Exhibit 10.27
METHODE ELECTRONICS, INC.
2020 LONG-TERM PERFORMANCE-BASED AWARD AGREEMENT
This Long-Term Performance-Based Award Agreement (the “Award Agreement”), effective as of September 29, 2020 (the “Award Date”), is entered into by and between Methode Electronics, Inc., a Delaware corporation (the “Company”) and Kevin Martin (the “Grantee”).
WHEREAS, the Company desires to reward Grantee for services to the Company and to encourage Grantee to continue to work for the benefit of the Company in a manner that will benefit all Company stockholders.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Company agrees to award to Grantee (i) shares of Restricted Stock of the Company (the “Restricted Stock”), and (ii) Performance Units (the “Performance Units”) under the Methode Electronics, Inc. 2014 Omnibus Incentive Plan (the “Plan”) on the terms and conditions set forth herein and in the Plan (collectively, the “Awards”).
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For this purpose and subject to Section 4 below, Fiscal 2025 EBITDA shall equal the Company’s earnings before net interest, taxes, fixed asset depreciation and intangible asset amortization (“EBITDA”) in Fiscal 2025 adjusted as follows: (A) all positive EBITDA from acquisitions that close during the period from the Award Date to the end of the Performance Period and that are not accretive (as defined below) in Fiscal 2025 shall be excluded; and (B) to the extent not otherwise included in 2025 EBITDA, all EBITDA from business unit divestitures or spinoffs that were approved by the Company’s Board of Directors and close during the period from the Award Date to the end of the Performance Period shall be included. The amount of EBITDA to be included for a business unit divestiture or spinoff shall be the actual EBITDA of the business unit for the four full quarters immediately preceding the divestiture or spinoff, or if greater, the amount of EBITDA that the Committee reasonably determines more appropriately reflects the amount of EBITDA the business unit would have contributed to Fiscal 2025 EBITDA. In order for an acquisition to qualify as accretive, (Y) the EBITDA in Fiscal 2025 from the acquisition must exceed Fiscal 2025 interest expense related to any debt assumed or issued in connection with the acquisition, and (Z) the net impact of the acquisition on Fiscal 2025 earnings per share (“EPS”) must be positive (i.e., Fiscal 2025 EPS with the acquisition is greater than Fiscal 2025 EPS without the acquisition). Exhibit D hereto includes an illustrative calculation of the net impact on EPS.
The Threshold, Target and Maximum levels of Fiscal 2025 EBITDA are set forth on Exhibit A attached hereto.
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(i) if Grantee’s employment with the Company and its Subsidiaries and Affiliates is terminated due to total and permanent disability as determined by the Company or death, then all of the Restricted Stock will become immediately vested and no Performance Units shall be earned and payable; and
(ii) if Grantee’s employment with the Company and its Subsidiaries and Affiliates is terminated due to retirement on or after Grantee’s sixty-fifth birthday or retirement on or after Grantee’s fifty-fifth birthday with consent of the Committee then, the shares of Restricted Stock and the Performance Units shall, as of the Vesting Date, vest and be earned based on actual performance on a pro rata basis based on the date of termination. The fraction to be used to determine the number of shares of Restricted Stock to vest and the number of Performance Units to be earned hereunder shall have a numerator equal to the number of fiscal months elapsed between May 2, 2020 and the date of termination (rounded up to the nearest whole month), and the denominator of which shall be sixty (60).
