EXHIBIT 10.q
[LOGO] MTS(R) AMENDED AND RESTATED
MTS SYSTEMS CORPORATION CHANGE IN CONTROL AGREEMENT
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone 952-937-4000
Fax 952-937-4515
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THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT is made and
entered into by and between MTS Systems Corporation, a Minnesota corporation
with its principal offices at 14000 Technology Drive, Eden Prairie, MN 55344
(the "Company") and James M. Egerdal (the"Executive"), residing at Eden Prairie,
and shall be effective as of this 1st day of June, 2002.
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders; and
WHEREAS, the Executive has made and is expected to continue to make,
due to the Executive's intimate knowledge of the business and affairs of the
Company, its policies, methods, personnel, and problems, a significant
contribution to the profitability, growth, and financial strength of the
Company; and
WHEREAS, the Company, as a publicly held corporation, recognizes that
the possibility of a Change in Control may exist, and that such possibility and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of the Executive in the performance of the
Executive's duties, to the detriment of the Company and its shareholders; and
WHEREAS, it is in the best interests of the Company and its
stockholders to reinforce and encourage the continued attention and dedication
of management personnel, including the Executive, to their assigned duties
without distraction and to ensure the continued availability to the Company of
the Executive in the event of a Change in Control; and
WHEREAS, the Company and the Executive previously signed a Change in
Control Agreement and now desire to amend and restate that agreement in its
entirety.
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 be effective from and
after the date hereof and shall continue in effect through December 31, 2003,
and shall automatically be extended for successive one-year periods thereafter
unless the Board of Directors of the Company (the "Board) shall have approved,
and the Executive is notified in writing, prior to January 1, 2004 and each
Amended and Restated Change in Control Agreement
January 1 thereafter, that the term of this Agreement shall not be extended or
further extended; provided, however, that if a Change in Control shall have
occurred during the original or any extended term of this Agreement, this
Agreement shall continue in effect for a period of 24 months from the date of
the occurrence of a Change in Control or, if an event triggering the Company's
severance payment obligations to the Executive under Section 4(d) has occurred
during such 24-month period, this Agreement shall continue in effect until the
benefits payable to the Executive hereunder have been paid in full. In the event
that more than one Change in Control shall occur during the original or any
extended term of this Agreement, the 24-month period shall follow the last
Change in Control. This Agreement shall neither impose nor confer any further
rights or obligations on the Company or the Executive on the day after the end
of the term of this Agreement. Expiration of the term of this Agreement of
itself and without subsequent action by the Company or the Executive shall not
end the employment relationship between the Company and the Executive.
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a Change in Control. For purposes of this Agreement, a
"Change in Control" of the Company shall mean a change in control which would be
required to be reported in response to Item 6(e) on Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement, including, without limitation, if:
(a) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities; or
(b) During any period of two consecutive years (not including
any period ending prior to the effective date of this Agreement), the
Incumbent Directors cease for any reason to constitute at least a
majority of the Board of Directors. The term "Incumbent Directors"
shall mean those individuals who are members of the Board of Directors
on the effective date of this Agreement and any individual who
subsequently becomes a member of the Board of Directors (other than a
director designated by a person who has entered into agreement with the
Company to effect a transaction contemplated by Section 2(c)) whose
election or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the then Incumbent
Directors; or
(c) (i) The Company consummates a merger, consolidation, share
exchange, division or other reorganization of the Company with any
corporation or entity, other than an entity owned at least 80% by the
Company, unless immediately after such transaction, the
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Amended and Restated Change in Control Agreement
shareholders of the Company immediately prior to such transaction
beneficially own, directly or indirectly 51% or more of the combined
voting power of resulting entity's outstanding voting securities as
well as 51% or more of the Total Market Value of the resulting entity,
or in the case of a division, 51% or more of the combined voting power
of the outstanding voting securities of each entity resulting from the
division as well as 51% or more of the Total Market Value of each such
entity, in each case in substantially the same proportion as such
shareholders owned shares of the Company prior to such transaction;
(ii) the shareholders of the Company approve an agreement for the sale
or disposition (in one transaction or a series of transactions) of
assets of the Company, the total consideration of which is greater than
51% of the Total Market Value of the Company, or (iii) the Company
adopts a plan of complete liquidation or winding-up of the Company.
