KE 8-K
Kimball Electronics, Inc. (KE)
8-K
2023-11-21
For: 2023-11-17
View Original
Added on
April 11, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 17, 2023
________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (Commission File | (IRS Employer Identification No.) | ||||||||||||
| incorporation) | Number) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code (812 ) 634-4000
| Not Applicable | ||
| (Former name or former address, if changed since last report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each Class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (Section 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (Section 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
2023 Equity Incentive Plan
On November 17, 2023 at the Annual Meeting of Share Owners of Kimball Electronics, Inc. (the “Company”), the Share Owners approved the Company’s 2023 Equity Incentive Plan (the “2023 Equity Plan”). The 2023 Plan was adopted by the Board of Directors (the “Board”) of the Company on September 20, 2023, subject to Share Owner approval. The 2023 Equity Plan supersedes the 2014 Stock Option and Incentive Plan and allows for the issuance of up to two (2) million shares, plus the total of any granted and outstanding awards on November 17, 2023 pursuant to the 2014 Stock Option and Incentive Plan that expire, terminate, or are otherwise surrendered, cancelled, forfeited, or repurchased by the Company at their original issuance price pursuant to a contractual repurchase. The 2023 Equity Plan expires on November 17, 2033. Awards may be granted to employees, consultants, and directors in the form of incentive stock options (employees only), non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, cash awards, and other equity awards with time-based and/or performance-based vesting.
The foregoing description is only a summary of the 2023 Equity Plan and is qualified in its entirety by reference to the Kimball Electronics, Inc. 2023 Equity Incentive Plan included as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Leadership Team Severance and Change in Control Plan
Effective November 21, 2023, the Company replaced its 2021 Kimball Electronics, Inc. Executive Severance and Change in Control Plan (the “2021 Severance Plan”), with the Kimball Electronics, Inc. Leadership Team Severance and Change in Control Plan (the “2023 Severance Plan”). The 2023 Severance Plan supersedes the 2021 Severance Plan.
The 2023 Severance Plan clarifies that it applies to (1) executive officers who report directly to the Company’s CEO and are members of the Company’s Leadership Team; and (2) other senior officers designated by the 2023 Severance Plan’s Administrator (currently, the Talent, Culture, and Compensation Committee). The 2023 Severance Plan also removes gendered language and updates certain Leadership Team member titles to reflect the titles as they currently exist at the Company.
Like the 2021 Severance Plan was, the 2023 Severance Plan is an unfunded employee welfare plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and is not a qualified plan under the Internal Revenue Code. As an unfunded plan, all benefits are paid out of the general assets of the Company and no participant will have any greater claim to any asset than other general creditors. The Company has not set aside or held any funds in trust to secure the benefits offered to participants under the 2023 Severance Plan.
The 2023 Severance Plan provides for severance benefits, which are unchanged from the 2021 Severance Plan and include salary continuation, health coverage, cash bonus payout, outstanding equity vesting, and outplacement benefits. The amount of the benefits vary by the executive’s position and whether the severance is a result of a termination due to a change in control as that event is defined by the 2023 Severance Plan.
The foregoing description is only a summary of the 2023 Severance Plan and is qualified in its entirety by reference to the Kimball Electronics, Inc. Leadership Team Severance and Change in Control Plan included as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 5.07 Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Share Owners of the Company held on November 17, 2023, the Share Owners voted on the following items:
1. The Board of Directors (the “Board”) is divided into three classes with approximately one-third of the directors up for election each year, with Class III standing for election at this meeting. Director nominees are elected by a majority of the votes cast by the shares entitled to vote in the election at the meeting. The Share Owners voted to elect or reelect each of the Class III nominees for director as follows:
| Class III Nominees for Directors to serve a three-year term | Votes For | Votes Withheld | Broker Non-Votes | Percentage of Votes Cast in Favor | ||||||||||||||||||||||
| Robert J. Phillippy | 18,194,482 | 770,940 | 2,938,221 | 96 | % | |||||||||||||||||||||
| Richard D. Phillips | 18,555,275 | 410,147 | 2,938,221 | 98 | % | |||||||||||||||||||||
| Gregory A. Thaxton | 18,525,877 | 439,545 | 2,938,221 | 98 | % | |||||||||||||||||||||
2. The Share Owners voted to approve the Company’s 2023 Equity Incentive Plan as follows:
| Votes For | Votes Against | Votes Abstaining | Broker Non-Votes | Percentage of Votes Cast in Favor | ||||||||||||||||||||||||||||
| 9,980,685 | 8,926,622 | 58,115 | 2,938,221 | 53 | % | |||||||||||||||||||||||||||
3. The Share Owners voted to ratify the selection of Deloitte & Touche, LLP as the Company’s independent registered public accounting firm for fiscal year 2024 as follows:
| Votes For | Votes Against | Votes Abstaining | Percentage of Votes Cast in Favor | |||||||||||||||||||||||
| 21,164,718 | 699,223 | 39,702 | 96.8 | % | ||||||||||||||||||||||
4. The Share Owners approved, on a non-binding, advisory basis, the compensation paid to the Company’s Named Executive Officers as follows:
| Votes For | Votes Against | Votes Abstaining | Broker Non-Votes | Percentage of Votes Cast in Favor | ||||||||||||||||||||||||||||
| 18,276,855 | 443,100 | 245,467 | 2,938,221 | 98 | % | |||||||||||||||||||||||||||
Item 8.01 Other Events
Board Chair, Committee Appointments
On November 17, 2023, the Board, at its regular meeting held after the annual Share Owners’ meeting, appointed Directors to serve on the Talent, Culture, Compensation Committee, the Audit Committee, and the Nominating and ESG Committee, and it also appointed Chairpersons for those Committees, all effective immediately. Robert J. Phillippy will continue as the Chairperson of the Board. The current compositions of the Board’s Committees are listed in the table below:
| Director | Audit Committee | Nominating and ESG Committee | Talent, Culture, Compensation Committee | |||||||||||||||||
| Michele A. M. Holcomb | Chair | |||||||||||||||||||
| Gregory J. Lampert | X | X | ||||||||||||||||||
| Colleen C. Repplier | X | X | ||||||||||||||||||
| Gregory A. Thaxton | X | X | ||||||||||||||||||
| Tom G. Vadaketh | Chair | |||||||||||||||||||
| Holly A. Van Deursen | Chair | |||||||||||||||||||
Each of the three Committees reports directly to the Board and is comprised entirely of independent Directors.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following exhibits are filed as part of this report:
| Exhibit | ||||||||
| Number | Description | |||||||
| 10.1 | ||||||||
10.2 | ||||||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KIMBALL ELECTRONICS, INC. | |||||
| By: | /s/ Douglas A. Hass | ||||
| DOUGLAS A. HASS Chief Legal & Compliance Officer, Secretary | |||||
Date: November 21, 2023
Exhibit 10.1
KIMBALL ELECTRONICS, INC.
2023 EQUITY INCENTIVE PLAN
1. Purpose; Eligibility.
1.1 General Purpose. The name of this plan is the Kimball Electronics, Inc. 2023 Equity Incentive Plan (the “Plan”). The purposes of the Plan are to (a) enable Kimball Electronics, Inc., an Indiana corporation (the “Company”), and any Affiliate to attract and retain the types of Employees who will contribute to the Company’s long range success; (b) provide incentives that align the interests of Employees, Consultants, and Directors with those of the Company’s Share Owners; (c) to develop in Employees a sense of proprietorship and personal involvement in the development and financial success of the Company; and (d) to encourage Employees to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its Share Owners.
1.2 Eligible Award Recipients. The persons eligible to receive Awards are the Employees, Consultants, and Directors of the Company and its Affiliates and such other individuals designated by the Committee who are reasonably expected to become Employees, Consultants, or Directors after the receipt of Awards.
1.3 Available Awards. Awards that may be granted under the Plan include: (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, (f) Cash Awards, and (g) Other Equity Awards.
2. Definitions.
“Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.
“Applicable Laws” means the requirements related to or implicated by the administration of the Plan under applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.
“Award” means any right granted under the Plan, including an Incentive Stock Option, a Non-qualified Stock Option, a Stock Appreciation Right, a Restricted Award, a Performance Share Award, a Cash Award, or an Other Equity Award.
“Award Agreement” means a written agreement, contract, certificate or other instrument or document evidencing the terms and conditions of an individual Award granted under the Plan that may, in the discretion of the Company, be transmitted electronically to any Participant. Each Award Agreement shall be subject to the terms and conditions of the Plan.
“Board” means the Board of Directors of the Company, as constituted at any time.
“Cash Award” means an Award denominated in cash that is granted under Section 9 of the Plan.
“Cause” means:
(a) If the Participant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Cause, the definition contained therein; or
(b) If no such agreement exists, or if such agreement does not define Cause: (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (ii) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (iii) gross negligence or willful misconduct with respect to the Company or an Affiliate; (iv) material violation of state or federal securities laws; or (v) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.
The Committee, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause.
“Change in Control” means the consummation of any of the following that is not an Excluded Transaction: (i) the acquisition, by any one person or more than one person acting as a Group, of Majority Ownership of the Company through merger, consolidation, or stock transfer; (ii) the acquisition during any twelve- (12-) month period, by any one person or more than one person acting as a Group, of ownership interests of thirty-five percent (35%) or more of the total voting power of the Company; (iii) the acquisition of ownership during any twelve- (12-) month period, by any one person or more than one person acting as a Group, of forty percent (40%) or more of the total gross fair market value of the assets of the Company; or (iv) the replacement of a majority of members of the Board of Directors during any twelve- (12-) month period, by members whose appointment or election is not endorsed by a majority of the members of the Board of Directors prior to the date of the appointment or election. “Excluded Transaction” means any occurrence that does not constitute a change in the ownership or effective control, or in the ownership of a substantial portion of the assets of, the Company within the meaning of Code Section 409A(a)(2)(A)(v) and its interpretive regulations; “Majority Ownership” of an entity means ownership interests representing more than fifty percent (50%) of the total fair market value or of the total voting power of all ownership interests in the entity; “Group” has the meaning provided in Code Section 409A and its interpretive regulations with respect to changes in ownership, effective control, and ownership of assets; and an individual who owns a vested option to purchase either stock or another ownership interest is deemed to own that stock or other ownership interest.
“Change in Control Protection Period” means the period of time beginning on the date of the consummation of the Change in Control and ending on the twenty-four (24-) month anniversary of such Change in Control.
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
“Committee” means a committee of one or more members of the Board appointed by the Board to administer the Plan in accordance with Section 3.3 and Section 3.4.
“Common Stock” means the common stock, no par value per share, of the Company, or such other securities of the Company as may be designated by the Committee from time to time in substitution thereof.
“Company” means Kimball Electronics, Inc., an Indiana corporation, and any successor thereto.
“Consultant” means any individual or entity that performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registerable pursuant to a registration statement on Form S-8 under the Securities Act.
“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Consultant, or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant, or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code and the termination of Continuous Service constitutes a “separation from service” within the meaning thereof. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Committee or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave, or any other personal or family leave of absence. The Committee or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive, and binding.
“Deferred Stock Units (DSUs)” has the meaning set forth in Section 7.1(b) hereof.
“Director” means a member of the Board.
“Disability” means, unless the applicable Award Agreement says otherwise, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option pursuant to Section 5.8 hereof, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Committee. Except in situations where the Committee is determining Disability for purposes of the term of an Incentive Stock Option pursuant to Section 5.8 hereof within the meaning of Section 22(e)(3) of the Code, the Committee may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.
“Disqualifying Disposition” has the meaning set forth in Section 16.13.
