Severance Agreement
Page 1
Exhibit 10.k
SEVERANCE AGREEMENT
AGREEMENT made as of this 28th day of July, 1999 by and between MTS
Systems Corporation, a Minnesota corporation ("MTS") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the
"Executive").
WHEREAS, MTS desires to employ Executive as its Chief Financial
Officer and Executive is willing to become employed by MTS in such capacity; and
WHEREAS, Executive is expected to make a significant contribution to
the profitability, growth and financial strength of MTS; and
WHEREAS, MTS considers the establishment and maintenance of a sound
and vital management and an orderly succession plan to be essential to
protecting and enhancing the best interests of MTS and its shareholders; and
WHEREAS, this Agreement is consistent with the requirements of the
executive/high policymaking exception to the Age Discrimination in Employment
Act, 29 U.S.C. Section 631(c)(1) (the "Executive Exemption"), benefits in
connection therewith are pursuant to pension, profit sharing and deferred
compensation plans as defined therein, and Executive, by virtue of his duties
and responsibilities on behalf of MTS, qualifies under said exception for
mandatory retirement on or after his 65th birthday; and
WHEREAS, MTS is providing Executive, simultaneously with this
Agreement, in addition to Executive's employment with MTS and the special
benefits associated therewith, additional consideration in the form of a Change
in Control Agreement, to provide additional benefits to Executive in the event
of a change in control;
NOW THEREFORE, in consideration of the foregoing and other
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until the earlier of (a) the date on which
the Executive and MTS agree in writing to terminate this Agreement, or (b) the
Date of Termination indicated in paragraph 2, 3, or 4 hereunder. If a change in
control occurs, as defined in that certain agreement between the Executive and
MTS of even date herewith (the "Change in Control Agreement", attached as
Exhibit 1), this Agreement shall be superseded by the provisions of the Change
in Control Agreement except as provided in the following sentence. MTS's
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right under this Agreement to terminate the Executive's employment pursuant to
the Executive Exemption shall not be superceded by the Change in Control
Agreement and the Executive shall be entitled to receive the benefits to which
he is entitled under subparagraph 4(d) hereunder if such termination occurs.
2. Termination by Reason of Death or Disability. In the event of the
Executive's death or disability during the Term of this Agreement, Executive
shall be entitled to such benefits provided under any policy, plan or program
governing death or disability maintained by MTS and covering such Executive and
this Agreement shall not apply. The determination of disability and the amount
and entitlement of benefits shall be governed by the terms of such policy, plan
or program. In the event of the Executive's disability, the Executive's Date of
Termination shall be the date on which Executive has been unable, by reason of
physical or mental disability, to perform the services required of him for his
position, even with reasonable accommodation, for the period of time indicated
in MTS's group long term disability plan (in which the Executive is a
participant) during which a participant must be disabled before benefits become
payable. In connection with Executive's termination due to disability, a
qualified physician must certify the disability and MTS shall at all times
comply with the Americans With Disabilities Act and any other applicable
disability discrimination law.
3. Resignation or Termination for Cause.
(a) The Executive may resign his employment or MTS may
terminate the Executive's employment for Cause, effective as of the
Date of Termination set forth in the Notice of Termination. If
Executive resigns or his employment is terminated by MTS for Cause,
MTS shall pay to Executive his full base salary through the Date of
Termination at the rate in effect at the time of Notice of
Termination is given and MTS shall have no further obligation to
Executive under this Agreement.
(b) Termination by MTS of Executive's employment for
"Cause" shall mean termination as a result of:
(i) the conviction of the Executive by a
court of competent jurisdiction for felony criminal
conduct; or
(ii) willful misconduct by the Executive; or
(iii) violation by the Executive of any
employment agreement applicable to the Executive.
4. Termination Other Than for Cause. MTS may terminate Executive's
employment for a reason other than Cause, including pursuant to the Executive
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Exemption on or after Executive's 65th birthday, effective as of the Date of
Termination set forth in the Notice of Termination. If Executive's employment is
terminated by MTS other than for Cause, death or disability, Executive shall be
entitled, subject to subparagraph 4(d)(v) and paragraph 9 of this Agreement, to
the benefits described in subparagraphs (a), (b) and (c) below and, if
applicable, subparagraph (d) below.
(a) Executive shall be paid a monthly Severance Payment
equal to the Executive's Monthly Gross Income, as defined in
subparagraph (i) below for 15 months. If Executive's employment is
terminated pursuant to the Executive Exemption as described in
subparagraph 4(d) hereunder, "12" shall be substituted for "15" in
the preceding sentence.