Total Market Value" shall mean the aggregate market value of the
Company's or the resulting entity's outstanding common stock (on a
fully diluted basis) plus the aggregate market value of the Company's
or the resulting entity's other outstanding equity securities as
measured by the exchange rate of the transaction or by such other
method as the Board determines where there is not a readily
ascertainable exchange rate.
3. Termination Following Change in Control. If a Change in Control
shall have occurred during the term of this Agreement, the Executive shall be
entitled to the benefits provided in subsection 4(d) unless such termination is
(A) because of the Executive's death or Retirement, (B) by the Company for Cause
or Disability, or (C) by the Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due
to physical or mental illness, the Executive shall have been absent
from the full-time performance of the Executive's duties with the
Company for at least three (3) consecutive months, and within 30 days
after written Notice of Termination is given the Executive shall not
have returned to the full-time performance of the Executive's duties,
the Company may terminate the Executive's employment for "Disability".
Any question as to the existence of the Executive's Disability upon
which the Executive and the Company cannot agree shall be determined by
a qualified independent physician selected by the Executive (or, if the
Executive is unable to make such selection, it shall be made by any
adult member of the Executive's immediate family), and approved by the
Company. The determination of such physician made in writing to the
Company and to the Executive shall be final and conclusive for all
purposes of this Agreement. Termination by the Company or the Executive
of the Executive's employment based on "Retirement" shall mean
termination on or after attaining age sixty-five (65).
(b) Cause. For purposes of this Agreement, "Cause shall mean:
(i) the willful and continued failure by the
Executive (other than any such failure resulting from (1) the
Executive's incapacity due to physical or mental
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Amended and Restated Change in Control Agreement
illness, (2) any such actual or anticipated failure after the
issuance of a Notice of Termination by the Executive for Good
Reason or (3) the Company's active or passive obstruction of
the performance of the Executive's duties and
responsibilities) to perform substantially the duties and
responsibilities of the Executive's position with the Company
after a written demand for substantial performance is
delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the duties
or responsibilities;
(ii) the conviction of the Executive by a court of
competent jurisdiction for felony criminal conduct which, in
the good faith opinion of the Company, would impair the
Executive's ability to perform his or her duties or impair the
business reputation of the Company; or
(iii) the willful engaging by the Executive in fraud
or dishonesty which is demonstrably and materially injurious
to the Company, monetarily or otherwise.
No act, or failure to act, on the Executive's part shall be deemed
willful unless committed, or omitted by the Executive in bad faith and
without reasonable belief that the Executive's act or failure to act
was in the best interest of the Company and the Executive shall have
either failed to correct, or failed to take all reasonable steps to
correct, such act or failure to act within sixty (60) days from the
Executive's receipt of written notice from the Company demanding that
the Executive take such action. The Executive shall not be terminated
for Cause unless and until the Company shall have delivered to the
Executive 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 to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the
Executive's conduct was Cause and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive shall be entitled to terminate
his or her employment for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, without the Executive's express written
consent, any of the following:
(i) The authority, powers, functions,
responsibilities or duties assigned to the Executive, as
compared to those in effect immediately prior to the Change in
Control, are materially and adversely diminished without the
Executive's written consent (except for any diminution that
occurs solely as a result of the fact that the Company ceases
to be a public company);
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Amended and Restated Change in Control Agreement
(ii) A reduction by the Company in the Executive's
annual compensation including, but not limited to, base pay or
short and/long term incentive pay in effect immediately prior
to a Change in Control;
(iii) The Company requiring the Executive to relocate
his or her office, or to be based in an office, more than 50
miles from his or her office immediately prior to the Change
in Control (except for required travel on the Company's
business to an extent substantially consistent with the
Executive's business travel obligations immediately prior to
the Change in Control);
(iv) The failure by the Company to continue to
provide the Executive with benefits at least as favorable to
those enjoyed by the Executive under any of the Company's
pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive awards, incentive
stock options, or savings plans in which the Executive was
participating immediately prior to the Change in Control, the
taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed
immediately prior to the Change in Control, or the failure by
the Company to provide the Executive with the number of paid
vacation or sick days to which Executive is entitled
immediately prior to the Change in Control, provided, however,
that the Company may amend any such plan or programs as long
as such amendments do not reduce any benefits to which the
Executive would be entitled upon termination;
(v) The failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 8;
(vi) any material violation of this Agreement by the
Company;
(vii) the Company requests the Executive's
resignation from employment; or
(viii) any purported termination of the Executive's
employment which is not made pursuant to a Notice of
Termination satisfying the requirements of this Agreement; for
purposes of this Agreement, no such purported termination
shall be effective.
