties and (b) will not (i) violate
    (A) any provision of law, statute, rule or regulation, or
    of the certificate or articles of incorporation or other
    constitutive documents or by-laws of the Borrower or such
    Subsidiary Loan Party, (B) any applicable order of any
    court or any rule, regulation or order of any Governmental
    Authority or (C) any provision of any indenture,
    certificate of designation for preferred stock, agreement or
    other instrument to which the Borrower or such Subsidiary Loan
    Party is a party or by which any of them or any of their
    property is or may be bound, (ii) be in conflict with,
    result in a breach of or constitute (alone or with notice or
    lapse of time or both) a default under, give rise to a right of
    or result in any cancellation or acceleration of any right or
    obligation (including any payment) or to a loss of a material
    benefit under any such indenture, certificate of designation for
    preferred stock, agreement or other instrument, where any such
    conflict, violation, breach or default referred to in
    clause (i) or (ii) of this Section 2(b), could
    reasonably be expected to have, individually or in the
    aggregate, a material adverse effect on the business, property,
    operations or condition of the Borrower and the Subsidiaries,
    taken as a whole, or the validity or enforceability of any of
    the Loan Documents or the rights and remedies of the
    Administrative Agent and the Lenders thereunder, or
    (iii) result in the creation or imposition of any Lien upon
    or with respect to any property or assets now owned or hereafter
    acquired by the Borrower or such Subsidiary Loan Party, other
    than the Liens created by the Loan Documents and Liens permitted
    by Section 6.02 of the Credit Agreement.

 

    (c) This Increase Joinder has been duly executed and
    delivered by the Loan Parties and constitutes a legal, valid and
    binding obligation of each such Loan Party enforceable against
    each such Loan Party in accordance with its terms, subject to
    (i) the effects of bankruptcy, insolvency, moratorium,
    reorganization, fraudulent conveyance or other similar laws
    affecting creditors’ rights generally, (ii) general
    principles of equity (regardless of whether such enforceability
    is considered in a proceeding in equity or at law) and
    (iii) implied covenants of good faith and fair dealing.

 

    (d) No action, consent or approval of, registration or
    filing with or any other action by any Governmental Authority is
    or will be required in connection with the Transactions, except
    for (a) the filing of Uniform Commercial Code financing
    statements, (b) filings with the United States Copyright
    Office and United States Patent and Trademark Office,
    (c) recordation of the Mortgages, (d) such as have
    been made or obtained and are in full force and effect,
    (e) such actions, consents and approvals the failure to be
    obtained or made which could not reasonably be expected to have,
    individually or in the aggregate a material adverse effect on
    the business, property, operations or condition of the Borrower
    and the Subsidiaries, taken as a whole, or the validity or
    enforceability of any of the Loan Documents or the rights and
    remedies of the Administrative Agent and the Lenders thereunder,
    and (f) filings or other actions listed on
    Schedule 3.04 of the Credit Agreement.

 

    (e) After giving effect to this Increase Joinder, the
    execution, delivery, performance or effectiveness of this
    Increase Joinder will not: (a) impair the validity,
    effectiveness or priority of the Liens granted pursuant to any
    Loan Document, and such Liens continue unimpaired with the same
    priority to secure repayment of all of the applicable
    Obligations, whether heretofore or hereafter incurred, or
    (b) require that any new filings be made or other action
    taken to perfect or to maintain the perfection of such Liens.

    

    2

 

    Section 3.  Conditions
    to Effectiveness.  This Increase Joinder shall
    become effective on the date (the “Increase Joinder
    Effective Date”) on which each of the following
    conditions is satisfied or waived:

 

    (a) The Administrative Agent shall have received from each
    Additional Lender, either (i) a counterpart of this
    Increase Joinder signed on behalf of such party or
    (ii) written evidence satisfactory to the Administrative
    Agent (which may include telecopy transmission or
    “.PDF” of a signed signature page of this Increase
    Joinder) that such party has signed a counterpart of this
    Increase Joinder;

 

    (b) Each Additional Lender or the Administrative Agent on
    its behalf shall have received, if requested, one or more Notes
    payable to the order of such Lender duly executed by the
    Borrower in substantially the form of
    Exhibit F-1
    to the Credit Agreement, evidencing its Incremental Term Loans;

 

    (c) The Borrower shall have complied with the Terms and
    Conditions of the Fee Letter;

 

    (d) The Arrangers shall have received, in form and
    substance reasonably satisfactory to it, copies of the merger
    agreement related to the VoiceSignal Acquisition and all other
    documentation, instruments and agreements related to the
    VoiceSignal Acquisition (together, the “Acquisition
    Agreement”);

 

    (e) The Administrative Agent shall have received, on behalf
    of itself, the other Agents and the Lenders, a favorable written
    opinion, in form and substance reasonably satisfactory to the
    Administrative Agent, from Wilson Sonsini Goodrich &
    Rosati, P.C., counsel to the Borrower;

 

    (f) The Arrangers shall have received the documentation and
    other information that is required by regulatory authorities
    under applicable “know your customer” and
    anti-money-laundering rules and regulations, including, without
    limitation, the Patriot Act;

 