(i) For purposes of this Agreement, Monthly
Gross Income shall mean the sum of the following
amounts, subject to applicable federal and state
withholding.
(A) 1/12 of the highest average
base salary for any 12-consecutive month
period during the 36 calendar month period
ending immediately prior to the Date of
Termination; plus
(B) the monthly average of the
total Management Variable Compensation (MVC)
earned during the lesser of the 3 most
recent or the actual number of fiscal years
participating in the MVC plan ending
immediately prior to the Date of
Termination; plus
(C) the product of the average
percentage of MTS profit sharing
contributions to the MTS Systems Corporation
Profit Sharing Retirement Plan and Trust (as
a percent of Compensation as defined in the
Plan up to the federal limit) for the lesser
of the 3 most recent or the actual number of
participating Plan Years ending immediately
prior to the Date of Termination multiplied
by the sum of (A) and (B) above.
(b) Executive shall be entitled to continue any of said
benefits which qualify as group health and life insurance benefits
for continuation coverage under the Comprehensive Omnibus Budget
Reconciliation Act ("COBRA") or applicable state law and pursuant to
the terms of the plan. Following the Executive's Date of Termination
and while severance payments are being paid to the Executive or, if
earlier, until Executive is covered under other group plans, MTS
shall continue to pay the employer share of the Executive's MTS
group life and health insurance premiums. All premium payments made
on Executive's behalf following his Date of Termination and
Executive's continued participation in the plans are contingent upon
Executive making the appropriate timely written elections to
continue his group benefits following his Date
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of Termination, said group benefits continuing in effect for active
MTS employees, Executive continuing to be eligible under the terms
of the plans and applicable laws, and Executive's payment of the
employee portion of the premiums for such benefits. Benefits
otherwise receivable by Executive pursuant to this subparagraph (b)
shall be reduced or eliminated to the extent comparable benefits are
actually received by Executive during such period from a source
outside MTS, and any such benefits actually received by Executive
shall be reported to MTS.
(c) The Executive's rights under any existing Employee
Stock Option Agreement and any future such agreements, including
particularly his vesting rights and his right to exercise his
options following his termination of employment, shall continue to
be fully effective hereunder. In addition, if the Executive's
termination of employment occurs pursuant to the Executive Exemption
on or after he has reached his 65th birthday, the Executive shall
continue to vest in any stock options in which he is not fully
vested, as though he were continuing his employment with MTS as an
active employee, subject at all times to the exercise times and
other terms and conditions set forth in said Stock Option Agreements
and to Executive's signing the release agreement described in
paragraph 9 herein.
(d) If Executive's termination of employment occurs
pursuant to the Executive Exemption on or after he has reached his
65th birthday, Executive shall be entitled to receive the lump sum
equivalent of the amount necessary to purchase a $44,000 pre-tax
straight life annuity, said lump sum to be taken from MTS
contributions and earnings thereon to Executive's accounts in MTS
sponsored pension, profit sharing, and deferred compensation plans,
as applicable. If Executive is entitled to less than that amount
from the applicable MTS plans in which he is a participant as of his
Date of Termination, then MTS shall make an additional contribution
on Executive's behalf to Executive's Deferral Account in the MTS
Systems Corporation Executive Deferred Compensation Plan, pursuant
to Section 3.4 of said Plan. The amount to which Executive is
entitled under subparagraph 4(a) of this Agreement shall be reduced
by MTS's Section 3.4 contribution to the MTS Systems Corporation
Executive Deferred Compensation Plan, as described in subparagraph
(v) below. Calculation of the Executive's benefit shall be as
follows:
(i) The benefits to which Executive is
entitled, as of his Date of Termination, under all MTS
sponsored pension, profit sharing and deferred
compensation plans shall be added together.
(ii) Amounts in said plans, as determined
in accordance with 29 Code of Federal Regulations ss.
1627.17, attributable to Social Security, employee
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contributions, contributions of prior employers, and
rollover contributions, shall be subtracted from the
subparagraph (i) amount and the resulting figure shall
be the "Qualified Retirement Benefit".
(iii) MTS shall determine the lump sum
equivalent of the amount necessary to purchase a
straight life annuity for Executive, effective as of his
Date of Termination, which would provide Executive with
$44,000 a year for life (the "ADEA Benefit"). MTS shall
retain a certified actuary to determine said lump sum
equivalent amount, using the applicable mortality table
and applicable interest rate under Section 417(e) of the
Internal Revenue Code and Regulations issued thereunder.