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Amended and Restated Change in Control Agreement
(d) Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be
communicated by written Notice of Termination to the other party hereto
in accordance with Section 9. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth
the facts and circumstances claimed to provide a basis for termination
of the Executive's employment.
(e) Date of Termination. For purposes of this Agreement, "Date
of Termination" shall mean:
(i) If the Executive's employment is terminated for
Disability, 30 days after Notice of Termination is given
(provided that the Executive shall have been absent from
full-time performance of duties for at least three (3) months
and shall not have returned to the full-time performance of
the Executive's duties during such 30 day period, in
accordance with Section 3(a) hereof); and
(ii) If the Executive's employment is terminated
pursuant to subsections (b) or (c) above or for any other
reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination
pursuant to subsection (b) above shall not be less than 10
days, and in the case of a termination pursuant to subsection
(c) above shall not be less than 10 nor more than 30 days,
respectively, from the date such Notice of Termination is
given).
(f) Dispute of Termination. If, within 10 days after any
Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of
the parties, or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal
therefrom having expired and no appeal having been perfected);
provided, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving
such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the
Company shall continue to pay the Executive full compensation in effect
when the notice giving rise to the dispute was given (including, but
not limited to, base salary) and continue the Executive as a
participant in all compensation, benefit and insurance plans in which
the Executive was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance
with this subsection. Amounts paid under this subsection are in
addition to all other amounts due under this Agreement and shall not be
offset against or reduce any other amounts under this Agreement.
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Amended and Restated Change in Control Agreement
4. Compensation Upon Termination or During Disability. Following
a Change in Control of the Company, as defined in subsection 2(a), upon
termination of the Executive's employment or during a period of Disability, the
Executive shall be entitled to the following benefits:
(a) During any period that the Executive fails to perform
full-time duties with the Company as a result of a Disability, the
Company shall pay the Executive, the Executive's base salary as in
effect at the commencement of any such period and the amount of any
other form or type of compensation otherwise payable for such period if
the Executive were not so disabled, until such time as the Executive is
determined to be eligible for long term disability benefits in
accordance with the Company's insurance programs then in effect or the
Executive is terminated for Disability.
(b) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good Reason or
Disability, the Company shall pay to the Executive his or her full base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given and the Company shall have no
further obligation to the Executive under this Agreement, except with
respect to any benefits to which the Executive is entitled under any
Company pension or welfare benefit plan, insurance program or as
otherwise required by law.
(c) If the Executive's employment shall be terminated by the
Company or by the Executive for Disability or Retirement, or by reason
of death, the Company shall immediately commence payment to the
Executive (or the Executive's designated beneficiaries or estate, if no
beneficiary is designated) of any and all benefits to which the
Executive is entitled under the Company's retirement and insurance
programs then in effect.