“Effective Date” shall mean the date that the Company’s shareholders approve this Plan if such shareholder approval occurs before the first anniversary of the date the Plan is adopted by the Board.
“Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate; provided, that, for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate and an Employee shall not include any person during any period they are classified or treated by the Company and/or Affiliate as an independent contractor, a Consultant, a consultant, or any employee of an employment, consulting, or temporary agency or any other entity other than the Company, and/or Affiliate, in either case without regard to whether such person is subsequently determined to have been, or is subsequently retroactively reclassified as or deemed a common-law or statutory employee of the Company and/or Affiliate during such period.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market system, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination, as reported in such source as the Committee deems reliable. In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee and such determination shall be conclusive and binding on all persons.
“Fiscal Year” means the Company’s fiscal year.
“Free Standing Rights” has the meaning set forth in Section 6.
“Grant Date” means the date on which the Committee adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award or, if a later date is set forth in such resolution, then such date as is set forth in such resolution.
“Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in the Plan.
“Indemnified Parties” has the meaning set forth in Section 3.5.
“Non-Employee Director” means a Director who is a “non-employee director” within the meaning of Rule 16b-3.
“Non-qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
“Option” means an Incentive Stock Option or a Non-qualified Stock Option granted pursuant to the Plan.
“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
“Option Exercise Price” means the price at which a share of Common Stock may be purchased upon the exercise of an Option.
“Other Equity Award” means an Award that is not an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Performance Share Award, that is granted under Section 9 and is payable by delivery of Common Stock and/or that is measured by reference to the value of Common Stock.
“Participant” means an eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
“Performance Goals” means the goals selected by the Committee, in its discretion, to be applicable to a Participant for any Performance Period. Performance Goals may include any of the following:
net earnings or net income (before or after taxes);
basic or diluted earnings per share (before or after taxes);
net revenues or net revenue growth;
gross revenue;
gross profit or gross profit growth;
net operating profit (before or after taxes);
return on assets, capital, invested capital, equity or sales;
cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
earnings before or after taxes, interest, depreciation and/or amortization (EBITDA);
gross or operating margins;
improvements in capital structure;
budget and expense management;
productivity ratios;
economic value added (including, but not limited to, economic profit) or other value-added measurements;
share price (including, but not limited to, growth measures and total shareholder return);
expense targets;
margins;
operating efficiency;
working capital targets;
enterprise value;
environmental, social, and governance targets;
safety record; and
completion of acquisitions or business expansion.
Such Performance Goals may relate to the performance of the Company as a whole, a business unit, division, department, individual, or any combination of these and may be applied on an absolute basis and/or relative to one or more peer group companies or indices, or any combination thereof, as the Committee shall determine in its discretion. Performance Goals may include a threshold level of performance below which no Award will be paid and levels of performance at which specified percentages of the Award will be paid and may also include a maximum level of performance above which no additional Award amount will be paid.
“Performance Period” means the one or more periods of time not less than one fiscal quarter in duration, as the Committee may select, over which the attainment of one or more Performance
Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Share Award or a Cash Award.
“Performance Share Award” means any Award granted pursuant to Section 8 hereof.
“Performance Share” means the grant of a right to receive a number of actual shares of Common Stock or share units based on the performance of the Company during a Performance Period, as determined by the Committee.
“Permitted Transferee” means: a member of the Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder) control the management of assets, and any other entity in which these persons (or the Optionholder) own more than 50% of the voting interests.
“Person” means a person as defined in Section 13(d)(3) of the Exchange Act.
“Plan” means this Kimball Electronics, Inc. 2023 Equity Incentive Plan, as amended and/or restated from time to time.
“Pro-Rated Award” means an amount equal to the Award otherwise payable to the Participant subject to the Participant’s Continuous Service for a Performance Period but in which the Participant was actively employed by the Company or an Affiliate for only a portion thereof, multiplied by a fraction, the numerator of which is the number of calendar days the Participant was actively employed by the Company or an Affiliate during the Performance Period and the denominator of which is the number of calendar days in the Performance Period.
“Qualifying Termination” means a Participant’s termination of Continuous Service due to death, Disability, or Retirement. In the case of a Participant’s Disability, the termination of Continuous Service shall be deemed to have occurred on the date that the Committee determines that the Participant is Disabled. For the avoidance of doubt, a Participant’s termination of Continuous Service for any other reason shall not constitute a Qualifying Termination.
“Related Rights” has the meaning set forth in Section 6.
“Restricted Award” means any Award granted pursuant to Section 7.
“Restricted Period” has the meaning set forth in Section 7.
“Retirement” means a Participant’s termination of Continuous Service, for any reason other than death, after the Participant has attained either (1) the age of 55 after at least ten years of Continuous Service with the Company, or (2) the minimum retirement age under the governmental retirement system for the applicable country of the Participant’s employment (age 62 in the United States).
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
“Securities Act” means the Securities Act of 1933, as amended.
“Stock Appreciation Right” means the right pursuant to an Award granted under Section 6 to receive, upon exercise, an amount payable in cash or shares equal to the number of shares subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (a) the Fair Market Value of a share of Common Stock on the date the Award is exercised, over (b) the exercise price specified in the Stock Appreciation Right Award Agreement.
“Stock for Stock Exchange” has the meaning set forth in Section 5.4.
“Substitute Award” has the meaning set forth in Section 3.6(f).
“Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
“Total Share Reserve” has the meaning set forth in Section 3.6(a).
3. Administration.
3.1 Authority of Committee. The Plan shall be administered by the Committee or, in the Board’s sole discretion, by the Board. Subject to the terms of the Plan, the Committee’s charter and Applicable Laws, and in addition to other express powers and authorization conferred by the Plan, the Committee shall have the authority:
(a) to construe and interpret the Plan and apply its provisions;
(b) to promulgate, amend, and rescind rules and regulations relating to the administration of the Plan;
(c) to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
(d) to delegate its authority to one or more Officers of the Company with respect to Awards that do not involve “insiders” within the meaning of Section 16 of the Exchange Act;
(e) to determine when Awards are to be granted under the Plan and the applicable Grant Date;
(f) from time to time to select, subject to the limitations set forth in this Plan, those eligible Award recipients to whom Awards shall be granted;
(g) to determine the number of shares of Common Stock to be made subject to each Award;
(h) to determine whether each Option is to be an Incentive Stock Option or a Non-qualified Stock Option;
(i) to prescribe the terms and conditions of each Award, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the Award Agreement relating to such grant;
(j) to determine the target number of Performance Shares to be granted pursuant to a Performance Share Award, the performance measures that will be used to establish the Performance Goals, the Performance Period(s) and the number of Performance Shares earned by a Participant;
(k) to amend any outstanding Awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding Award; provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under their Award or creates or increases a Participant’s federal income tax liability with respect to an Award, such amendment shall also be subject to the Participant’s consent;
(l) to determine the duration and purpose of leaves of absences that may be granted to a Participant without constituting termination of their Continuous Service for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to Employees under the Company’s employment policies;
(m) to make decisions with respect to outstanding Awards that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments;
(n) to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; and
(o) to exercise discretion to make any and all other determinations that it determines to be necessary or advisable for the administration of the Plan.
Except pursuant to Section 13, the Committee shall not, without the approval of the Company’s shareholders, (a) amend any outstanding Option or Stock Appreciation Right to reduce its exercise price per Share or (b) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the exercise price of such Option or Stock Appreciation Right exceeds the Fair Market Value of the underlying Shares.
3.2 Committee Decisions Final. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.
3.3 Delegation. The Committee or, if no Committee has been appointed, the Board may delegate administration of the Plan to a committee or committees of one or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has
been delegated. The Committee shall have the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board or the Committee shall thereafter be to the committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. The members of the Committee shall be appointed by and serve at the pleasure of the Board. From time to time, the Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members, whether present or not, or by the written consent of the majority of its members, and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow a charter and/or such rules and regulations for the conduct of its business as it may determine to be advisable.
3.4 Committee Composition. Except as otherwise determined by the Board, the Committee shall consist solely of two or more Non-Employee Directors. The Board shall have discretion to determine whether or not it intends to comply with the exemption requirements of Rule 16b-3. However, if the Board intends to satisfy such exemption requirements, with respect to any insider subject to Section 16 of the Exchange Act, the Committee shall be a compensation committee of the Board that at all times consists solely of two or more Non-Employee Directors. Within the scope of such authority, the Board or the Committee may delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. Nothing herein shall create an inference that an Award is not validly granted under the Plan in the event Awards are granted under the Plan by a compensation committee of the Board that does not at all times consist solely of two or more Non-Employee Directors.
3.5 Indemnification. In addition to such other rights of indemnification as they may have as Directors, members of the Committee, officers, employees, or agents of the Company, and to the extent allowed by Applicable Laws, the Committee and any officers, employees or agents of the Company appointed by the Committee (“Indemnified Parties”) to assist in administering the Plan shall be indemnified by the Company against the reasonable expenses, including attorney’s fees, actually incurred in connection with any claim, action, suit, or proceeding, or in connection with any appeal therein, to which any of the Indemnified Parties may be party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted under the Plan, and against all amounts paid by the Indemnified Parties in settlement thereof (provided, however, that the settlement has been approved by the Company, which approval shall not be unreasonably withheld) or paid by the Indemnified Parties in satisfaction of a judgment in any such claim, action, suit, proceeding, or appeal, except in relation to matters as to which it shall be adjudged in such claim, action, suit, proceeding, or appeal that the Indemnified Parties did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the Company, or in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful; provided, however, that within 60 days after the institution of any such claim, action, suit, proceeding, or appeal, the Indemnified Parties shall, in writing, offer the Company the opportunity at its own expense to handle and defend such claim, action, suit, proceeding, or appeal.
3.6 Shares Subject to the Plan.
(a) Subject to adjustment in accordance with Section 13, no more than (a) two million (2,000,000) shares of Common Stock plus (b) the number of shares of Common Stock subject to awards granted under the 2014 Stock Option and Incentive Plan that are outstanding as of the Effective Date and which awards expire, terminate, or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase shall be available for the grant of Awards under the Plan (the “Total Share Reserve”). During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.
(b) Shares of Common Stock available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner.
(c) Subject to adjustment in accordance with Section 13, no more than the number of shares that constitute the Total Share Reserve may be issued in the aggregate pursuant to the exercise of Incentive Stock Options (the “ISO Limit”).
(d) The maximum number of shares of Common Stock subject to Awards granted during a single Fiscal Year to any Non-Employee Director, together with any cash fees paid to such Non-Employee Director during the Fiscal Year shall not exceed a total value of seven hundred fifty thousand dollars ($750,000), calculating the value of any Awards based on the grant date fair value for financial reporting purposes.
(e) Any shares of Common Stock subject to an Award that expires or is canceled, forfeited, or terminated without issuance of the full number of shares of Common Stock to which the Award related will again be available for issuance under the Plan. Notwithstanding anything to the contrary contained herein, shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares tendered in payment of an Option, (b) shares delivered or withheld by the Company to satisfy any tax withholding obligation, or (c) shares covered by a stock-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award. To the extent that any Award is settled in cash, no shares shall be counted against the Total Share Reserve.
(f) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). Subject to applicable stock exchange requirements, available shares under a shareholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect such acquisition or transaction) may be used for Awards under the Plan and shall not count toward the Total Share Reserve.
3.7 Nature of Shares. Shares available for distribution under this Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares, or shares reacquired by the Company in any manner; provided, however shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the Total Share Reserves.