    (g) To the extent not otherwise publicly available through
    the Borrower’s SEC filings, the Arrangers shall have
    received: (i) copies of audited financial statements for
    VoiceSignal and its Subsidiaries for the two fiscal years ended
    December 31, 2006 and interim unaudited financial
    statements for each quarter ended after such date and more than
    45 days prior to the Closing Date, (ii) pro forma
    financial statements of the Borrower and its Subsidiaries
    for the four consecutive fiscal quarter period ended
    March 31, 2007 after giving effect to the VoiceSignal
    Acquisition (including the adjustments substantially similar to
    those set forth on Schedule 1.01(a) to the Credit
    Agreement) and a pro forma balance sheet of the Borrower
    and its Subsidiaries as of the Closing Date and (iii) a
    certificate of the chief financial officer of the Borrower as to
    the solvency of each Loan Party, on a consolidated basis, after
    giving effect to the VoiceSignal Acquisition and the incurrence
    of the Incremental Term Loan;

 

    (h) The following conditions shall have been met and the
    Arrangers and the Administrative Agent shall have received an
    Officer’s Certificate, dated the Increase Joinder Effective
    Date and signed on behalf of the Borrower by a Financial Officer
    of the Borrower, confirming (i) that the VoiceSignal
    Acquisition is a “Permitted Business Acquisition” as
    defined in the Credit Agreement, (ii) that the Acquisition
    Agreement has not been amended or modified in any respect that
    is materially adverse to the Lenders without prior written
    consent of the Arrangers, (iii) that the VoiceSignal
    Acquisition is closing on the Incremental Facility Closing Date,
    and (iv) that after giving effect to the incurrence of the
    Incremental Term Loan, the Borrower shall be in compliance with
    (x) the Incurrence Test on a Pro Forma Basis, including the
    pro forma effect of the VoiceSignal Acquisition and the
    acquisition of Tegic Communications Inc. (the “Tegic
    Acquisition”), as of the most recent Test Period
    (June 30, 2007) and the Incremental Facility Closing
    Date, and (y) a Consolidated Senior Secured Leverage Ratio
    of 4.00 to 1.00 on a Pro Forma Basis as of the most recent Test
    Period and the Incremental Facility Closing Date, (v) that
    immediately prior to and after giving effect to any Incremental
    Term Loan, no Default or Event of Default has occurred or is
    continuing or shall result therefrom, and (vi) that the
    Representations and Warranties set forth in Article III of
    the Credit Agreement are true and correct in all material
    respects,

 

    (i) The Administrative Agent shall have received a
    Borrowing Request as specified in Section 2.03 of the
    Credit Agreement,

 

    (j) The Borrower shall have received customary
    secretary’s certificates for each of the Loan
    Parties, and

    

    3

 

    (k) The Borrower shall have paid (i) to the
    Administrative Agent all reasonable out-of-pocket costs and
    expenses (including, without limitation the reasonable fees,
    charges and disbursements of Cahill Gordon & Reindel
    LLP, counsel for the Agents) of the Administrative Agent and
    (ii) all fees set forth in the Amended and Restated Fee
    Letter dated as of June 27, 2007 among the Borrower,
    Citigroup Global Markets Inc., Lehman Brothers Inc., Lehman
    Commercial Paper Inc., Goldman Sachs Credit Partners L.P., Bank
    of America, N.A. and Banc of America Securities LLC;

 

    Section 4.  Expenses.  Borrower
    agrees to reimburse the Administrative Agent for its and the
    other Agents’ reasonable out-of-pocket expenses incurred by
    them in connection with this Increase Joinder, including the
    reasonable fees, charges and disbursements of Cahill
    Gordon & Reindel
    llp, counsel for
    the Agents.

 

    Section 5.  Counterparts.  This
    Increase Joinder may be executed in any number of counterparts
    and by different parties hereto on separate counterparts, each
    of which when so executed and delivered shall be deemed to be an
    original, but all of which when taken together shall constitute
    a single instrument. Delivery of an executed counterpart of a
    signature page of this Increase Joinder by facsimile
    transmission or by email in Adobe “.pdf” format shall
    be effective as delivery of a manually executed counterpart
    hereof.

 

    Section 6.  Applicable
    Law.  THIS AGREEMENT SHALL BE GOVERNED BY,
    CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE
    OF NEW YORK.

 

    Section 7.  Headings.  The
    headings of this Increase Joinder are for purposes of reference
    only and shall not limit or otherwise affect the meaning hereof.

 

    Section 8.  Effect
    of Increase Joinder.  Except as expressly set
    forth herein, this Increase Joinder shall not by implication or
    otherwise limit, impair, constitute a waiver of or otherwise
    affect the rights and remedies of the Lenders or the Agents
    under the Credit Agreement or any other Loan Document, and shall
    not alter, modify, amend or in any way affect any of the terms,
    conditions, obligations, covenants or agreements contained in
    the Credit Agreement or any other provision of the Credit
    Agreement or any other Loan Document, all of which are ratified
    and affirmed in all respects and shall continue in full force
    and effect. The parties hereto expressly acknowledge that it is
    not their intention that this Increase Joinder or any of the
    other Loan Documents executed or delivered pursuant hereto
    constitute a novation of any of the obligations, covenants or
    agreements contained in the Credit Agreement or any other Loan
    Document, but a modification thereof pursuant to the terms
    contained herein. As of the Increase Joinder Effective Date,
    each reference in the Credit Agreement to “this
    Agreement,” “hereunder,”
    “hereof,” “herein,” or
    words of like import, and each reference in the other Loan
    Documents to the Credit Agreement (including, without
    limitation, by means of words like
    “thereunder”, “thereof” and
    words of like import), shall mean and be a reference to the
    Credit Agreement as amended hereby, and this Increase Joinder
    and the Credit Agreement shall be read together and construed as
    a single instrument. Each of the table of contents and lists of
    Exhibits and Schedules of the Credit Agreement shall be amended
    to reflect the changes made in this Increase Joinder as of the
    Increase Joinder Effective Date. This Increase Joinder shall
    constitute a Loan Document.