(d) If the Executive's employment shall be terminated (A) by
the Company other than for Cause, Retirement, Disability or the
Executive's death or (B) by the Executive for Good Reason, then the
Executive shall be entitled to the benefits provided below:
(i) The Company shall pay the Executive, through the
Date of Termination, the Executive's base salary as in effect
at the time the Notice of Termination is given and any other
form or type of compensation otherwise payable for such
period;
(ii) In lieu of any further salary payments for
periods subsequent to the Date of Termination, the Company
shall pay a severance payment (the "Severance Payment") equal
to two times the Executive's Annual Compensation as defined
below. For purposes of this Section 4, Annual Compensation
shall mean the Executive's annual salary (regardless of
whether all or any portion of such salary has
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Amended and Restated Change in Control Agreement
been contributed to a deferred compensation plan), the average
annual Management Variable Compensation ("MVC") earned by the
Executive during the three (3) fiscal years immediately
preceding the Date of Termination or, if less, the actual
number of fiscal years the Executive has participated in the
MVC plan, and any other type or form of compensation paid to
the Executive by the Company (or any corporation (an
Affiliate) affiliated with the Company within the meaning of
Section 1504 of the Internal Revenue Code of 1986 as it may be
amended from time to time (the Code)) and included in the
Executive's gross income for federal tax purposes during the
12-month period ending immediately prior to the Date of
Termination, but excluding: a) any amount actually paid to the
Executive as a cash payment of the target bonus (regardless of
whether all or any portion of such Company bonus was
contributed to a deferred compensation plan); b) compensation
income recognized as a result of the exercise of stock options
or sale of the stock so acquired; and c) any payments actually
or constructively received from a plan or arrangement of
deferred compensation between Company and the Executive. All
of the items included in Annual Compensation shall be those in
effect on the Date of Termination and shall be calculated
without giving effect to any reduction in such compensation
which would constitute a breach of this Agreement. The
Severance Payment shall be made in a single lump sum within 30
days after the Date of Termination;
(iii) For the 24-month period after the Date of
Termination, the Company shall arrange to provide, at its sole
expense, the Executive with life, disability, accident and
health insurance benefits substantially similar to those which
the Executive is receiving or entitled to receive immediately
prior to the Notice of Termination. The Executive shall be
responsible for the payment of his or her portion of the
premiums for such benefits, (recognizing that the Executive
shall remain responsible for payment of the same relative
percentage of total premiums as the Executive paid prior to
the Date of Termination). The cost of providing such benefits
shall be in addition to (and shall not reduce) the Severance
Payment. Benefits otherwise receivable by the Executive
pursuant to this paragraph (iii) shall be reduced to the
extent comparable benefits are actually received by the
Executive during such period, and any such benefits actually
received by Executive shall be reported to the Company; and
(iv) The Company shall also pay to the Executive all
legal fees and expenses incurred by the Executive as a result
of such termination (including all such fees and expenses, if
any, incurred in contesting or disputing any such termination
or in seeking to obtain or enforce any right or benefit
provided by this Agreement).
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Amended and Restated Change in Control Agreement
(e) The Executive shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 4 (except as expressly provided in Section
4(d)(iii)) be reduced by any compensation earned by the Executive as
the result of employment by another employer or by retirement benefits
after the Date of Termination, or otherwise.
(f) The Executive shall be entitled to receive all benefits
payable to the Executive under the Company pension and welfare benefit
plans or any successor of such plan and any other plan or agreement
relating to retirement benefits which shall be in addition to, and not
reduced by, any other amounts payable to the Executive under this
Section 4.
(g) The Executive shall be entitled to exercise all rights and
to receive all benefits accruing to the Executive under any and all
Company stock purchase and stock option plans or programs, or any
successor to any such plans or programs, which shall be in addition to,
and not reduced by, any other amounts payable to the Executive under
this Section 4.
(h) The Company will indemnify the Executive (and the
Executive's legal representative or other successors) to the fullest
extent permitted (including payment of expenses in advance of final
disposition of the proceeding) by the laws of the State of Minnesota,
as in effect at the time of the subject act or omission, or the
Articles of Incorporation and By-Laws of the Company as in effect at
such time or on the date of this Agreement, whichever affords or
afforded greater protection to the Executive; and the Executive shall
be entitled to the protection of any insurance policies the Company may
elect to maintain generally for the benefit of its directors and
officers, against all costs, charges and expenses whatsoever incurred
or sustained by the Executive or the Executive's legal representatives
in connection with any action, suit or proceeding to which the
Executive (or the Executive's legal representative or other successors)
may be made a party by reason of the Executive's being or having been a
director, officer or employee of the Company or any of its subsidiaries
or his or her serving or having served any other enterprise as a
director, officer or employee at the request of the Company, provided
that the Company shall cause to be maintained in effect for not less
than six years from the date of a Change in Control (to the extent
available) policies of directors' and officers' liability insurance of
at least the same coverage as those maintained by the Company on the
date of this Agreement and containing terms and conditions which are no
less advantageous than such policies.