3.8 Minimum Vesting of Awards. No Award shall vest, become exercisable, and/or begin cliff or grade vesting earlier than one (1) year after the Grant Date; provided, however, that shares of Common Stock up to five percent (5%) of the Total Share Reserve may be issued pursuant to Awards that do not meet such vesting (and, if applicable, exercisability) requirements. The Committee may, but shall not be required to, provide in the terms of any Award Agreement for an acceleration of vesting and exercisability upon the occurrence of a specified event. Nothing in this Section shall preclude the Committee from taking action, in its sole and absolute discretion, to accelerate the vesting of any Award in connection with or following a Participant’s Qualifying Termination, or subject to Section 14, in the event of a Change in Control.
3.9 No Assignment. Except as otherwise required by Applicable Laws, no Participant shall sell, transfer, assign, pledge, encumber, or hypothecate any interest, benefit, payment, claim, or right under the Plan, and any such interest, benefit, payment, claim, or right shall not be subject in any manner to any claims of any creditor of any Participant or beneficiary, and any attempt to take any such action shall be null and void. Notwithstanding the foregoing, the Committee may establish such procedures as it deems necessary for any Participant to (a) transfer an Award for bona fide estate planning purposes to that Participant’s trust or other testamentary vehicle or (b) designate a beneficiary to whom any amounts would be payable in the event of that Participant’s death.
4. Eligibility.
4.1 No Guarantee of Participation, Employment. Only eligible individuals who are designated by the Committee to participate in the Plan with respect to a particular Performance Period may participate in the Plan for that Performance Period. A Participant shall not have any right to any Award under the Plan until such Award has been paid to such Participant. An individual who is designated as a Participant for a given Performance Period is not guaranteed or assured of (a)
continued employment by the Company or an Affiliate or (b) being selected for participation in any subsequent Performance Period.
4.2 New Hires; Newly Eligible Participants. At the discretion of the Committee, a newly hired or newly eligible Participant will be eligible to receive an Award, which may be a Pro-Rated Award.
4.3 Eligibility for Specific Awards. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may be granted to Employees, Consultants, and Directors and those individuals whom the Committee determines are reasonably expected to become Employees, Consultants, and Directors following the Grant Date.
4.4 Ten Percent Shareholders. A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the Option Exercise Price is at least 110% of the Fair Market Value of the Common Stock on the Grant Date and the Option is not exercisable after the expiration of five years from the Grant Date.
5. Option Provisions. Each Option granted under the Plan shall be evidenced by an Award Agreement. Each Option so granted shall be subject to the conditions set forth in this Section 5, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options shall be separately designated Incentive Stock Options or Non-qualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
5.1 Term. Subject to the provisions of Section 4.4 regarding Ten Percent Shareholders, the term of a Non-qualified Stock Option granted under the Plan shall be determined by the Committee; provided, however, no Non-qualified Stock Option shall be exercisable after the expiration of 10 years from the Grant Date.
5.2 Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 4.4 regarding Ten Percent Shareholders, the Option Exercise Price of each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
5.3 Exercise Price of a Non-qualified Stock Option. The Option Exercise Price of each Non-qualified Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, a Non-qualified Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 409A of the Code.
5.4 Consideration. The Option Exercise Price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee, upon such terms as the Committee shall approve (i) by delivery to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the Option Exercise Price (or portion thereof) due for the number of shares being acquired; (ii) by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock that have an aggregate Fair Market Value on the date of attestation equal to the Option Exercise Price (or portion thereof) and receives a number of shares of Common Stock equal to the difference between the number of shares thereby purchased and the number of identified attestation shares of Common Stock (a “Stock for Stock Exchange”); (iii) a “cashless” exercise program established with a broker; (iv) by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of such Option with a Fair Market Value equal to the aggregate
Option Exercise Price at the time of exercise; (v) by any combination of the foregoing methods; or (vi) in any other form of legal consideration that may be acceptable to the Committee. Unless otherwise specifically provided in the Option, the exercise price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to the Company of other Common Stock acquired, directly or indirectly, from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). Notwithstanding the foregoing, during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system) an exercise by a Director or Officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited with respect to any Award under this Plan.
5.5 Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
5.6 Transferability of a Non-qualified Stock Option. A Non-qualified Stock Option may, in the sole discretion of the Committee, be transferable to a Permitted Transferee. If the Non-qualified Stock Option does not provide for transferability, then the Non-qualified Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.
5.7 Extension of Termination Date. An Optionholder’s Award Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service for any reason would be prohibited at any time because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or any other state or federal securities law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option in accordance with Section 5.1 or (b) the expiration of a period after termination of the Participant’s Continuous Service that is three months after the end of the period during which the exercise of the Option would be in violation of such registration or other securities law requirements.
5.8 Qualifying Termination of Optionholder. Unless otherwise provided in an Award Agreement, in the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Qualifying Termination, the Optionholder (or, in the case of the Optionholder’s death, the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death) may exercise their Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (a) the date 12 months following such Qualifying Termination or (b) the expiration of the term of the Option as set forth in the Award Agreement. If, after such Qualifying Termination, the Optionholder does not exercise their Option within the time specified herein or in the Award Agreement, the Option shall terminate.
5.9 Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Non-qualified Stock Options.
6. Stock Appreciation Rights. Each Stock Appreciation Right granted under the Plan shall be evidenced by an Award Agreement. Each Stock Appreciation Right so granted shall be subject to the conditions set forth in this Section 6, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Stock Appreciation Rights may be granted alone (“Free Standing Rights”) or in tandem with an Option granted under the Plan (“Related Rights”).
6.1 Grant Requirements for Related Rights. Any Related Right that relates to a Non-qualified Stock Option may be granted at the same time the Option is granted or at any time thereafter but
before the exercise or expiration of the Option. Any Related Right that relates to an Incentive Stock Option must be granted at the same time the Incentive Stock Option is granted.
6.2 Term. The term of a Stock Appreciation Right granted under the Plan shall be determined by the Committee; provided, however, no Stock Appreciation Right shall be exercisable later than the tenth anniversary of the Grant Date.
6.3 Exercise and Payment. Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive from the Company an amount equal to the number of shares of Common Stock subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (i) the Fair Market Value of a share of Common Stock on the date the Award is exercised, over (ii) the exercise price specified in the Stock Appreciation Right or related Option. Payment with respect to the exercise of a Stock Appreciation Right shall be made on the date of exercise. Payment shall be made in the form of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Committee in its sole discretion), cash, or a combination thereof, as determined by the Committee.
6.4 Exercise Price. The exercise price of a Free Standing Right shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares underlying the Free Standing Right on the Grant Date. A Related Right granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option; provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable only when the Fair Market Value per share of Common Stock subject to the Stock Appreciation Right and related Option exceeds the exercise price per share thereof and no Stock Appreciation Rights may be granted in tandem with an Option unless the Committee determines that the requirements of Section 6.1 are satisfied.
6.5 Reduction in the Underlying Option Shares. Upon any exercise of a Related Right, the number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for which the Stock Appreciation Right has been exercised. The number of shares of Common Stock for which a Related Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock for which such Option has been exercised.
7. Restricted Awards. A Restricted Award is an Award of actual shares of Common Stock (“Restricted Stock”) or hypothetical Common Stock units (“Restricted Stock Units”) having a value equal to the Fair Market Value of an identical number of shares of Common Stock, which may, but need not, provide that such Restricted Award may not be sold, assigned, transferred, or otherwise disposed of for such period (the “Restricted Period”) as the Committee shall determine. Each Restricted Award granted under the Plan shall be evidenced by an Award Agreement. Each Restricted Award so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
7.1 Restricted Stock and Restricted Stock Units.
(a) Each Participant granted Restricted Stock shall execute and deliver to the Company an Award Agreement with respect to the Restricted Stock setting forth the restrictions and other terms and conditions applicable to such Restricted Stock. If the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than delivered to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (A) an escrow agreement satisfactory to the Committee, if applicable and (B) the appropriate blank stock power with respect to the Restricted Stock covered by such agreement. If a Participant fails to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and stock power, the Award shall be null and void. Subject to the restrictions set forth in the Award, the Participant generally shall have the rights and privileges of a shareholder as to such Restricted Stock, including the right to vote such Restricted Stock and the right to receive dividends; provided that, any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account, and interest
may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee. The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the Participant in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, if applicable, only upon the release of restrictions on such shares and, if such shares are forfeited, the Participant shall have no right to such dividends.
(b) The terms and conditions of a grant of Restricted Stock Units shall be reflected in an Award Agreement. No shares of Common Stock shall be issued at the time a Restricted Stock Unit is granted, and the Company will not be required to set aside funds for the payment of any such Award. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder. The Committee may also grant Restricted Stock Units with a deferral feature, whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in an Award Agreement (“Deferred Stock Units”). Unless the Committee determines otherwise at the time of an Award, each Restricted Stock Unit or Deferred Stock Unit (representing one share of Common Stock) shall be credited with an amount equal to the cash and stock dividends paid by the Company in respect of one share of Common Stock (“Dividend Equivalents”). Dividend Equivalents shall be withheld by the Company and credited to the Participant’s account, and interest may be credited on the amount of cash Dividend Equivalents credited to the Participant’s account at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account and attributable to any particular Restricted Stock Unit or Deferred Stock Unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit or Deferred Stock Unit and, if such Restricted Stock Unit or Deferred Stock Unit is forfeited, the Participant shall have no right to such Dividend Equivalents.
7.2 Restrictions.
(a) Restricted Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period, and to such other terms and conditions as may be set forth in the applicable Award Agreement: (A) if an escrow arrangement is used, the Participant shall not be entitled to delivery of the stock certificate; (B) the shares shall be subject to the restrictions on transferability set forth in the Award Agreement; (C) the shares shall be subject to forfeiture to the extent provided in the applicable Award Agreement; and (D) to the extent such shares are forfeited, the stock certificates shall be returned to the Company, and all rights of the Participant to such shares and as a shareholder with respect to such shares shall terminate without further obligation on the part of the Company.
(b) Restricted Stock Units and Deferred Stock Units awarded to any Participant shall be subject to (A) forfeiture until the expiration of the Restricted Period, and satisfaction of any applicable Performance Goals during such period, to the extent provided in the applicable Award Agreement, and to the extent such Restricted Stock Units or Deferred Stock Units are forfeited, all rights of the Participant to such Restricted Stock Units or Deferred Stock Units shall terminate without further obligation on the part of the Company and (B) such other terms and conditions as may be set forth in the applicable Award Agreement.
(c) The Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock, Restricted Stock Units, and Deferred Stock Units whenever it may determine that, by reason of changes in Applicable Laws or other changes in circumstances arising after the date the Restricted Stock or Restricted Stock Units or Deferred Stock Units are granted, such action is appropriate and compliant with Applicable Laws, including without limitation Code Section 409A or an exemption thereto.
7.3 Termination of Continuous Service Due to Qualifying Termination. If a Participant’s Continuous Service is terminated by reason of the Participant’s Qualifying Termination during a Restricted Period, the Participant or their beneficiary will be paid a Pro-Rated Award. Payment of the entire Pro-Rated Award (for all Awards that were subject to a Restricted Period at the time of the Qualifying Termination) will be made in a lump sum as soon as administratively practicable, but not later than 2 ½ months, following the Qualifying Termination.
7.4 Delivery of Restricted Stock and Settlement of Restricted Stock Units. Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in Section 7.2 and the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or their beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock that have not then been forfeited and for which the Restricted Period has expired (to the nearest full share) and any cash dividends or stock dividends credited to the Participant’s account for such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, or at the expiration of the deferral period with respect to any outstanding Deferred Stock Units, the Company shall, within 2 ½ months following such expiration date, deliver to the Participant, or their beneficiary, without charge, one share of Common Stock for each such outstanding vested Restricted Stock Unit or Deferred Stock Unit (“Vested Unit”) and cash equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance with Section 7.1(b) hereof and the interest thereon or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to such Dividend Equivalents and the interest thereon, if any; provided, however, that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only shares of Common Stock for Vested Units. If a cash payment is made in lieu of delivering shares of Common Stock for Vested Units, the amount of such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the Restricted Period lapsed in the case of Restricted Stock Units, or the delivery date in the case of Deferred Stock Units, with respect to each Vested Unit.