 

    Section 9.  Acknowledgement
    and Affirmation.  Each Subsidiary Loan Party
    hereby (i) expressly acknowledges the terms of the Credit
    Agreement as amended hereby, (ii) ratifies and affirms
    after giving effect to this Increase Joinder its obligations
    under the Loan Documents (including guarantees and security
    agreements) executed by such Subsidiary Loan Party and
    (iii) after giving effect to this Increase Joinder,
    acknowledges renews and extends its continued liability under
    all such Loan Documents and agrees such Loan Documents remain in
    full force and effect.

 

    Section 10.  Roles.  It
    is agreed that (i) Citigroup Global Capital Markets Inc.
    will act as “left lead bookrunner” and joint lead
    arranger for the Incremental Credit Facility, (ii) Lehman
    Brothers Inc. will act as joint lead arranger and joint
    bookrunner for the Incremental Credit Facility, (iii) GSCP
    will act as joint bookrunner for the Incremental Credit Facility
    and (iv) Banc of America Securities LLC will act as
    co-arranger for the Incremental Credit Facility.

    

    4

 

    IN WITNESS WHEREOF, the parties hereto have caused this Increase
    Joinder to be duly executed as of the date first above written.

 

    NUANCE COMMUNICATIONS, INC.

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   Chief Executive Officer

 

    CAERE CORPORATION

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   President

 

    SPEECHWORKS INTERNATIONAL, INC.

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   President

 

    ART ADVANCED RECOGNITION TECHNOLOGIES, INC.

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   President

    

    5

 

 

    DICTAPHONE CORPORATION

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   President

    NUANCE COMMUNICATIONS LLC

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   Manager

 

    BEVOCAL LLC

 

			
	 	    By: 
	
    /s/  Paul
    Ricci

    
Name: Paul
    Ricci

    Title:   Manager

 

    UBS AG, STAMFORD BRANCH, 

    as Administrative Agent

 

			
	 	    By: 
	
    /s/  Richard
    L. Taurow

    Name: Richard L. Taurow

			
	 	    Title:   Director, Banking Products Services US
	

 

			
	 	    By: 
	
    /s/  Irja
    R. Otsa

    Name: Irja R. Otsa

			
	 	    Title:   
	
    Associate Director, Banking Products Services US

 

    CITICORP NORTH AMERICA, INC.,

    as Syndication Agent and Additional Lender

    

    6

 

			
	 	    By: 
	
    /s/  Caesar
    Wyszomirski

    Name: Caesar Wyszomirski

			
	 	    Title:   
	
    Vice President

    LEHMAN COMMERCIAL PAPER INC.,

    as Co-Documentation Agent and Additional Lender

 

			
	 	    By: 
	
    /s/  Laurie
    Perper

    Name: Laurie Perper

			
	 	    Title:   
	
    Senior Vice President

 

    GOLDMAN SACHS CREDIT PARTNERS L.P.,

    as Co-Documentation Agent and Additional Lender

 

			
	 	    By: 
	
    /s/  Bruce
    Mendelsohn

    Name: Bruce Mendelsohn

			
	 	    Title:   
	
    Managing Director

 

    BANK OF AMERICA, N.A.,

    as Additional Lender

 

			
	 	    By: 
	
    /s/  Toby
    Gilbert

    Name: Toby Gilbert

			
	 	    Title:   
	
    Vice President

    

    7

 

    SCHEDULE I

 

    INCREMENTAL
    TERM LOAN ALLOCATIONS

 

	 	 	 	 	 
	

    Additional Lender

	
 
	
    Incremental Term Loans
	
 

	 

	

    Citicorp North America, Inc. 
    

	
 
	
    $
	
    78,750,000
	
 

	

    Lehman Commercial Paper Inc. 
    

	
 
	
    $
	
    56,250,000
	
 

	

    Goldman Sachs Credit Partners
    L.P. 
    

	
 
	
    $
	
    56,250,000
	
 

	

    Bank of America, N.A. 
    