Notwithstanding anything herein to the contrary, if the Executive's
employment is governed by a separate written employment agreement that provides
benefits upon a termination of
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Amended and Restated Change in Control Agreement
employment, the aggregate of any payments or benefits payable under such
employment agreement shall offset and reduce the aggregate of payments and
benefits under this Agreement.
5. Non-Compete and Confidentiality.
(a) Noncompetition. Except as provided in subsection (c)
below, the Executive agrees that, as a condition of receiving benefits
under this Agreement, the Executive will not render services directly
or indirectly to any competing organization, wherever located, for a
period of one year following the Date of Termination, 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 the Company, 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 the
Company. The Executive agrees that violation of this covenant not to
compete with the Company shall result in immediate cessation of all
benefits hereunder, other than insurance benefits, which the Executive
may continue where permitted under federal and state law at his or her
own expense.
(b) Confidentiality. The Executive further agrees and
acknowledges the Executive's existing obligation that at all times
during and subsequent to his or her employment with MTS, the Executive
will not divulge or appropriate to the Executive's own use or the uses
of others any secret or confidential information or knowledge
pertaining to the business of MTS, or any of its subsidiaries, obtained
during his or her employment by MTS or any of its subsidiaries.
(c) Waiver - Unfriendly Change in Control. Notwithstanding
anything herein to the contrary: the restriction on competition under
subsection (a) shall not apply if the Executive's employment terminates
following a Change in Control which has not been approved by a majority
of the Incumbent Directors in office immediately prior to the Change in
Control (an "Unfriendly Change in Control"). Furthermore, in such
event, the Company waives any other restriction on the Executive's
employment and consents unconditionally to any employment the Executive
may subsequently obtain.
6. Potential Excise Tax.
(a) Gross-Up Payments. In the event it shall be determined that any
payment, distribution or benefit made or provided by or on behalf of
the Company to or for the benefit of the Executive (pursuant to this
Agreement or contemplated hereunder) (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
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Amended and Restated Change in Control Agreement
1986, as amended (the "Code"), or any interest or penalties with
respect to such excise tax (such excise tax, together with any such
interest and penalties, being, collectively referred to as the "Excise
Tax"), then the Company shall pay the Executive in cash an additional
amount (the "Gross-Up Payment") such that, after payment by the
Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including but not limited to income taxes
(and any interest and penalties imposed with respect thereto) and the
Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Payments. Notwithstanding the foregoing, no amount shall be paid under
this Section 6, and the amounts payable to the Executive under this
Agreement shall be reduced to the amount at which no such Excise Tax is
payable, if the result of such reduction is to place Executive in the
same or a better after-tax position than would result from making the
additional payments provided under this Section.
(b) Determination of Gross-Up Payment. Subject to sub-paragraph (c)
below, all determinations required to be made under this Section 6,
including whether a Gross-Up Payment is required and the amount of the
Gross-Up Payment, shall be made by the firm of independent public
accountants selected by the Company to audit its financial statements
for the year immediately preceding the Change in Control (the
"Accounting Firm") which shall provide detailed supporting calculations
to the Company and the Executive within 30 days after the date of the
Executive's termination of employment. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group affecting the Change of Control, the Executive may appoint
another nationally recognized accounting firm to make the
determinations required under this Section 6 (which accounting firm
shall then be referred to as the "Accounting Firm"). All fees and
expenses of the Accounting Firm in connection with the work it performs
pursuant to this Section 6 shall be promptly paid by the Company. Any
Gross-Up Payment shall be paid by the Company to the Executive within 5
days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a penalty. Any
determination by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made
("Underpayment"). In the event that the Company exhausts its remedies
pursuant to sub-paragraph (c) below, and the Executive is thereafter
required to make a payment of Excise Tax, the Accounting Firm shall
promptly determine the amount of the Underpayment that has occurred and
any such Underpayment shall be paid by the Company to the Executive
within 5 days after such determination.