7.5 Stock Restrictions. Each certificate representing Restricted Stock awarded under the Plan shall bear a legend in such form as the Company deems appropriate.
8. Performance Share Awards. Each Performance Share Award granted under the Plan shall be evidenced by an Award Agreement. Each Performance Share Award so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. The Committee shall have the discretion to determine: (i) the number of shares of Common Stock or stock-denominated units subject to a Performance Share Award granted to any Participant; (ii) the Performance Period applicable to any Award; (iii) the conditions that must be satisfied for a Participant to earn an Award; and (iv) the other terms, conditions and restrictions of the Award.
8.1 Earning Performance Share Awards. The number of Performance Shares earned by a Participant will depend on the extent to which the Performance Goals established by the Committee are attained within the applicable Performance Period, as determined in the sole and absolute discretion of the Committee.
8.2 Termination of Continuous Service Due to Qualifying Termination. If a Participant’s Continuous Service is terminated due to a Qualifying Termination during a Performance Period or following a Performance Period but before the date that Awards are paid, the Participant or their beneficiary will be paid a Pro-Rated Award. Payment of such Pro-Rated Award will be made at the same time and in the same manner as Awards are paid to other Participants following the end of each applicable Performance Period. In no event shall such payment be made later than 2 1/2 months following the date the Committee determines that the Performance Goals have been achieved for the applicable Performance Period.
9. Other Equity Awards and Cash Awards.
9.1 The Committee may grant Other Equity Awards, either alone or in tandem with other Awards, in such amounts and subject to such conditions as the Committee shall determine in its sole discretion. Each Other Equity Award shall be evidenced by an Award Agreement and shall be subject to such conditions, not inconsistent with the Plan, as may be reflected in the applicable Award Agreement. The Committee may grant Cash Awards in such amounts and subject to such Performance Goals, other vesting conditions, and such other terms as the Committee determines in its discretion. Cash Awards shall be evidenced in such form as the Committee may determine. Without limiting the generality of the foregoing, each such Other Equity Award or Cash Award may (i) involve the transfer of actual Common Stock to Participants, either at the time of grant or thereafter, or payment in cash or otherwise, (ii) be subject to vesting conditions, (iii) be in any form permitted by this
Plan as determined in the sole and absolute discretion of the Committee and (iv) be designed to comply with Applicable Laws of jurisdictions other than the United States; provided, however, that each Cash Award shall be denominated in cash and each equity-based or equity-related Other Equity Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock, in each case that is specified (or will be determined using a formula that is specified) at the time of the grant of such Award.
9.2 Until the issuance of shares of Common Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) (if any), no right to vote or receive dividends or any other rights as a holder of common stock shall exist with respect to the equity-based or equity-related Other Equity Awards. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan.
9.3 Restricted Period. No Other Equity or Cash Awards shall vest earlier than one (1) year after the Grant Date.
10. Securities Law Compliance. Each Award Agreement shall provide that no shares of Common Stock shall be purchased or sold thereunder unless and until (a) any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel and (b) if required to do so by the Company, the Participant has executed and delivered to the Company a letter of investment intent in such form and containing such provisions as the Committee may require. The Company shall use reasonable efforts to seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Awards and to issue and sell shares of Common Stock upon exercise of the Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Award, or any Common Stock issued or issuable pursuant to any such Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Awards unless and until such authority is obtained.
11. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.
12. Miscellaneous.
12.1 Shareholder Rights. Except as provided in the Plan or an Award Agreement, no Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Award unless and until such Participant has satisfied all requirements for exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Common Stock certificate is issued, except as provided in Section 13 hereof. No Option or Stock Appreciation Right shall provide for the payment or accrual of dividends or Dividend Equivalents.
12.2 No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
12.3 Transfers of Employment; Approved Leave of Absence. For purposes of the Plan, no termination of Continuous Service by an Employee shall be deemed to result from either (a) a transfer of employment to the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another, or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the Employee’s right to reemployment is guaranteed either by Applicable Laws or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing, in either case, except to the extent inconsistent with Section 409A of the Code if the applicable Award is subject thereto.
12.4 Withholding Obligations.
(a) To the extent provided by the terms of an Award Agreement and subject to the discretion of the Committee, the Participant may satisfy any federal, state, or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Award (“Net Settlement”), provided, however, that no shares of Common Stock are withheld with a value exceeding the maximum amount of tax required to be withheld by law; or (iii) delivering to the Company previously owned and unencumbered shares of Common Stock of the Company.
(b) “Insiders” within the meaning of Section 16 of the Exchange Act shall satisfy their withholding obligations by Net Settlement, unless approved in advance by the Committee in its discretion.
13. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend; stock split; reverse stock split; an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange; or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the Plan and any Award Agreements, the exercise price of Options and Stock Appreciation Rights, the Performance Goals to which Performance Share Awards and Cash Awards are subject, and/or the Total Share Reserve will be equitably adjusted or substituted, as to the number, price, or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 13, unless the Committee specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Committee shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 13 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-qualified Stock Options, ensure that any adjustments under this Section 13 will not constitute a modification of such Non-qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 13 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.
14. Effect of Change in Control.
14.1 Unless otherwise provided in an Award Agreement or applicable severance plan, notwithstanding any provision of the Plan to the contrary:
(a) Where Awards are not converted, assumed, or replaced by a comparable award by a successor or survivor corporation, or a parent or subsidiary thereof, the Committee may provide that (i) one or more Awards will automatically vest in whole or in part or become fully exercisable in whole or in part, as the case may be, (ii) that all forfeiture restrictions shall lapse immediately prior to the Change in Control and (iii) that upon the consummation of such Change in Control, the Award shall terminate and cease to be outstanding.
(b) Where Awards are assumed or continued after a Change in Control, the Committee may provide that one or more Awards will automatically accelerate upon an involuntary termination of Continuous Service during the Change in Control Protection Period. If the Committee so determines, any such Award shall accordingly, upon an involuntary termination of Continuous Service during the Change in Control Protection Period, become fully exercisable and all forfeiture restrictions on such Awards shall lapse.
(c) The portion of any Incentive Stock Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Stock Option only to the extent the dollar limitation on such Incentive Stock Options under Applicable Laws is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such Option shall be exercisable as a Non-Statutory Option under Applicable Laws.
To the extent practicable, any actions taken by the Committee under the immediately preceding clauses shall occur in a manner and at a time that allows affected Participants the ability to participate in the Change in Control with respect to the shares of Common Stock subject to their Awards.
14.2 In addition, in the event of a Change in Control, the Committee may in its discretion and upon advance notice to the affected persons, cancel any outstanding Awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Awards based on the price per share of Common Stock received or to be received by other shareholders of the Company in the event. In the case of any Option or Stock Appreciation Right with an exercise price that equals or exceeds the price paid for a share of Common Stock in connection with the Change in Control, the Committee may cancel the Option or Stock Appreciation Right without the payment of consideration therefor.
14.3 The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its Affiliates, taken as a whole.
15. Amendment of the Plan and Awards.
15.1 Amendment of Plan. The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided in Section 13 relating to adjustments upon changes in Common Stock and Section 15.3, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy any Applicable Laws. At the time of such amendment, the Board shall determine, on advice from counsel, whether such amendment will be contingent on shareholder approval.
15.2 Shareholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for shareholder approval.
15.3 Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Consultants, and Directors with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted under it into compliance therewith.
15.4 No Impairment of Rights. Rights under any Award granted before amendment or termination of the Plan shall not be materially impaired by any amendment or termination of the Plan unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing.
15.5 Amendment of Awards. The Committee at any time, and from time to time, may amend the terms of any one or more Awards, subject to Section 13; provided, however, that the Committee may not effect any amendment that would otherwise constitute a material impairment of the rights under any Award unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing.
16. General Provisions.
16.1 Forfeiture Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain events, in addition to applicable vesting conditions of an Award. Such events may include, without limitation, breach of non-competition, non-solicitation, confidentiality, or other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant, a termination of the Participant’s Continuous Service for Cause, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Affiliates.
16.2 Clawback. Notwithstanding any other provisions in this Plan, the Company may cancel any Award, require reimbursement of any Award by a Participant, and effect any other right of recoupment of equity or other compensation provided under the Plan in accordance with any Company policies that may be adopted and/or modified from time to time (“Clawback Policy”). In
addition, a Participant may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement, in accordance with the Clawback Policy. By accepting an Award, the Participant is agreeing to be bound by the Clawback Policy, as in effect or as may be adopted and/or modified from time to time by the Company in its discretion (including, without limitation, to comply with Applicable Laws or stock exchange listing requirements). The action permitted to be taken by the Company under this Section 16.2 is in addition to, and not in lieu of, any and all other rights of the Board and/or the Company under Applicable Laws and shall apply notwithstanding anything to the contrary in the Plan.
16.3 Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
16.4 Sub-Plans. The Committee may from time to time establish sub-plans under the Plan for purposes of satisfying securities, tax, or other laws of various jurisdictions in which the Company intends to grant Awards. Any sub-plans shall contain such limitations and other terms and conditions as the Committee determines are necessary or desirable. All sub-plans shall be deemed a part of the Plan, but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.
16.5 Deferral of Awards. The Committee may, in compliance with Section 409A of the Code, establish one or more programs to permit selected Participants the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Participant to payment or receipt of shares of Common Stock or other consideration under an Award. The Committee may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, shares, or other consideration so deferred, and such other terms, conditions, rules, and procedures that the Committee deems advisable for the administration of any such deferral program.
16.6 Unfunded Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and any Participant, beneficiary, or legal representative or any other person. To the extent that a person acquires a right to receive payments under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA).
16.7 Compliance with Legal Requirements. The Plan and the granting of Awards shall be subject to all Applicable Laws, and to such approvals by any regulatory or governmental agency as may be required.
16.8 Recapitalizations. Each Award Agreement shall contain provisions required to reflect the provisions of Section 13.
16.9 Delivery. Upon exercise of a right granted under this Plan, the Company shall issue Common Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory or regulatory obligations the Company may otherwise have, for purposes of this Plan, 30 days shall be considered a reasonable period of time.
16.10 No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, additional Awards, or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited, or otherwise eliminated.
16.11 Other Provisions. The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of Awards, as the Committee may deem advisable.
16.12 Section 409A. The Plan is intended to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless Applicable Laws require otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant’s termination of Continuous Service shall instead be paid on the first payroll date after the six-month anniversary of the Participant’s separation from service (or the Participant’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.
16.13 Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option (a “Disqualifying Disposition”) shall be required to advise the Company in writing if so requested as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.
16.14 Section 16. It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed in this Section 16.14, such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict.
16.15 Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries by whom any right under the Plan is to be exercised in case of such Participant’s death. Each designation will revoke all prior designations by the same Participant, shall be in a form reasonably prescribed by the Committee and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.
16.16 Expenses. The costs of administering the Plan shall be paid by the Company.
16.17 Severability. If any of the provisions of the Plan or any Award Agreement is held to be invalid, illegal, or unenforceable, whether in whole or in part, such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality, or unenforceability and the remaining provisions shall not be affected thereby.
16.18 Plan Headings. The headings in the Plan are for purposes of convenience only and are not intended to define or limit the construction of the provisions hereof.