	
 
	
    $
	
    33,750,000exv10w5

 

Exhibit 10.5

ECONOMIC VALUE ADDED BONUS PLAN

FOR

EXECUTIVE OFFICERS

AND

SENIOR MANAGERS

Effective February 27, 1995

As Amended August 24, 1999, August 21, 2001, October 23, 2001,

May 20, 2003, August 17, 2004, October 4, 2005, August 22, 2006

and August 24, 2007

 

 

ECONOMIC VALUE ADDED PLAN

FOR

EXECUTIVE OFFICERS

AND

SENIOR MANAGERS

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	I.
	 	Plan Objectives	 	 	1	 
	 
	II.
	 	Plan Administration	 	 	1	 
	 
	III.
	 	Definitions	 	 	1	 
	 
	IV.
	 	Eligibility	 	 	5	 
	 
	V.
	 	Individual Participation Levels	 	 	6	 
	 
	VI.
	 	Performance Factors	 	 	6	 
	 
	VII.
	 	Change in Status During Plan Year	 	 	9	 
	 
	VIII.
	 	Bonus Paid and Bonus Bank	 	 	10	 
	 
	IX.
	 	Administrative Provisions	 	 	14	 
	 
	X.
	 	Miscellaneous	 	 	15	 
	 
	 
	 	Exhibit A	 	 	 	 

 

 

I. PLAN OBJECTIVES

	 	A.	 	To promote the maximization of shareholder value over the long term by
providing incentive compensation to key employees of STRATTEC SECURITY CORPORATION
(the “Company”) in a form which is designed to financially reward participants for an
increase in the value of the Company.
	 
	 	B.	 	To provide competitive levels of compensation to enable the Company to
attract and retain people who are able to exert a significant impact on the value of
the Company to its shareholders.
	 
	 	C.	 	To encourage teamwork and cooperation in the achievement of Company goals.

	II.	 	PLAN ADMINISTRATION
	 
	 	 	The Compensation Committee of the Board of Directors (the “Compensation Committee”) shall
be responsible for the design, administration, and interpretation of the Plan, subject to
the Administrative Provisions contained in Article IX.
	 
	III.	 	DEFINITIONS

	 	A.	 	“Accrued Bonus” means the bonus, which may be negative or positive,
which is calculated in the manner set forth in Section V.A.
	 
	 	B.	 	’‘Actual EVA” means the EVA as calculated for the relevant Plan Year.
	 
	 	C.	 	“Base Salary” means:

	 	(1)	 	For Participants who are employed by the Company, all wages
paid in the Plan Year, excluding employment signing bonuses, EVA bonus
payments, reimbursement or other expense allowances, imputed income, value of
fringe benefits (cash and non-cash), moving reimbursements, welfare benefits
and special payments.
	 
	 	(2)	 	For Participants who are employed by the STRATTEC
de Mexico S.A. de C.V., STRATTEC Componentes Automotrices S.A. de
C.V., and ADAC-STRATTEC de MEXICO, “Base Salary” includes regular salary,
holidays and

 

 

	 	 	 	vacations paid during the Plan Year. Base salary does not include
overtime, profit sharing, Christmas bonuses, vacation premiums, signing
bonuses, EVA bonus payments, reimbursements and other expense allowances,
imputed income, the value of fringe benefits (cash and non-cash), moving
reimbursements and special payments.

	 	D.	 	“Capital” means the Company’s average monthly operating capital for
the Plan Year, calculated as follows:

	 	 	 	 	 
	 

	 	 	 	Current Assets
	 

	 	+
	 	Bad Debt Reserve
	 

	 	+
	 	LIFO Reserve
	 

	 	-
	 	Future Income Tax Benefits
	 

	 	-
	 	Current Noninterest-Bearing Liabilities
	 

	 	+
	 	Property, Plant, Equipment, (Net)
	 

	 	-
	 	Construction in Progress
	 

	 	(+/-)
	 	Unusual Capital Items

	 	E.	 	“Capital Charge” means the deemed opportunity cost of employing
Capital in the Company’s business, determined as follows:

Capital Charge = Capital x Cost of Capital

	 	F.	 	“Code” means the Internal Revenue Code of 1986, as amended from time
to time, and as interpreted by applicable regulations and rulings.
	 
	 	G.	 	“Company” means STRATTEC SECURITY CORPORATION. The Company’s
Compensation Committee may act on behalf of the Company with respect to this Plan.
	 
	 	H.	 	“Cost of Capital” means the weighted average of the cost of equity
and the after tax cost of debt for the relevant Plan Year. For Plan administration
purposes, it is assumed the Company’s capital structure will be 80% Equity and 20%
Debt. The Cost of Capital will be initially set at 10% for fiscal year 2008 and
reviewed by the Compensation Committee prior to each Plan Year thereafter, consistent
with the following methodology:

	 	(a)	 	Cost of Equity = Risk Free Rate + (Business Risk Index x
Average Equity Risk Premium)
	 
	 	(b)	 	Debt Cost of Capital = Debt Yield x (1 - Tax Rate)

2

 

	 	(c)	 	The weighted average of the Cost of Equity and the Debt Cost
of Capital is determined by reference to the expected debt-to-capital ratio

	 	 	 	where the Risk Free Rate is the average daily closing yield rate on 10 year U.S.
Treasury Notes for an appropriate period (determined by the Compensation Committee
from time to time) preceding the relevant Plan Year, the Business Risk Index is
determined by reference to an auto supply industry factor selected by the
Compensation Committee, the Average Equity Risk Premium is 6%, the Debt Yield is
the weighted average yield of all borrowing included in the Company’s permanent
capital, and the tax rate is the combination of the relevant corporate Federal and
state income tax rates.
	 
	 	I.	 	“Disabilities or Disabled” means that the Participant: (1) is unable
to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months; or (2) is, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not
less than 12 months, receiving income replacement benefits for a period not less than
three months under an accident and health plan covering employees of the Company.
	 