(iv) If the Qualified Retirement Benefit
exceeds the ADEA Benefit, the Executive shall have the
option (but is not required) to receive the Qualified
Retirement Benefit in a lump sum, as provided under the
applicable plans, within 60 days following his Date of
Termination. The Executive may elect to receive the
Qualified Retirement Benefit in either a lump sum or a
series of periodic payments pursuant to the terms of the
applicable plans. The Executive may also receive the
payments and benefits set forth in subparagraphs 4(a)
and (b) of this Agreement provided he executes the
release agreement required in paragraph 9 of this
Agreement. The benefits set forth in subparagraph 4(c)
shall at all times be available to the Executive.
(v) If the Qualified Retirement Benefit is
less than the ADEA Benefit, MTS shall make a
contribution to Executive's Deferral Account in the MTS
Systems Corporation Executive Deferred Compensation
Plan, pursuant to Section 3.4 of said Plan, in an amount
equal to the difference between the Qualified Retirement
Benefit and the ADEA Benefit (the "Qualified Retirement
Benefit Supplement"). The Executive shall have the
option (but is not required) to receive the Qualified
Retirement Benefit and, if applicable, the Qualified
Retirement Benefit Supplement from said Plan within 60
days following his Date of Termination. The Executive
may elect to receive the Qualified Retirement Benefit
and, if applicable, the Qualified Retirement Benefit
Supplement, in either a lump sum or a series of periodic
payments pursuant to the terms of the applicable plans.
The payments to Executive described in subparagraph 4(a)
of this Agreement shall be reduced by the amount of
MTS's contribution to Executive's Deferral Account in
the MTS Systems Corporation Executive Deferred
Compensation Plan, pursuant to Section 3.4 of said Plan,
to create the Qualified Retirement Benefit Supplement.
All payments remaining in subparagraph 4(a) after this
reduction and the subparagraph 4(b) and (c) benefits
shall be paid to Executive in accordance with the terms
of those subparagraphs,
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provided Executive executes the release agreement
required in paragraph 9 of this Agreement.
(vi) Executive's Qualified Retirement
Benefit and, if applicable, the Qualified Retirement
Benefit Supplement, shall be nonforfeitable and not
subject to reduction or elimination by MTS for any
reason.
5. No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise; nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by Executive as the result
of employment by another employer or by retirement benefits after the Date of
Termination or otherwise except as specifically provided herein.
6. Non-Competition and Confidentiality.
(a) Executive agrees that, as a condition of receiving
benefits under this Agreement, he will not render services directly
or indirectly to any competing organization located in any market in
which MTS is doing business as of Executive's Date of Termination
for the period of time during which Executive is receiving benefits
under this Agreement or the Change in Control Agreement, in
connection with the design, implementation, development,
manufacture, marketing, sale, merchandising, leasing, servicing or
promotion of any "Conflicting Product" which as used herein means
any product, process, system or service of any person, firm,
corporation, organization other than MTS, in existence or under
development, which is the same as or similar to or competes with, or
has a usage allied to, a product, process, system, or service
produced, developed, or used by MTS.
(b) Executive further agrees and acknowledges his
existing obligation that, at all times during and subsequent to his
employment with MTS, he will not divulge or appropriate to his own
use or the uses of others any secret or confidential information
pertaining to the business of MTS, or any of its subsidiaries,
obtained during his employment by MTS or any of its subsidiaries.
(c) If Executive violates his obligations under
subparagraphs (a) and (b) above, any remaining payments or benefits
otherwise due Executive pursuant to subparagraphs 4(a) and (b) of
this Agreement shall not be paid. This subparagraph (c) specifically
does not apply to the subparagraph 4(a) reduction amount equal to
the Qualified Retirement Benefit Supplement, as described in
subparagraph 4(d)(v).
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7. Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal representatives, heirs, and
designated beneficiaries. If Executive should die while any amount would still
be payable to Executive hereunder if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's designated beneficiaries, or, if
there is no such designated beneficiary, to the Executive's estate.
8. Notice of Termination.
(a) Any purported termination of Executive's employment
by either Executive or MTS under this Agreement, except as otherwise
provided in paragraph 2 of this Agreement, shall be communicated by
written notice to the other party.
(b) For purposes of this Agreement, "Date of
Termination" shall mean the date specified in the written Notice of
Termination which shall not be less than 10 nor more than 60 days
from the date such Notice of Termination is given.