16.19 Non-Uniform Treatment. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among persons who are eligible to receive, or actually receive, Awards. Without limiting the generality of the foregoing, the Committee shall be entitled to make non-uniform and selective determinations, amendments, and adjustments, and to enter into non-uniform and selective Award Agreements.
16.20 Other Compensation Arrangements. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements, subject to shareholder approval if such approval is required, as it may deem desirable for any Participant.
16.21 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (i) limit, impair, or otherwise affect the Company’s or a Subsidiary’s or an Affiliate’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (ii)
limit the right or power of the Company or a Subsidiary or an Affiliate to take any action which such entity deems to be necessary or appropriate.
17. Effective Date of Plan. The Plan shall become effective as of the Effective Date.
18. Termination or Suspension of the Plan. The Plan shall terminate automatically on November 17, 2033. No Award shall be granted pursuant to the Plan after such date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant to Section 15.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
19. Choice of Law and Jurisdiction. The law of the State of Indiana shall govern all questions concerning the construction, validity, and interpretation of this Plan, without regard to such state’s conflict of law rules. Without prejudice to any party’s right to seek emergency, injunctive, or conservatory measures of protection in connection with a breach or anticipated breach of the Plan at any time in a state or federal court of competent jurisdiction within the State of Indiana, the Company and Participants consent to and agree that the exclusive jurisdiction and venue for all matters arising out of or relating to this Plan, or the breach thereof, including any question regarding its existence, validity, or termination, shall be arbitration administered by the American Arbitration Association in accordance with its Employment Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitration shall be held, and the award rendered accompanied by a reasoned opinion, in the English language.
Exhibit 10.2
KIMBALL ELECTRONICS, INC.
LEADERSHIP TEAM SEVERANCE AND CHANGE IN CONTROL PLAN
Purpose of this Plan; Summary Plan Description
The purpose of this Kimball Electronics, Inc. Leadership Team Severance and Change in Control Plan (the “Plan”) is to ensure that Kimball Electronics Inc., an Indiana corporation (the “Company”), will have the continued dedication of certain key management employees by providing payment of severance benefits to eligible Leadership Team Members whose employment with the Company and its Affiliates is terminated for reasons described in this Plan. This Plan is effective as of November 21, 2023 (the “Effective Date”). This Plan supersedes the Company’s Executive Severance and Change in Control Plan effective July 1, 2021, and any other individual employment agreement, plan, program, guidelines, policy or arrangements previously in effect for the Leadership Team Members by which severance benefits would be provided by the Company.
The Plan is intended to be an unfunded welfare plan maintained primarily for the purpose of providing severance benefits to a select group of key management employees. All benefits payable under this Plan shall be paid directly by the Company out of its general assets. The Company shall not be required to segregate on its books or otherwise any amount to be used for the payment of benefits under this Plan. This Plan is not funded and has no assets.
Payments under this Plan are intended to be exempt from, or comply with, the requirements of Section 409A of the Code (as defined below) together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation, any such regulations or other guidance that may be issued after the Effective Date (“Section 409A”) and shall be interpreted accordingly. However, in no event is the Company responsible for any tax or penalty owed by a Participant with respect to the payments under the Plan.
This document is the Plan document, and also serves as the summary plan description of the Plan as required by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
A. Definitions.
1.“Administrator” means the Compensation Committee, which shall be the Plan’s “administrator” within the meaning of section 3(16) of ERISA.
2.“Affiliate” means any entity that is a member of a controlled group of corporations or a group of other trades or businesses under common control, within the meaning of Code Section 414(b) or (c).
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3.“Base Salary” means the Participant’s annual base salary at the highest rate in effect during the three (3) years immediately prior to the Participant’s Qualifying Termination.
4.“Board of Directors” or “Board” means the board of directors of the Company.
5.“Bonus Amount” means the higher of (i) the Participant’s target cash incentive for the year in which the Participant’s Qualifying Termination occurs, or (ii) the Participant’s average annual cash incentive award for the three (3) annual cash incentive periods immediately prior to the Participant’s Qualifying Termination.
6.“Cause” means, with respect to termination of a Participant's employment by the Company, one or more of the following occurrences, as determined by the Board: (i) Leadership Team Member's willful and continued failure to perform substantially the duties of Leadership Team Member's position or to follow lawful instructions of a senior Leadership Team Member or the Board of Directors, if such failure continues for a period of five (5) days after the Company delivers to Leadership Team Member a written notice identifying such failure; (ii) Leadership Team Member's conviction of a felony or of another crime that reflects adversely on the Company as reasonably determined by the Company; (iii) Leadership Team Member's engaging in fraudulent or dishonest conduct, gross misconduct that is injurious to the Company, or any misconduct that involves moral turpitude; or (iv) Leadership Team Member's material breach of their obligations under this Plan. For any of the stated occurrences to constitute "Cause" under this Plan, the Board of Directors must find that the stated act or omission occurred, by a resolution duly adopted by the affirmative vote of at least three-quarters (3/4) of the entire membership of the Board of Directors, after giving reasonable notice to Leadership Team Member and an opportunity for Leadership Team Member, together with Leadership Team Member's counsel, to be heard before the Board of Directors on the issue of “Cause”.
7.“Change in Control” means the consummation of any of the following that is not an Excluded Transaction: (i) the acquisition, by any one person or more than one person acting as a Group, of Majority Ownership of the Company through merger, consolidation, or stock transfer; (ii) the acquisition during any twelve- (12-) month period, by any one person or more than one person acting as a Group, of ownership interests of thirty-five percent (35%) or more of the total voting power of the Company; (iii) the acquisition of ownership during any twelve- (12-) month period, by any one person or more than one person acting as a Group, of forty percent (40%) or more of the total gross fair market value of the assets of the Company; or (iv) the replacement of a majority of members of the Board of Directors during any twelve- (12-) month period, by members whose appointment or election is not endorsed by a majority of the members of the Board of Directors prior to the date of the appointment or election. "Excluded Transaction" means any occurrence that does not constitute a change in the ownership or effective control, or in the ownership of a substantial portion of the assets of, the Company within the meaning of Code Section
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409A(a)(2)(A)(v) and its interpretive regulations; "Majority Ownership" of an entity means ownership interests representing more than fifty percent (50%) of the total fair market value or of the total voting power of all ownership interests in the entity; "Group" has the meaning provided in Code Section 409A and its interpretive regulations with respect to changes in ownership, effective control, and ownership of assets; and an individual who owns a vested option to purchase either stock or another ownership interest is deemed to own that stock or other ownership interest.
8.“Change in Control Protection Period” means the period of time beginning on the date of the consummation of the Change in Control and ending on the twenty-four (24-) month anniversary of such Change in Control.
9.“COBRA” means the group health plan continuation requirements in Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended, and Section 4980B of the Code.
10.“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.
11.“Compensation Committee” means the Talent, Culture, and Compensation Committee of the Board.
12.“Equity Awards” mean all stock options, performance share awards, restricted stock units and such other equity-based awards granted by the Company pursuant to the Company’s equity award plans or agreements.
13.“Good Reason” means, with respect to the termination of employment by a Participant, one or more of the following occurrences, without Participant’s written consent: (i) a material adverse change in the nature or scope of Leadership Team Member's responsibilities; (ii) a material reduction in Leadership Team Member's then effective salary rate or target bonus amount (other than as a result of a broad based reduction of salary similarly affecting other Company Leadership Team Members having comparable rank, authority and seniority); (iii) a significant diminution in Leadership Team Member's position, authority, duties, or responsibilities; or (iv) a relocation of Leadership Team Member's principal site of employment to a location more than fifty (50) miles from the principal employment site; provided that (A) Leadership Team Member provides Company with written notice that Leadership Team Member intends to terminate Leadership Team Member’s employment hereunder for one of the grounds set forth herein within thirty (30) days of such ground occurring, (B) if such ground is capable of being cured, the Company has failed to cure such ground within a period of thirty (30) days from the date of such written notice, and (C) Leadership Team Member terminates Leadership Team Member’s employment within sixty-five (65) days from the date that Good Reason first occurs. For purposes of clarification, the above-listed conditions shall apply separately to each occurrence of Good Reason and failure to adhere to such
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conditions in the event of Good Reason shall not disqualify Leadership Team Member from asserting Good Reason for any subsequent occurrence of Good Reason. For purposes of this Plan, “Good Reason” shall be interpreted in a manner, and limited to the extent necessary, so that it shall not cause adverse tax consequences for either party with respect to Code Section 409A.
14.“Leadership Team Member” means the Company’s Chief Executive Officer and executives who (i) report directly to the Chief Executive Officer and (ii) the Company has selected for service on its Leadership Team.
15.“Participant” means an Leadership Team Member selected by the Administrator to participate in the Plan, who agrees to the Restrictive Covenants and who, upon a Qualifying Termination, is entitled, based on the provisions of the Plan, to Severance Benefits under this Plan.
16.“Qualifying Termination” means a Participant’s termination of employment by the Company (or a successor entity) or any of its Affiliates without Cause or by a Participant for Good Reason. For the avoidance of doubt, a Participant’s termination of employment for any reason other than by the Company or an Affiliate without Cause or by a Participant for Good Reason (including, without limitation, a termination of employment for Cause, retirement, death or disability, or a voluntary resignation by such Participant) shall not constitute a Qualifying Termination.
17.“Restrictive Covenants” means the covenants set forth in Appendix B attached hereto and made a part hereof.
18.“Severance Benefits” means the benefits payable to a Participant upon a Qualifying Termination determined by the Committee in accordance with Appendix A attached hereto and made a part hereof.
19.“Severance Period” means the period expressed as the number of months for which Severance Benefits is determined pursuant to Appendix A attached hereto and made a part hereof (notwithstanding that any Severance Benefits would be payable in a lump sum).
20.“Tier I Executive” means the Company’s Chief Executive Officer and any other senior officer so designated by the Administrator.
21.“Tier II Executive” means a Leadership Team Member who is the Company’s Chief Operating Officer; Chief Legal & Compliance Officer and Secretary; Chief Financial Officer; and any other senior officer so designated by the Administrator.
22.“Tier III Executive” means a Leadership Team Member who is not a Tier I or Tier II Executive and any other senior officer so designated by the Administrator.
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B. Eligibility.
A Participant is eligible for Severance Benefits under the Plan if they:
(a) is a Participant on the day immediately before their Qualifying Termination;
(b) has a Qualifying Termination;
(c) agrees to resign, to the extent applicable, as a member of the Board (and any committees thereof) and as a director and/or officer of any Affiliate;
(d) agrees to and reaffirms the Restrictive Covenants; and
(e) timely executes under the terms of Section E of the Plan and does not revoke a general release of claims in a form acceptable to the Company (a “Release”), as well as any other documents as the Administrator may deem necessary or appropriate in connection with the payment of such Severance Benefits.
Notwithstanding the foregoing
(i) if the Participant’s employment is terminated by the Company or an Affiliate and the Participant is given an immediate offer of employment with any Affiliate, subsidiary or joint venture of the Company, the Participant is not entitled to any Severance Benefits under this Plan. For avoidance of doubt, this provision is not intended to eliminate or modify the Participant’s right to Severance Benefits in the event the Participant resigns for Good Reason; and
(ii) in the event any corporation, person or group of persons acting in concert begins a tender or exchange offer, circulates a proxy to shareholders or takes other steps known to the Participant intending to effect a Change in Control, the Participant agrees to remain an employee of the Company or an Affiliate and to devote the Participant’s best efforts to render full-time services to the Company and its Affiliates commensurate with the Participant's position and shall not be entitled to any Severance Benefits under this Plan upon a Qualifying Termination unless and until the earliest of the following: (a) such other corporation, person or group has abandoned or terminated efforts to effect a Change in Control and a Qualifying Termination occurs thereafter; or (b) a Change in Control has occurred.