	 	J.	 	“Economic Value Added” or “EVA” means the NOPAT that remains after
subtracting the Capital Charge, expressed as follows:

EVA = NOPAT - Capital Charge

	 	 	 	EVA may be positive or negative.
	 
	 	K.	 	“Effective Date” means February 27, 1995, the date as of which the
Plan first applies to the Company.
	 
	 	L.	 	“EVA Leverage Factor” means the adjustment factor reflecting
deviation in the use of capital employed as a percentage of capital employed. For
purposes of this Plan, the Company’s EVA Leverage Factor is determined to be 3% of the
monthly average net operating capital employed during the prior Plan year.

3

 

	 	 	 	For fiscal year 2008 (beginning July 2, 2007) the EVA Leverage Factor is set at
$3,316,000.
	 
	 	M.	 	“Leave of Absence” means that the Participant is on a sick leave,
military leave or other bona fide leave of absence (such as temporary employment by
the government) if the period of the leave does not exceed six months. If the leave
is longer, the Participant’s right to reemployment with the Company must be provided
by statute or contract. A Participant who is on a Leave of Absence has not terminated
employment.
	 
	 	N.	 	“NOPAT” means cash adjusted net operating profits after taxes for the
Plan Year, calculated as follows:

	 	 	 	 	 
	 

	 	 	 	Net Sales
	 

	 	-
	 	Cost of Goods Sold
	 

	 	(+ -)
	 	Change in LIFO Reserve
	 

	 	-
	 	Engineering/Selling & Admin.
	 

	 	(+ -)
	 	Change in Bad Debt Reserve
	 

	 	(+ -)
	 	Other Income & Expense excluding Interest Expense
	 

	 	(+ -)
	 	Other Unusual Income or Expense Items (See Section
VI.B.)
	 

	 	(+ -)
	 	Amortization of Unusual Income or Expense Items
	 

	 	 	 	- Cash Adjusted Taxes on the Above (+/- change in deferred tax liability)

	 	O.	 	“Participant” means individual who has satisfied the eligibility
requirements of the Plan as provided in Section IV.
	 
	 	P.	 	“Plan Year” means the one-year period coincident with the Company’s
fiscal year.
	 
	 	Q.	 	“Executive Officers” means those Participants designated as Executive
Officers by the Compensation Committee with respect to any Plan Year.
	 
	 	R.	 	“Senior Managers” means those Participants designated as Senior
Managers by the Compensation Committee with respect to any Plan Year.
	 
	 	S.	 	“Separation from Service” means the events which allow the Available
Balance (minus income and employment taxes) to be paid to an Executive Officer, as
specified in Article VIII(C)(8)(b).

4

 

	 	T.	 	“Target EVA” means the target level of EVA for the Plan Year,
determined as follows:

Expected Improvement will be approved by the Board of Directors annually,
based on past practice and consideration for current relevant economic conditions.

For fiscal year 2008 (beginning July 2, 2007) the Target EVA is set at $1,154,000.

	IV.	 	ELIGIBILITY

	 	A.	 	Eligible Positions. In general, only Executive Officers and Senior
Managers selected by the Compensation Committee may be eligible for participation in
the Plan. However, actual participation will depend upon the contribution and impact
each eligible employee may have on the Company’s value to its shareholders, as
determined by the Compensation Committee.
	 
	 	B.	 	Nomination and Approval. Each Plan Year, the Chairman and President
will nominate eligible employees to participate in the Plan for the next Plan Year.
The Compensation Committee will have the final authority to select Plan participants
(the “Participants”) among the eligible employees nominated by the Chairman and
President. Continued participation in the Plan is contingent on approval of the
Compensation Committee.
	 
	 	C.	 	Employee Performance Requirement. Employees whose performance is
rated “Needs Improvement” on their annual performance review will not be eligible for
an EVA bonus applicable to the year covered by such performance review. However, if
the employee so rated is subject to a performance improvement plan, and successfully
meets the requirement of the plan in the time frame prescribed, the employee’s EVA
eligibility will be reinstated, and the EVA bonus will be paid with the next regular
payroll check following reinstatement.

5

 

	V.	 	INDIVIDUAL PARTICIPATION LEVELS

	 	A.	 	Calculation of Accrued Bonus. Each Participant’s Accrued Bonus will
be determined as a function of the Participant’s Base Salary, the Participant’s Target
Incentive Award (provided in paragraph V.B., below), Company Performance Factor
(provided in Section VI.A.) and the Individual Performance Factor (provided in Section
VI.C.) for the Plan Year. Each Participant’s Accrued Bonus will be calculated as
follows:

	 	B.	 	Target Incentive Awards. The Target Incentive Awards will be determined
according to the following schedule:

	 	 	 
	 	 	Target Incentive Award
	Position	 	(% of Base Salary)
	Chairman (if also CEO of Company)
	 	75%
	President
	 	65%
	Executive Vice President
	 	50%
	Senior Vice President
	 	45%
	Vice President
	 	35%
	Senior Managers as approved each year pursuant to
section IV.B
	 	12%-20%

VI. PERFORMANCE FACTORS

	 	A.	 	Company Performance Factor Calculation. For any Plan Year, the
Company Performance Factor will be calculated as follows:

	 	B.	 	Adjustments to Company Performance. When Company performance is
based on Economic Value Added or other quantifiable financial or accounting measure,
it may be necessary to exclude significant, unusual, unbudgeted or noncontrollable
gains or losses from actual financial results in order to measure performance
properly. The Compensation Committee will decide those items that

6

 

	 	 	 	shall be considered in adjusting actual results. For example, some types of items
that may be considered for exclusion are:

	 	(1)	 	Any gains or losses which will be treated as extraordinary in
the Company’s financial statements.
	 