(c) Notice of Termination and all other communications
provided for in the Agreement shall be deemed to have been duly
given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Executive or in
the case of MTS, to its principal office to the attention of each of
the then directors of MTS with a copy to its Secretary, or to such
other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
9. Release of Claims. Executive's right to the benefits and payments
described in subparagraphs 4(a), (b) and (c) of this Agreement, except as
otherwise provided in subparagraph 4(d)(v) hereof, is contingent upon
Executive's execution of a severance release agreement which shall be provided
to Executive by MTS with or following his Notice of Termination. The severance
release agreement shall require a full release of all claims which Executive may
have against MTS or any MTS affiliate or individual associated with MTS, to the
extent permitted by and consistent with applicable laws. Such release agreement
shall prohibit Executive from recovering any amount in connection with a charge
or lawsuit filed against MTS or any MTS affiliate, employee, shareholder,
officer, director or other agent by Executive, EEOC or any other agency or
entity on Executive's behalf based upon any act occurring prior to execution of
said release agreement. The release agreement will be available for Executive's
review, consideration and execution at least 45 days prior to his Date of
Termination.
10. Injunctive Relief. Executive consents that, in the case of any
violation or threatened violation of paragraph 6 of this Agreement, MTS may
apply for and secure injunctive relief, temporary or provisional, in court,
without bond but upon due notice, pending final
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resolution on the merits pursuant to arbitration as set forth in paragraph 11
hereof. No waiver of any violation of this Agreement shall be implied from any
failure by MTS to take action under this paragraph.
11. Arbitration. Any and all claims or disputes between Executive
and MTS (including the validity, scope, and enforceability of this paragraph),
except as otherwise provided under paragraph 10 or prohibited under applicable
law, shall be submitted for arbitration and resolution to an arbitrator. No
demand for arbitration may be made after the date when the institution of legal
or equitable proceedings based on such claim or dispute would be barred by the
applicable statute of limitation. The arbitrator shall be selected by mutual
agreement of the parties. Unless otherwise provided for in this Agreement, the
Expedited Labor Arbitration Rules of the American Arbitration Association shall
apply. If the parties are unable to agree upon an arbitrator, any such dispute
shall be solely and finally settled by arbitration in accordance with the
Expedited Labor Arbitration Rules of the American Arbitration Association
("AAA"). The parties agree that no punitive damages shall be awarded hereunder.
The parties also agree that all awards, decisions and remedies in favor of a
winning party hereunder with respect to any issue shall be proportional to the
violation caused by the losing party with respect to that issue. All costs in
conducting the arbitration, including but not limited to the arbitration filing
fee, the arbitrator's fees and expenses, and the reasonable attorney's fees and
expenses of the prevailing party (including the attorney's fees and costs
incurred by the prevailing party in seeking or resisting temporary or
provisional court relief as set out in paragraph 10 above), shall be the
responsibility of the losing party. In the event there is more than one issue in
dispute and there is no one prevailing party with respect to all issues in
dispute, costs and attorney's fees shall be prorated by the arbitrator according
to the relative dollar value of each issue. The arbitrator's Award shall be
final and binding. In the event either party must resort to the judicial process
to enforce the provisions of this Agreement, the award of an arbitrator or
equitable relief granted by an arbitrator, the party seeking enforcement shall
be entitled to recover from the other party all costs of litigation including,
but not limited to, reasonable attorney's fees and court costs. The arbitration
proceedings and Award shall be maintained by both parties as strictly
confidential, except as otherwise required by court order and with respect to
the parties' attorneys and tax advisors, and, with respect to MTS, members of
its management, and, with respect to Executive, his family.
12. Miscellaneous.
(a) No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the parties. No waiver by
either party hereto at any time of any breach by the other party to
this Agreement of, or compliance with, any other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time.
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(b) No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
(c) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Minnesota.
(d) Any provision of this Agreement which conflicts with
applicable law shall be modified to the extent necessary to ensure
its enforceability. The invalidity or unenforceability or any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
This Agreement supersedes any and all prior oral and written
understandings and agreements between the Executive and MTS.
IN WITNESS WHEREOF, MTS, through its authorized officer, and the
Executive have executed this Agreement as of the day and date first above
written.
EXECUTIVE: MTS SYSTEMS CORPORATION
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By /s/ ▇. ▇. ▇▇▇▇▇, ▇▇.
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its Chairman and CEO
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