C. Severance Benefits.
1.If the Administrator determines that a Participant is eligible to receive Severance Benefits under this Plan, the Severance Benefits to which the Participant shall be entitled will be determined by the Administrator as set forth in Appendix A hereto.
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2.If the Participant’s Qualifying Termination does not occur during the Change in Control Protection Period, the amount of cash Severance Benefits will be paid in equal consecutive installments during the Severance Period at the same time and in the same manner as the Participant’s annual base salary would have been paid had the Participant remained in active employment during the Severance Period in accordance with the Company’s normal payroll practices in effect on the date of the Qualifying Termination (and commencing on the Company’s first payroll date following such Qualifying Termination).
3.If the Participant’s Qualifying Termination occurs during the Change in Control Protection Period, the amount of cash Severance Benefits will be paid in a single lump sum as soon as practicable within sixty (60) days following the Participant’s date of the Qualifying Termination; provided that if such sixty (60) day period spans two (2) calendar years, the Participant shall not have the right to designate the calendar year of payment.
4.The Company or its Affiliates, as applicable, may cause such amounts to be withheld from Severance Benefits under this Plan as it determines necessary to fulfill any federal, state, or local wage or compensation withholding requirements. However, whether Severance Benefits are eligible compensation under the Company’s benefit plans will be determined by the terms of such plans.
5.For a period of six (6) years following a Participant’s Qualifying Termination, the Company shall maintain at its expense directors’ and officers’ liability insurance providing coverage to the Participant no less favorable than the coverage provided to the then current directors and officers of the Company during such six (6) year period.
D. COBRA Coverage.
1.Participant’s last date of coverage under the Company’s group health, dental and/or vision benefit plans shall be set forth in a written notice of coverage termination to the Participant.
2.During the Severance Period, the Company shall in its sole discretion, either (i) continue to provide to the Participant and the Participant’s eligible dependents or (ii) reimburse the Participant and the Participant’s dependents for, coverage under its group health plans, in each case at the same or reasonably equivalent levels in effect on the date of the Qualifying Termination and subject to the Participant paying the same cost for such coverage that would have applied had the Participant’s employment not terminated, based on the Participant’s elections in effect on the date of termination (the Company’s monthly payment for Participant’s health coverage pursuant to this sentence, the “Company Subsidy”); provided, however, that if (x) any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the Severance Period to be, exempt from the application of Code Section 409A under Treasury Regulation Section 1.409A-1(a)(5), (y) the Company is otherwise unable to continue to cover the Participant or Participant’s dependents
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under its group health plans, or (z) the Company cannot provide such benefit without violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then, in any such case, in lieu of such continued benefits or reimbursement, the Company shall instead pay to the Participant a cash amount equal to the Company Subsidy in substantially equal consecutive monthly installments over the remaining portion of the Severance Period commencing and continuing on the Company’s first regular payroll date of each calendar month. For the avoidance of doubt, the COBRA continuation period under Section 4980B of the Code shall run concurrently with the period of continued group health plan coverage pursuant to this Section.
E. Release.
The Company shall deliver the Release to a Participant within seven (7) days following the date of their Qualifying Termination, and the Company’s failure to deliver a Release prior to the expiration of such seven (7) day period shall constitute a waiver of any requirement to execute a Release. If the Participant fails to execute the Release on or prior to the Release Expiration Date (as defined below) or timely revokes their acceptance of the Release thereafter, such Participant shall not be entitled to any Severance Benefits under the Plan. For purposes of this Section E, “Release Expiration Date” shall mean the date that is twenty-one (21) days following the date upon which the Company timely delivers the Release to the Participant, or, in the event that the Participant’s termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967), the date that is forty-five (45) days following such delivery date. If the Release Expiration Date falls in the calendar year following the calendar year in which the Participant’s employment terminates, then Severance Benefits under this Plan shall commence no earlier than January 1st of the calendar year following the year in which such termination of employment occurs. The payment of Severance Benefits under the Plan shall be subject to the provisions of this Plan and the terms and conditions of such Release, which are incorporated by this reference with respect to the payment of Severance Benefits and form a part of the Plan as applied to such Participant. To the extent that any payments of nonqualified deferred compensation (within the meaning of Code Section 409A) due under this Plan as a result of the Participant’s termination of employment are delayed pursuant to this Section E, such delayed amounts shall be paid in a lump sum on the Company’s first payroll date to occur on or immediately following the sixtieth (60th) day following the Participant’s date of termination.
F. Certain Forfeitures and Repayments.
1.Notwithstanding any other provision of this Plan, the Company shall be entitled to cease payment or provision of all Severance Benefits under this Plan to any Participant and the Participant shall reimburse the Company for the full amount of any Severance Benefits they received under this Plan in the event the Participant subsequently discloses any of the trade secrets of the Company, its Affiliates or subsidiaries or materially violates any written covenants between a Participant and the
7
Company or any of its Affiliates, subsidiaries including, but not limited to, the Restrictive Covenants, or the Company’s confidentiality policy, or otherwise engages in conduct that may adversely affect the Company or any of its Affiliates or subsidiaries’ reputation or business relations. In addition, any Participant described in the preceding sentence shall forfeit any right to Severance Benefits under this Plan which have not yet been paid or provided. The Participant acknowledges that the Severance Benefits under this Plan are and shall be subject to and, when and to the extent applicable, governed by the Company’s compensation claw-back policy, as adopted by the Board and in effect as of or prior to a Participant’s Qualifying Termination, and that the Company may offset any Severance Benefits hereunder against amounts owing or recoupable under the claw-back policy, as determined by the Board.
2.If a Participant who is entitled to receive Severance Benefits under this Plan is reemployed by the Company (or any successor thereto) or any of its subsidiaries or Affiliates before all of their Severance Benefits under this Plan have been paid or provided in full, any Severance Benefits remaining to be paid or provided will be forfeited.
G. Section 409A.
1.Notwithstanding any provisions of this Plan to the contrary, if a Participant is deemed at the time of their Qualifying Termination to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, and as determined pursuant to applicable resolutions of the Board of Directors or as otherwise permitted by Code Section 409A, to the extent delayed commencement of any portion of the benefits to which the Participant is entitled under the Plan (after taking into account all exclusions applicable to such termination benefits under Code Section 409A) is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of such Participant’s Severance Benefits shall not be provided to the Participant prior to the earlier of (a) the expiration of the six- (6-) month period measured from the date of the Participant’s “separation from service” with the Company and its subsidiaries (as such term is defined in the Department of Treasury Regulations issued under Code Section 409A) or (b) the date of the Participant’s death. Any remaining Severance Benefits due under the Plan shall be paid as otherwise provided in this Plan. For purposes of applying the provisions of Code Section 409A to this Plan, each separately identified amount to which a Participant is entitled under this Plan shall be treated as a separate payment. In addition, to the extent permissible under Code Section 409A, any series of installment payments shall be treated as a right to a series of separate and distinct payments.
2.For purposes of any provision of this Plan providing for the payment of any amount or benefit upon or following a termination of employment that constitutes “nonqualified deferred compensation” under Code Section 409A, a termination of employment shall not be deemed to have occurred unless such termination is also a
8
“separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Plan, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”
3.Neither the Company nor a Participant, individually or in combination, may accelerate any Severance Benefit payment or provision that is subject to Code Section 409A, except in compliance with Code Section 409A or an exception thereto and the provisions of this Plan; and no amount that is subject to Code Section 409A shall be paid or provided prior to the earliest date on which it may be paid or provided without violating Code Section 409A.
4.Notwithstanding anything herein to the contrary, no provision of this Plan shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Code Section 409A from a Participant or any other individual to the Company or any of its Affiliates, employees, members of the Board or agents.
H. Sections 280G and 4999 of the Code.
If any Severance Benefit a Participant would receive under this Plan, when combined with any other payment or benefit the Participant receives pursuant to the Participant’s Qualifying Termination (“Payment”), would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (b) but for this Section H, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either payable in full or in such lesser amount (with cash payments being reduced by stock option or other equity-based compensation) as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes, and the Excise Tax, results in the Participant’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. All determinations required to be made under this Section H, including whether and to what extent the Payment shall be reduced and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm or consulting firm experience in matters regarding Section 280G of the Code as may be designated by the Company (the “Professional Services Firm”). The Professional Services Firm shall provide detailed supporting calculations both to the Participant and the Company at such time as is requested by the Company. All fees and expenses of the Professional Services Firm shall be borne solely by the Company. Any determination by the Professional Services Firm shall be binding upon the Participant and the Company. For purposes of making the calculations required by this Section H, the Professional Services Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.
9
I. Taxable Reimbursements and In-Kind Benefits.
1.Any reimbursements by the Company to a Participant of any eligible expenses under this Plan that are not excludable from the Participant’s income for federal income tax purposes (the “Taxable Reimbursements”) shall be made by no later than the last day of the Participant’s taxable year immediately following the year in which the expense was incurred.
2.The amount of any Taxable Reimbursements, and the value of any in-kind benefits to be provided to a Participant, during any taxable year of the Participant shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Participant.
3.The right to Taxable Reimbursement, or in-kind benefits, shall not be subject to liquidation or exchange for another benefit.
J. Amendment or Termination of Plan.
This Plan may be amended or terminated by the Company at any time and from time to time, in its sole discretion; provided, that no such amendment or termination shall materially and adversely affect the rights of any Participant who has experienced a Qualifying Termination on or prior to such amendment or termination without their written consent.
K. Governing Law.
To the extent that state law is applicable, (i) the internal laws of the State of Indiana without regard to any conflict of law provisions shall be controlling in all matters relating to this Plan, and (ii) any disputes or claims arising from this Plan or any benefit provided hereunder must be litigated in the appropriate court located in Dubois County, Indiana, or if jurisdiction will so permit, in the Federal District Court for the Southern District of Indiana. The Company and Participants hereby consent to the jurisdiction over each of them by such courts and waive all objections based on venue or inconvenient forum.
L. Administration; General Rules.
1.This Plan is administered by Administrator. The Administrator, from time to time, may also appoint such individuals to act as the Administrator’s representatives as the Administrator considers necessary or desirable for the effective administration of the Plan.
2.The Administrator, from time to time, may adopt such rules and regulations as may be necessary or desirable for the proper and efficient administration of the Plan and as are consistent with the terms of the Plan.
3.In administering the Plan, the Administrator shall have the sole and absolute discretionary authority to construe and interpret the provisions of the Plan (and any
10
related or underlying documents or policies), to interpret applicable law, and make factual determinations thereunder, including the authority to determine the eligibility of Leadership Team Members and the amount of Severance Benefits payable under the Plan. Any interpretation of this Plan and any decision on any matter within the discretion of the Administrator made by the Administrator in good faith is binding on all persons. If challenged in a legal proceeding, the Administrator's interpretations and determinations will be reviewed under the most deferential abuse of discretion standard of review.
4.If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Administrator in its sole and absolute discretion, the provision shall be considered ambiguous and shall be interpreted by the Administrator in a fashion consistent with its intent, as determined in the sole and absolute discretion of the Administrator.
5.This Section L may not be invoked by any Leadership Team Member, Participant or other person to require this Plan to be interpreted in a manner inconsistent with its interpretation by the Administrator.
6.The Administrator will apply uniform rules to all similarly situated Participants.
7.Neither this Plan nor any action taken with respect to it shall confer upon any person the right to continue in the employ of the Company, nor are any contractual obligations created.
8.Severance Benefits under this Plan may not be assigned but shall inure to the benefit of and be enforceable by a Participant's personal or legal representatives, executors, administrators, heirs, devisees and legatees, and to the Company’s successors and assigns.