	 	(2)	 	Profits or losses of any entities acquired by the Company
during the Plan Year, assuming they were not included in the budget and/or the
goal.
	 
	 	(3)	 	Material gains or losses not in the budget and/or the goal
which are of a nonrecurring nature and are not considered to be in the
ordinary course of business. Some of these would be as follows:

	 	(a)	 	Gains or losses from the sale or disposal
of real estate or property.
	 
	 	(b)	 	Gains resulting from insurance recoveries
when such gains relate to claims filed in prior years.
	 
	 	(c)	 	Losses resulting from natural catastrophes,
when the cause of the catastrophe is beyond the control of the
Company and did not result from any failure or negligence on the
Company’s part.

	 	C.	 	Individual Performance Factor Calculation. Determination of the
Individual Performance Factor will be the responsibility of the individual to whom the
participant reports. This determination will be subject to approval by the Chairman
and President (or the Compensation Committee with respect to the Chairman and
President) and shall conform with the process set forth below:

	 	(1)	 	Quantifiable Supporting Performance Factors. The
Individual Performance Factor of the Accrued Bonus calculation will be based
on the accomplishment of individual, financial and/or other goals (“Supporting
Performance Factors”). Whenever possible, individual performance will be
evaluated according to quantifiable benchmarks of success. These Supporting
Performance Factors will be enumerated from 0 to 2.0 based on the levels of
achievement for each goal per the schedule in VI C.(2). Provided, however,
that if the quantifiable Supporting Performance Factor is based on the Company
Performance

7

 

	 	 	 	Factor as set forth in Section VI.A., then the Supporting Performance
Factor may be unlimited.

	 	(2)	 	Non-Quantifiable Supporting Performance Factors.
When performance cannot be measured according to a quantifiable monitoring
system, an assessment of the Participant’s overall performance may be made
based on a non-quantifiable Supporting Performance Factor (or Factors). The
individual to whom the Participant reports (or the Compensation Committee with
respect to the Chairman) will evaluate the Participant’s performance based on
behavioral attributes and overall performance and this evaluation will
determine the Participant’s Supporting Performance Factor (or Factors)
according to the following schedule:

	 	 	 	 	 	 	 
	Non Quantifiable	 	 	 	 	 	Quantifiable
	Supporting	 	Supporting	 	Supporting
	Performance Rating	 	Performance Factor	 	Performance Rating
	Significantly Exceeds
Requirements

	 	 	1.8-2.0	 	 	Significantly Exceeds
Goal
	Exceeds Requirements

	 	 	1.4-1.7	 	 	Exceeds Goal
	Meets Requirements

	 	 	.7-1.3	 	 	Meets Goal
	Marginally meets
Requirements

	 	 	.3-.6	 	 	Goal Not Met, but
Significant Progress
Made
	Needs Improvements

	 	 	0-.2	 	 	 
	 

	 	 	0	 	 	Goal Not Met

	 	(3)	 	Aggregate Individual Performance Factor. The Individual
Performance Factor to be used in the calculation of the Accrued Bonus shall be
equal to the sum of the quantifiable and/or non-quantifiable Supporting
Performance Factor(s), divided by two as follows:

Notwithstanding the foregoing, the individual to whom the Participant
reports (with the approval of the Chairman and President or the
Compensation Committee with respect to the Chairman and President), shall
have the authority to weight the Supporting Performance Factors, according
to relative importance. The weighting of each Supporting Performance

8

 

Factor shall be expressed as a percentage, and the sum of the percentages
applied to all of the Supporting Performance Factors shall be 100%. The
Individual Performance Factor, if weighted factors are used, will then be
equal to the weighted average of such Supporting Performance Factors.

VII. CHANGE IN STATUS DURING THE PLAN YEAR

	 	A.	 	New Hires and Promotions. A newly hired employee or an employee
promoted during the Plan Year to a position qualifying for participation (or leaving
the participating class) may accrue (subject to discretion of the Compensation
Committee) a pro rata Accrued Bonus based on Base Salary received.
	 
	 	B.	 	Discharge. An employee discharged during the Plan Year shall not be
eligible for an Accrued Bonus, even though his or her service arrangement or contract
extends past year-end, unless the Compensation Committee determines that the
conditions of the termination indicate that a prorated Accrued Bonus is appropriate.
The Compensation Committee shall have full and final authority in making such a
determination.
	 
	 	C.	 	Resignation. An employee who resigns during the Plan Year to accept
employment elsewhere (including self-employment) will not be eligible for an Accrued
Bonus, unless the Compensation Committee determines that the conditions of the
termination indicate that a prorated Bonus is appropriate. The Compensation Committee
shall have full and final authority in making such a determination.
	 