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Amended and Restated Change in Control Agreement
(c) Contest. The Executive shall notify the Company in writing of any
claim made by the Internal Revenue Service that if successful, would
require the Company to pay a Gross-Up Payment. Such notification shall
be given as soon as practicable but in no event later than ten (10)
business days in the case of an assessment and twenty (20) business
days in all other cases after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall:
(1) give the Company any information reasonably requested
by the Company relating to such claim;
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, without limitation,
accepting legal representation with respect to such
claim by an attorney elected by the Company and
reasonably acceptable to the Executive;
(3) cooperate with the Company in good faith in order to
effectively contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim, provided that the Company
shall bear and pay directly all costs and expenses
(including interest and penalties) incurred in
connection with such contest including, upon request,
advancing Executives' legal and administrative costs
associated with such contest, and shall indemnify and
hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest
and penalties with respect thereto, imposed as a
result of such representation and payment of costs
and expenses.
Without limitation on the foregoing provisions of this subparagraph
(c), the Company shall control all proceedings taken in connection with
such contest. At its sole option, the Company may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine, provided that any
extension of the statute of limitations
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Amended and Restated Change in Control Agreement
relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. The Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority. Furthermore,
the Company agrees to hold in confidence and not to disclose, without
the Executive's prior written consent, any information with regard to
Executive's tax position which the Company obtains pursuant to this
Section 6.
(d) Suit for Refund. If the Company directs the Executive to
pay any claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis. If
the Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
7. Funding of Payments. In order to assure the performance of the
Company or its successor of its obligations under this Agreement, the Company
may deposit in a so-called "rabbi" trust an amount equal to the maximum payment
that will be due the Executive under the terms hereof; provided, however, that
the Company shall deposit in trust the amount equal to the maximum payment due
Executive immediately upon an Unfriendly Change in Control. Under such written
trust instrument, the trustee shall be instructed to pay to the Executive (or
the Executive's legal representative, as the case may be) the amount to which
the Executive shall be entitled under the terms hereof, and the balance, if any,
of the trust not so paid or reserved for payment shall be repaid to the Company.
If the Company deposits funds in trust, payment shall be made no later than the
occurrence of the Change in Control. The written instrument governing the trust
shall be irrevocable from and after such Change in Control and shall contain
such provisions protective of the Executive as are contained in similar trust
agreements approved by the Internal Revenue Service in published private letter
rulings (provided that the assets of the trust shall be reachable by creditors
of the Company as required by such rulings). The trustee shall be a national
bank selected by the Company with the consent of the Executive, with trust
powers and whose principal officers are located in the Minneapolis/St. Paul
metropolitan area. The trustee shall invest the assets of the trust in any
readily marketable securities of U.S. corporations (other than the Company, its
successor, or any affiliate of the Company or its successor). If and to the
extent there are not amounts in trust sufficient to pay
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Amended and Restated Change in Control Agreement
Executive under this Agreement, the Company shall remain liable for any and all
payments due to Executive.
8. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to 51% or more of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to the compensation and benefits from the Company in the same amount
and on the same terms as the Executive would be entitled hereunder if the
Executive terminated his or her employment for Good Reason following a Change in
Control, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, successors, heirs, and
designated beneficiaries. If the Executive should die while any amount would
still be payable to the 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.
9. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the last known residence address of the Executive or in the case of
the Company, to its principal office to the attention of each of the then
directors of the Company 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.
10. Miscellaneous. 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 condition or provision of this Agreement to be performed by such other-party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. 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
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Amended and Restated Change in Control Agreement
expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Minnesota.
11. Validity. 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.
IN WITNESS WHEREOF, the undersigned officer, on behalf of MTS Systems
Corporation, and the Executive have hereunto set their hands as of the date
first above written.
MTS SYSTEMS CORPORATION
By
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Its
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EXECUTIVE:
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