M. Claims.
Under the terms of the Plan, the Administrator possesses the sole and absolute discretionary authority to interpret and construe the provisions of the Plan, as well as to make all determinations under the Plan, such as eligibility and Severance Benefits.
Claims for Severance Benefits under the Plan must be filed in writing with the Administrator. If an Leadership Team Member has a claim for Severance Benefits under the Plan that is denied in whole or in part, the Leadership Team Member will be notified in writing within ninety (90) days of filing the claim of (i) the specific reasons for the claim denial, (ii) the pertinent Plan provisions on which the denial is based, (iii) any additional material or information necessary for the Leadership Team Member to perfect their claim (with an explanation as to the reason such material or information is necessary), and (iv) further steps which the Leadership Team Member can take in order to have their claim reviewed (including a statement that the Leadership Team Member or their duly authorized representative may review
11
pertinent Plan documents and obtain copies of them, free of charge, and submit issues and comments regarding the claim to the Administrator).
If an Leadership Team Member wants further consideration of their claim, the Leadership Team Member may request a review of their claim by filing a written request with the Administrator within ninety (90) days after the Leadership Team Member receives written notice of the denial of their claim. The Leadership Team Member’s request for review may, but need not, include a request for a hearing on the claim. If a hearing is requested, it will be held within thirty (30) days after the Leadership Team Member’s request for review. A final decision on the Leadership Team Member’s claim will be made by the Administrator and communicated to the Leadership Team Member within sixty (60) days after the Leadership Team Member files their request for review; provided, however, that if a hearing has been requested, the Administrator may extend said sixty- (60-) day period by up to thirty (30) additional days. Written notice of any such extension will be furnished to the Leadership Team Member prior to the beginning of the extension.
If a final decision on review is not furnished to the Leadership Team Member within the required time period, the Leadership Team Member’s claim is deemed to be denied on review. If the Leadership Team Member’s claim is denied on appeal, the Leadership Team Member will receive a letter informing them of the following:
•The specific reason or reasons for the adverse determination;
•Reference to the specific Plan provisions on which the Severance Benefits determination is based;
•A statement that the Leadership Team Member is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Leadership Team Member’s claim for Severance Benefits;
•A statement of the Leadership Team Member’s right to bring an action under section 502(a) of ERISA;
•If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge to the Leadership Team Member upon request.
ERISA STATEMENT
As an Leadership Team Member eligible to be a Participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Plan Participants shall be entitled to:
•Examine, without charge, at the Administrator’s office and at other specified locations, such as work sites, all documents governing the Plan and a copy, if applicable, of the latest annual report (Form 5500 Series) filed by the Administrator
12
with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
•Obtain, upon written request to the Administrator, copies of documents governing the operation of the Plan, including, if applicable, insurance contracts, and copies of the latest annual report (Form 5500 Series) and updated summary plan description. The Administrator may make a reasonable charge for the copies.
•Receive a summary of the Plan’s annual financial report, if applicable to the Plan. The Administrator is required by law to furnish each participant with a copy of this summary annual report, if applicable to the Plan.
In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including your employer, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining Severance Benefits under the Plan or exercising your rights under ERISA.
If your claim for Severance Benefits under the Plan is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.
Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or, if applicable, the latest annual report from the Plan and do not receive them within thirty (30) days, you may file suit in a federal court. In such case, the court may require the Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for severance pay that is denied or ignored, in whole or in part, you may file suit in a state or federal court. In addition, if you disagree with the Administrator’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical child support order, you may file suit in federal court. If it should happen that you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim was frivolous.
If you have any questions about the Plan, you should contact the Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
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PLAN IDENTIFICATION NUMBER AND ADMINISTRATION | |||||
| Name of the Plan: | Kimball Electronics, Inc. Leadership Team Member Severance and Change in Control Plan | ||||
| Type of Plan: | Employee welfare benefits plan | ||||
| Plan Year: | January 1 – December 31 | ||||
| Plan Sponsor: | Kimball Electronics, Inc. | ||||
| 1205 Kimball Boulevard, Jasper, IN 47546 | |||||
| (812) 634-4000 | |||||
Plan Sponsor’s Employer Identification Number: | 35-2047713 | ||||
| Plan Identification Number: | 502 | ||||
| Plan Administrator: | Kimball Electronics, Inc.’s Talent, Culture, and Compensation Committee is the Plan’s Administrator. The Administrator has the sole authority and discretion to interpret the terms of the Plan. Severance Benefits under the Plan will be paid only if the Administrator, or its designee, decides in its sole discretion that the Participant is entitled to them. | ||||
| Named Fiduciary: | Kimball Electronics, Inc.’s Talent, Culture, and Compensation Committee is the named fiduciary under ERISA that has the authority to control and manage the operation and administration of the Plan. | ||||
| Agent for Service of Legal Process: | Kimball Electronics, Inc., 1205 Kimball Boulevard, Jasper, Indiana 47546. | ||||
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APPENDIX A
This Appendix A specifies the Severance Benefits under the Plan for all Participants. Any term not defined in this Appendix A shall have the meaning set forth in the Plan.
| Participant Group | Severance Benefits Upon a Qualifying Termination Not Within the Change in Control Protection Period | Severance Benefits Upon a Qualifying Termination during the Change in Control Protection Period | ||||||
| Tier I Leadership Team Members | •12 months Base Salary •12 months COBRA Coverage •1x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 12-month period following the Qualifying Termination | •24 months Base Salary •24 months COBRA Coverage •2x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 24-month period following the Qualifying Termination | ||||||
| Tier II Leadership Team Members | •9 months Base Salary • 9 months COBRA Coverage •.75 x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 9-month period following the Qualifying Termination | •18 months Base Salary • 18 months COBRA Coverage •1.5x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 18-month period following the Qualifying Termination | ||||||
| Tier III Leadership Team Members | •6-month Base Salary •6-months COBRA Coverage •.50 x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 6-month period following the Qualifying Termination | •12-month Base Salary • 12-months COBRA Coverage •1x Bonus Amount •Reimbursement of up to $25,000 for the costs of outplacement services for the 12-month period following the Qualifying Termination | ||||||
A-1
APPENDIX A
Equity Awards.
All Equity Awards that are outstanding as of the date of the Participant’s Qualifying Termination shall be treated as follows:
1.Qualifying Termination prior to and not in connection with a Change in Control:
Upon a Qualifying Termination prior to and not in connection with a Change in Control (i) all of the time-based Equity Awards then held by a Participant shall vest and terminate in accordance with the terms of the applicable Equity Award agreements (and for avoidance of doubt there shall be no benefits under the Plan for time-based Equity Awards); and (ii) the performance-based Equity Awards then held by a Participant shall remain outstanding and shall become vested based on actual performance pursuant to the terms of the Equity Award, with the number of shares earned then prorated based on the number of days the Participant worked during such performance period and the payment or settlement of such Equity Award shall be as determined under the applicable Equity Award agreements.
2.Qualifying Termination in connection with a Change in Control:
In the event of a Qualifying Termination that occurs immediately prior to or within twenty-four (24) months following a Change in Control, (i) all of the time-based vesting conditions then applicable to the outstanding Equity Awards then held by a Participant shall automatically become fully vested as of the date of the Qualifying Termination and, if applicable, exercisable, as of the date of the Qualifying Termination; and (ii) the number of shares earned based on the performance conditions applicable to any performance-based Equity Awards then held by a Participant shall be determined as of the date of the Change in Control based on the target award amount; and unless the Equity Award is not assumed in the Change in Control, the Equity Award shall convert into a time-based Equity Award and shall become fully vested as of the Participant’s Qualifying Termination and the shares will be issued within sixty (60) days thereafter.
SERP Rights.
On the first to occur of a Participant’s Qualifying Termination in connection with a Change in Control or the effective date of a Change in Control, subject to the limitations of and compliance with Code Section 409A, the Participant will become fully vested in the Deferred Compensation Account in the Company’s Supplemental Employee Retirement Plan and, without regard to the Participant's payment elections previously made, will receive all benefit amounts under the Company’s Supplemental Employee Retirement Plan in a single, lump-sum cash payment as soon as practicable within sixty (60) days following the Qualifying Termination in connection with a Change in Control or effective date of a Change in Control.
A-2
APPENDIX B
RESTRICTIVE COVENANTS AND IP ASSIGNMENTS
For purposes of this Appendix B, references to KEI or the Company shall include all Affiliates and references to “you” shall have the same meaning as “Leadership Team Member” under the Plan.
1.Restrictive Covenants.
A.Acknowledgements. You acknowledge and agree that the nature of your position (i) gives you access to and knowledge of Confidential Information (defined below), as well as KEI’s Customers, suppliers, and business contacts; (ii) that it places you in a position of trust and confidence with KEI and generates goodwill for the Company. You also understand and agree that the services you provide to KEI are unique, special, extraordinary, and irreplaceable.
B.Confidential Information. You acknowledge that, by virtue of your employment by KEI, you will be granted otherwise prohibited access to Confidential Information belonging to KEI, which is not known either to its competitors, within the industry generally, or to the public. You recognize that KEI’s Confidential Information is the Company’s valuable property that it developed over a significant period of time and at substantial expense, and that its exclusive knowledge and use of that Confidential Information is of great competitive importance and commercial value. You further acknowledge that KEI’s industry is highly competitive, and that KEI would be irreparably harmed by actual or threatened disclosure of its Confidential Information or the use of that Confidential Information by any competitor or outside party. Accordingly, you agree that you will not in any way during your employment with KEI or thereafter directly or indirectly use or disclose (or allow to be disclosed or used) any Confidential Information, except as necessary and authorized in the course of your employment with KEI.
C.Non-Competition. You agree that, for the duration of your employment with KEI and for a period of twelve (12) months following your Termination Date, you shall not directly or indirectly, whether for pay or otherwise, provide any services of any type to or on behalf of a Competitor, whether as an employee, independent contractor, partner, agent, consultant, owner, or otherwise; or hold any ownership interest in any Competitor of KEI. Nothing shall prohibit you from: (i) providing such services to a Competitor if your relationship with that Competitor does not involve you directly or indirectly providing services of any type related to Competitive Products; or (ii) owning up to 2% of any class of securities of any issuer if the securities are listed on a national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934 and your ownership of such shares represents a passive interest in the issuer.
D.Non-Solicitation. During your employment with KEI and for a period of twelve (12) months thereafter, you will not directly or indirectly (i) participate in promoting, offering, or selling any Competitive Products to any Customer; (ii) solicit or encourage any KEI employee or independent contractor to terminate their employment or contractor relationship with KEI, or to become an employee or independent contractor of any Competitor; (iii) solicit or encourage any KEI supplier to terminate its business relationship with KEI, or to engage in a new relationship or expand an existing business relationship with any Competitor; or (iv) otherwise take any action that is intended to or can reasonably be expected to cause the termination of or
B-1
APPENDIX B
interference with any business relationship or expectancy between KEI and any of its Customers, suppliers, independent contractors, or employees. You further agree that you will not induce (or attempt to induce), or aid any other person or entity to induce (or attempt to induce), any person or entity to breach any restrictive covenant agreement with KEI.
E.Immunity. Pursuant to 18 U.S.C § 1833(b)(1): “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” If you are found to have wrongfully misappropriated trade secrets, you may be liable for, among other things, exemplary damages and attorneys’ fees.