	 	D.	 	Death, Disability and Retirement. If a Participant’s employment is
terminated during a Plan Year by reason of death, Disability, or normal or early
retirement under the Company’s retirement plan, a tentative Accrued Bonus will be
calculated as if the Participant had remained employed as of the end of the Plan Year.
The final Accrued Bonus will be calculated based upon the Base Salary received.
	 
	 	 	 	Each employee may name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under this Plan is to be paid in
case of the employee’s death.
	 
	 	 	 	Each such designation shall revoke all prior designations by the employee, shall be
in the form prescribed by the Compensation Committee, and shall be effective only
when filed by the employee

9

 

	 	 	 	in writing with the Compensation Committee during his or her lifetime.
	 
	 	 	 	In the absence of any such designation, benefits remaining unpaid at the employee’s
death shall be paid to the employee’s estate.
	 
	 	E.	 	Leave of Absence. An employee whose status as an active employee is
changed during a Plan Year as a result of a Leave of Absence may, at the discretion of
the Compensation Committee, be eligible for a pro rata Accrued Bonus determined in the
same way as in paragraph D of this Section.
	 
	 	F.	 	Needs Improvement Status. Associates whose performance has been
rated Needs Improvement on their annual performance review will not be eligible for an
EVA bonus until such time as their performance is at an acceptable level. If the
associate’s performance returns to an acceptable level, the EVA bonus that was
withheld will be paid with the next available pay period.

	VIII.	 	BONUS PAID AND BONUS BANK
	 
	 	 	The Accrued Bonus will be either paid to the Participant, or a portion credited to or
charged against a Bonus Bank as provided in this Article.

	 	A.	 	Participants Who Are Not Executives Officers. All positive Accrued
Bonuses of Participants who are not Executive Officers for the Plan Year shall be paid
in full, less amounts required by law to be withheld for income and employment tax
purposes, not later than December 31 following the end of the Plan Year in which the
Accrued Bonus was earned. Participants who are not Executive Officers shall not have
any portion of their Accrued Bonuses banked.
	 
	 	B.	 	Participants Who Are Executive Officers. The Total Bonus Payout to
Participants who are Executive Officers for the Plan Year shall be as follows:
	 
	 	 	 	     Total Bonus Payout = [Accrued Bonus - Extraordinary Bonus Accrual] + Bank Payout
	 
	 	 	 	The Total Bonus Payout for each Plan Year, less amounts required by law to be
withheld for income tax and employment tax purposes, shall be paid not later than
December 31 following the end of the Plan Year in which the Accrued Bonus was
earned.

10

 

	 	C.	 	Establishment of a Bonus Bank. To encourage a long term commitment
to the enhancement of shareholder value by Executive Officers, “Extraordinary Bonus
Accruals” shall be credited to an “at risk” deferred account (“Bonus Bank”) for each
such Participant, and all negative Accrued Bonuses shall be charged against the Bonus
Bank, as determined in accordance with the following:

	 	1.	 	“Bonus Bank” means, with respect to each Executive
Officer, a bookkeeping record of an account to which Extraordinary Bonus
Accruals or positive Accrued Bonuses are credited, and negative Accrued
Bonuses debited as the case may be, for each Plan Year, and from which bonus
payments to such Executive Officers are debited.
	 
	 	2.	 	“Bank Balance” means, with respect to each Executive
Officer, a bookkeeping record of the net balance of the amounts credited to
and debited against such Executive Officer’s Bonus Bank. The Bank Balance
shall initially be equal to zero and can never be less than zero.
	 
	 	3.	 	“Extraordinary Bonus Accrual” shall mean the amount
of the Accrued Bonus for any year that exceeds 1.25 times the portion of the
Executive Officer’s Base Salary which is represented by the Target Incentive
Award.
	 
	 	4.	 	Annual Allocation. Each Executive Officer’s
Extraordinary Bonus Accrual, positive Accrued Bonus or negative Accrued Bonus
is credited or debited to the Bonus Bank maintained for that Executive
Officer. Such Annual Allocation will occur as soon as administratively
feasible after the end of each Plan Year.
	 
	 	5.	 	“Available Balance” means the Bank Balance at the
point in time immediately after the Annual Allocation has been made.
	 
	 	6.	 	“Payout Percentage” means the percentage of the
Available Balance that may be paid out in cash to the Participant. The Payout
Percentage will equal 33%.
	 
	 	7.	 	“Bank Payout” means the amount of the Available
Balance that may be paid out in cash to the Executive Officer for each Plan
Year. The Bank Payout is calculated as follows:

11

 

	 	 	 	     Bank Payout = Available Balance x Payout Percentage
	 
	 	 	 	The Bank Payout is subtracted from the Bank Balance.
	 
	 	8.	 	Treatment of Available Balance Upon Termination.

	 	(a)	 	Resignation or Termination With
Cause. Executive Officers leaving voluntarily to accept
employment elsewhere (including self-employment) or who are
terminated with cause will forfeit their Available Balance.
	 