F.Definitions. For purposes of this Appendix B:
i)“Competitive Products” shall mean products, services, or lines of business that KEI offers, manufactures, sells, or distributes (or demonstrably contemplates offering, manufacturing, selling, or distributing) within the last three (3) years of your employment. As of the Effective Date, these products, services, and lines of business include without limitation contract electronics manufacturing services, diversified manufacturing services, engineering, and supply chain support, for (a) electronic components, (b) non-electronic components, (c) medical disposables, (d) precision molded plastics, and (e) production automation, test, and inspection equipment in the (z) automotive, (y) medical, (x) industrial, and (w) public safety end markets.
ii)A “Competitor” of the Company shall mean any person or entity that engages (or intends to engage) in Competitive Products, or owns or controls (or intends to own or control) a significant interest in any entity that engages in Competitive Products.
iii) “Confidential Information” shall include, without limitation and as broadly as permissible under applicable law, all information in spoken, printed, electronic, or any other form or medium existing now or in the future and relating directly or indirectly to KEI, its businesses, or any existing or prospective Customer, supplier, investor, employee, or other person or entity that has entrusted information to KEI in confidence. Confidential Information also includes, without limitation, all trade secrets as defined under the Defend Trade Secrets Act of 2016, the Uniform Trade Secrets Act, or other applicable laws affording protection to trade secret and confidential information. Notwithstanding the foregoing, Confidential Information shall not include any information that was lawfully in your possession prior to (and not obtained in connection with) commencing employment with KEI.
iv)A “Customer” of the Company shall mean any person or entity that has purchased any products or services from KEI during the last three (3) years of your employment and (i) you communicated with in any way during the past twelve (12) months; or (ii) about whom you possess Confidential Information or other nonpublic information.
B-2
APPENDIX B
G.Reasonableness and Enforcement of Covenants. You acknowledge and agree that the foregoing covenants are reasonable and not contrary to public policy, and that such restrictions are intended solely to safeguard the protectable interests and legitimate business needs of KEI. You further acknowledge and agree that your adherence to these restrictions will not prevent you from engaging in your chosen occupation and earning a satisfactory livelihood following the termination of your employment with KEI (your “Termination Date”). In addition to any other remedies provided by law, KEI may obtain equitable relief from any actual or threatened violation of this Appendix B, including specific performance and temporary or permanent injunctive relief. You agree that KEI may disclose the fact and terms of this Appendix B to any future actual or prospective employer, and you waive any claims against KEI resulting from such disclosure. Additionally, KEI reserves the right to take disciplinary action, up to and including termination for violations of this Appendix B occurring during your employment with KEI. Should you violate any of the terms of the restrictive covenant obligations articulated herein, the obligation at issue will run from the first date on which you cease to be in violation of such obligation. If KEI prevails in a final, non-appealable judgment in any legal proceedings to enforce this Appendix B, you agree to pay KEI all costs and attorneys’ fees it reasonably incurs in connection with such proceedings.
H.Future Employment. Before beginning employment with another employer at any time within twelve (12) months after your Termination Date, you agree to notify KEI, in writing, of the name and business address of your prospective employer and the job title or position in which you will be employed. If your prospective employment is with a Competitor, you agree to seek KEI’s written consent to such employment, and the Company will not unreasonably withhold such consent if you have complied with all other provisions of this Appendix B and provided sufficient information to KEI to demonstrate that your employment will not result in a breach of any other provision of this Appendix B. By consenting to your employment with a Competitor, KEI does not waive any other provision of this Appendix B and any consent shall be non-precedential and limited solely to the specific circumstances under which the Company grants it. The Company reserves the right to withdraw such consent if you breach any other provision of this Appendix B, if the nature of your employment with the Competitor or the Competitor’s business materially changes, or if any of the representations you make to KEI regarding the nature of your employment or the Competitor’s business are false or misleading.
2.Proprietary Rights. You acknowledge that both parties intend that (i) all Employment IPRs, Employment Works and all materials embodying them shall be promptly and fully disclosed to and will belong to KEI; (ii) Employment Works, and all materials contained therein or prepared therefor, shall be deemed to be Work Made For Hire on behalf of KEI as such term is defined under the copyright laws of the United States, and that KEI shall be the sole owner of the Employment Works, and all underlying rights therein, worldwide and in perpetuity.
A.In the event that the Employment Works, or any portion thereof, do not qualify or are deemed not to be Work Made For Hire, you hereby irrevocably grant, transfer, assign, and convey any and all right, title, and interest of any kind in and to the Employment Works and all materials contained therein or prepared therefor, and any improvements thereon, including all Employment IPRs and Intellectual Property Rights, to KEI to the maximum extent permitted by
B-3
APPENDIX B
applicable law, to the extent ownership of any such rights does not vest originally in KEI. You further agree that you shall never transfer, license or assign the Employment Works and/or any Intellectual Property Rights therein to any third party, nor purport to do the same, nor contest KEI’s exclusive, complete, and unrestricted ownership in and to the Employment Works and/or any Intellectual Property Rights therein, nor claim adverse rights therein. In addition to the foregoing, you acknowledge that you shall not be entitled to any compensation other than that provided for in this Appendix B for any of the Employment Works and/or any Intellectual Property Rights therein.
B.You agree that you have not created, invented, designed, developed, contributed to or improved any Works prior to your employment by KEI that are relevant to or implicated by such employment or status (“Prior Works”). However, should you use or incorporate any Works later determined to be Prior Works in any work or development during your employment at KEI you hereby grant KEI a perpetual, non-exclusive, royalty-free, worldwide, assignable, sublicensable license under all rights and intellectual property rights of any kind in any such Prior Works for all purposes in connection with KEI’s current and future business. You shall have the burden of proving that any Works created, invented, designed, developed, contributed to or improved by you that are relevant to or implicated by your employment by KEI are not Employment Works.
C.You agree to maintain any type or form of records, execute any further documents, and take any further actions requested by KEI to assist it in validating, effectuating, maintaining, protecting, enforcing, perfecting, recording, patenting, or registering any of their rights hereunder. If you are unable to or do not execute a document or take any action for any reason, you irrevocably designate and appoint KEI as your agent and attorney-in-fact to act in your behalf in all applicable instances, including with any government authorities or agencies.
D.You agree not to attempt to register any Employment IPR or patent any Employment Works unless requested to do so by KEI; and to keep confidential each Employment Work unless KEI has consented in writing to its disclosure by you.
E.You waive all your present and future moral rights which arise under the applicable laws, and all similar rights in other jurisdictions, relating to any copyright which forms part of the Employment IPRs, and agree not to support, maintain, or permit any claim for infringement of moral rights in such copyright works.
F.You agree to give all necessary assistance to KEI to enable it to enforce Intellectual Property Rights against third parties, to defend claims for infringement of third party Intellectual Property Rights, and to apply for registration of Intellectual Property Rights, where appropriate throughout the world, and for the full term of those rights.
G.Limitations. Your assignments under this Section do not apply to Works for which no equipment, supplies, facility, or Confidential Information of KEI was used and which was developed entirely on your own time, unless the invention relates to: (a) the business of KEI, or (b) KEI’s actual or demonstrably anticipated research or development, or the Work results from any work performed by you for KEI.
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APPENDIX B
H.Definitions. For purposes of this Appendix B:
i)“Employment Works” shall mean any Works which are made wholly or partially by you at any time during the course of your employment with KEI and within the scope of such employment or status and/or with the use of any KEI resources and whether or not recorded in material form.
ii)“Employment IPRs” shall mean Intellectual Property Rights created by you in the course of your employment with KEI (whether or not during working hours or using KEI premises or resources and whether or not recorded in material form).
iii)“Intellectual Property Rights” shall mean any and all right, title and interest in and to the Employment Works and all materials contained therein or prepared therefore, and any improvements thereon, including all intellectual property rights, including, without limitation, any and all rights that may exist from time to time in this or any other jurisdiction whether foreign or domestic under patent law, copyright law, publicity rights law, moral law, trade secret law, semiconductor chip law, trademark law, unfair competition law, or other similar protections regardless of whether or not such rights or protections are registered or perfected.
iv)“Works” shall mean any invention, idea, concept, creation, plan, discussion, discovery, process, writing, artwork, audiovisuals, manuals, designs, drawings, graphics, computer programs, source code, object code, code/software, documentation, original work of authorship, development, improvement or innovation, or any other production of any nature whatsoever whether or not patentable or capable of registration, and whether or not recorded in any material form.
3.Return of KEI Property. At KEI’s request and on your Termination Date, you will return to KEI all computer hardware, software, or other media, program codes or documentation, contracts, proposals, plans, lists, reports, schedules, manuals, files, and all other tangible or intangible documents, copies, or items which relate in any way to the business of KEI, including, without limitation, all materials that constitute, contain, or refer to any Confidential Information; and give to KEI all originals and copies of correspondence, documents, papers and records on all media which record or relate to any Employment IPRs.
4.Severability. If any provision of this Appendix B is declared unenforceable, the remaining provisions of this Appendix B will remain in effect. If any restriction on your post-employment activities is found by a court to be unreasonable or overly broad with respect to time, geography, or scope of the activities restricted, you and KEI agree that the court before which the matter is pending will enforce the restriction to the maximum extent it deems enforceable. Restrictions will be deemed divisible as to time, geographical scope, and scope of the activities restricted.
5.Waiver. KEI’s failure to insist on strict compliance with any terms in this Appendix B is not a waiver of such terms. No breach of the covenants stated herein can be waived, except expressly in writing.
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APPENDIX B
6.Jury Waiver. HAVING HAD THE OPPORTUNITY TO CONSULT COUNSEL OF THEIR CHOICE, THE PARTIES KNOWINGLY AND VOLUNTARILY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS APPENDIX B, ANY DOCUMENT DELIVERED PURSUANT TO THIS APPENDIX B, AND/OR ITS PERFORMANCE UNDER OR THE ENFORCEMENT OF THIS APPENDIX B.
7.Other Agreements. The covenants and agreements in this Appendix B are in addition to, and do not replace or supersede, any other restrictive covenants or intellectual property assignments you may have agreed to with the Company.
8.Successors and Assigns. This Appendix B is intended to bind and inure to the benefit of and be enforceable by you, KEI, and any respective heirs, successors and assigns, except that you shall not have any right to assign or otherwise transfer this Appendix B, or any of your rights, duties, or any other interest herein to any party without the prior written consent of KEI. Any such purported assignment shall be null and void. KEI may assign this Appendix B to any successor or assign to all or substantially all of the business or assets of the Company.
9.Notice. Notices and all other communications pursuant to this Appendix B shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to KEI will be directed to the attention of its Board of Directors in care of the General Counsel of the Company at 1205 Kimball Blvd., Jasper, IN 47546 and with a copy via e-mail to [email protected]. All notices and communications will be deemed to have been received on their date of delivery or on the third business day after the mailing thereof, except that notices of changes of address will be effective only upon receipt.
10.Survival. The provisions of this Appendix B shall survive the termination of your employment or this Plan for any reason. Upon the expiration or other termination of this Appendix B, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the parties’ intentions under this Appendix B.
11.Acknowledgement of Full Understanding. YOU ACKNOWLEDGE AND AGREE (I) THAT YOU HAD AN EQUAL OPPORTUNITY TO FULLY READ AND UNDERSTAND ALL OF THE TERMS OF THIS APPENDIX B; (II) THAT THIS APPENDIX B PROVIDES YOU VALUABLE CONSIDERATION TO WHICH YOU ARE NOT OTHERWISE ENTITLED, SUCH AS POTENTIAL ELIGIBILITY FOR THE PLAN; (III) THAT BY ACCEPTING OR CONTINUING EMPLOYMENT WITH THE COMPANY AND POTENTIAL ELIGIBILITY FOR THE PLAN, YOU ARE CHOOSING TO VOLUNTARILY ENTER INTO THIS APPENDIX B; AND (IV) THAT YOU HAVE HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF YOUR CHOICE ABOUT THIS APPENDIX B.
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