	 	(b)	 	Retirement, Death, Disability or
Termination Without Cause. In the event of an Executive
Officer’s normal or early retirement under the STRATTEC SECURITY
CORPORATION Retirement Plan, death, Disability, or termination
without cause (“Separation from Service”), the Available Balance,
less amounts required by law to be withheld for income tax and
employment tax purposes shall be paid to the Executive Officer. The
Plan will pay the amount as a lump sum. If the Executive Officer’s
Separation from Service occurs before March 15 of the Plan Year, the
lump sum shall be paid the following September 15. If the Executive
Officer’s Separation from Service occurs on or after March 15 of the
Plan Year, the lump sum shall be paid on the date which is six months
after the date of the Participant’s Separation from Service.
	 
	 	(c)	 	For purposes of this Plan “cause” shall mean:

	 	(i)	 	The willful and continued
failure of a Participant to perform substantially the
Participant’s duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Participant by the
Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Participant has not
substantially performed the Participant’s duties, or

12

 

	 	(ii)	 	The willful engaging by the
Participant in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company.
	 
	 	 	 	For purposes of this provision, no act or failure to act,
on the part of the Participant, shall be considered
“willful” unless it is done, or omitted to be done, by the
Participant in bad faith or without reasonable belief that
the Participant’s action or omission was in the best
interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or
based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done,
by the Participant in good faith and in the best interests
of the Company. The cessation of employment of the
Participant shall not be deemed to be for cause unless and
until there shall have been delivered to the Participant a
copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the
Participant and the Participant is given an opportunity,
together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the
Participant is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.

IX. ADMINISTRATIVE PROVISIONS

	 	A.	 	Amendments. Subject to Code section 409A which applies to payments
which are deferred compensation under this Plan, the Compensation Committee or full
Board of Directors of the Company shall have the right to amend or restate the Plan at
any time from

13

 

	 	 	 	time to time. The Company reserves the right to suspend or terminate the Plan at
any time. No such modification, amendment, suspension, or termination may, without
the consent of any affected participants (or beneficiaries of such participants in
the event of death), reduce the rights of any such participants (or beneficiaries,
as applicable) to a payment or distribution already earned under Plan terms in
effect prior to such change. The provisions of the Plan as in effect at the time
of a Participant’s termination of employment shall control as to that Participant,
unless otherwise specified in the Plan.

	 	B.	 	Authority to Act. The Compensation Committee or full Board of
Directors may act on behalf of the Company for purposes of the Plan.
	 
	 	C.	 	Interpretation of Plan. Any decision of the Compensation Committee
with respect to any issues concerning individuals selected for awards, the amounts,
terms, form and time of payment of awards, and interpretation of any Plan guideline,
definition, or requirement shall be final and binding.
	 
	 	 	 	The Compensation Committee may determine that a Participant is Disabled if the
Participant is determined to be totally disabled by the Social Security
Administration. The Compensation Committee may also determine that the Participant
is Disabled in accordance with a disability insurance program, provided that the
definition of disability applied under that program complies with the definition of
Disability provided under this Plan.
	 
	 	D.	 	Effect of Award on Other Employee Benefits. By acceptance of a bonus
award, each recipient agrees that such award is special additional compensation and
that it will not affect any employee benefit, e.g., life insurance, etc., in
which the recipient participates, except as provided in paragraph D. below.
	 
	 	E.	 	Retirement Programs. Awards made under this Plan shall be included
in the employee’s compensation for purposes of the STRATTEC SECURITY CORPORATION
Retirement Plan and STRATTEC SECURITY CORPORATION Employee Savings Investment Plan.
	 
	 	F.	 	Right to Continued Employment; Additional Awards. The receipt of a
bonus award shall not give the recipient any right to continued employment, and the
right and power to dismiss any employee is

14

 

	 	 	 	specifically reserved to the Company. In addition, the receipt of a bonus award
with respect to any Plan Year shall not entitle the recipient to an award with
respect to any subsequent Plan Year.

X. MISCELLANEOUS

	 	A.	 	Indemnification. The Compensation Committee shall not be liable for,
and shall be indemnified and held harmless by the Company from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred in connection
with any claim, action, suit, or proceeding to which the Compensation Committee may be
a party by reason of any action taken or failure to act under this Plan. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such person(s) may be entitled under the Company’s
Certificate of Incorporation of By-Laws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify such person(s) or hold such person(s)
harmless.
	 
	 	B.	 	Expenses of the Plan. The expenses of administering this Plan shall
be borne by the Company.
	 
	 	C.	 	Withholding Taxes. The Company shall have the right to deduct from
all payments under this Plan any Federal or state taxes required by law to be withheld
with respect to such payments.
	 
	 	D.	 	Governing Law. This Plan is subject to federal law, including the
requirements of Code section 409A, the proposed regulations for Code section 409A and
other guidance provided by the Internal Revenue Service. For purposes of state law,
the Plan shall be construed under the laws of the State of Wisconsin.
	 
	 	E.	 	Severability. This Plan has been amended in pursuant to proposed
regulations issued by the Internal Revenue Service and is intended to be in good faith
compliance with the requirements under Code section 409A. To the extent that the
Compensation Committee determines that additional information or interpretation of the
rules, final regulations or other guidance provided by the Internal Revenue Service
require amendments to the Plan to comply with Code section 409A, the Compensation
Committee shall amend the Plan accordingly. Any provision of this Plan prohibited by
law shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions. The illegal or invalid provisions shall be
fully severable and this Plan shall be construed and enforced as if the illegal or
invalid provisions had never been included in this Plan.

15

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