(i) in the event of a Change of Control, the surviving or successor entity (or its parent corporation) may continue, assume or replace the Awards on substantially the same terms and conditions (with such adjustments as may be required or permitted by Section 15 of the Plan), and such Awards or replacements therefor shall remain outstanding and be governed by their respective terms, subject to (iii) and (iv) below;
(ii) if and to the extent that the Awards are not continued, assumed or replaced in connection with a Change of Control, then a pro rata portion of the shares of Restricted Stock will become immediately vested based on the date of the Change of Control and no
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Performance Units shall be earned and payable. The fraction to be used to determine the number of shares of Restricted Stock to vest hereunder shall have a numerator equal to the number of fiscal months elapsed between May 2, 2020 and the date of the Change of Control (rounded up to the nearest whole month) and the denominator of which shall be sixty (60);
(iii) if and to the extent that the Awards are continued, assumed or replaced under the circumstances described in Section 3(e)(i), and if within two years after the Change of Control, Grantee experiences an involuntary termination of employment or other service for reasons other than Cause or Grantee shall terminate employment with Good Reason, then a pro rata portion of the shares of Restricted Stock will become immediately vested based on the date of termination and no Performance Units shall be earned and payable. The fraction (subject to a maximum of one (1)) to be used to determine the number of shares of Restricted Stock to vest hereunder shall have a numerator equal to the number of fiscal months elapsed between May 2, 2020 and the date of the termination (rounded up to the nearest whole month), and the denominator of which shall be sixty (60); and
(iv) Notwithstanding whether the Awards are continued, assumed or replaced in connection with a Change of Control, if Grantee experiences an involuntary termination of employment or other service for reasons other than Cause or Grantee shall terminate employment with Good Reason during the period beginning on the date an agreement is entered into by the Company with respect to a merger, consolidation or similar transaction of the Company, which would constitute a Change of Control, and the effective time of such merger, consolidation or similar transaction of the Company, then a pro rata portion of the shares of Restricted Stock will become immediately vested based on the date of the Change of Control and no Performance Units shall be earned and payable. The fraction (subject to a maximum of one (1)) to be used to determine the number of shares of Restricted Stock to vest hereunder shall have a numerator equal to the number of fiscal months elapsed between May 2, 2020 and the date of the Change of Control (rounded up to the nearest whole month), and the denominator of which shall be sixty (60).
“Good Reason” shall exist under (iii) or (iv) above if, without Grantee’s express written consent any of the following events or actions occurs, provided that no finding of Good Reason shall be effective unless and until the Grantee has provided the Company, within sixty (60) calendar days of becoming aware of the facts and circumstances underlying the finding of Good Reason, with written notice thereof stating with specificity the facts and circumstances underlying the finding of Good Reason and, if the basis for such finding of Good Reason is capable of being cured by the Company, providing the Company with an opportunity to cure the same within thirty (30) calendar days after receipt of such notice: (A) the Company shall materially reduce the nature, scope or level of Grantee’s responsibilities from the nature, scope or level of such responsibilities prior to the Change of Control, or shall fail to provide Grantee with adequate office facilities and support services to perform such responsibilities; (B) the Company shall require Grantee to move Grantee’s principal business office more than 25 miles from Grantee’s principal business office at the time of this Award Agreement, or assign to Grantee duties that would reasonably require such move; provided, however, that if Grantee’s principal business office is not located at the Company’s then current corporate headquarters, and the Company requires Grantee to move Grantee’s principal business office to such corporate headquarters, or assigns to Grantee duties that would reasonably require such move,
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such actions shall not constitute “Good Reason” under this subsection; (C) the Company shall require Grantee, or assign duties to Grantee which would reasonably require Grantee, to increase, by more than twenty-four, the number of normal working days (determined at the time of this Award Agreement) that Grantee spends away from Grantee’s principal business office during any consecutive twelve-month period; (D) the Company shall reduce Grantee’s annual salary below that in effect as of the date of this Award Agreement (or as of the Change of Control, if greater); (E) the Company shall materially reduce or fail to continue in effect any cash or stock-based incentive or bonus plan, retirement plan, welfare benefit plan, or other benefit plan, program or arrangement, unless the aggregate value (as computed by an independent employee benefits consultant selected by the Company) of all such incentive, bonus, retirement and benefit plans, programs and arrangements provided to Grantee is not materially less than their aggregate value as of the date of this Award Agreement (or as of the Change of Control, if greater); or (F) if the Board of Directors fails to act in good faith with respect to the Company’s obligations hereunder, or the Company breaches its obligations hereunder.
Grantee agrees, as a condition of this Award, to make acceptable arrangements to pay any withholding or other taxes or deductions that may be due or may arise as a result of the vesting of the Restricted Stock, the settlement of the Performance Units, or any other payment or issuance of shares of Common Stock under this Award Agreement. In the event that the Company determines that any federal, state, local or foreign tax or withholding payment or other deduction is required relating to the vesting or issuance of shares or the payment of cash under this Award Agreement, the Company shall have the right to require such amounts or deductions from Grantee, or withhold such amounts or deductions from other payments due Grantee from the Company or any Subsidiary or Affiliate.
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It is the intention of the Company and the Grantee that the Performance Units and related benefits awarded under this Award Agreement shall comply with Section 409A and shall be interpreted in a manner consistent with this intent. Notwithstanding anything to the contrary contained herein, a termination of Grantee’s employment shall not be deemed to have occurred for purposes of making any payments under this Award Agreement related to the Performance Units unless such termination gives rise to a “Separation from Service” (within the meaning of Section 409A, a “Separation from Service”) and references to “termination of employment” shall mean Separation from Service. In the event that the Company or the Grantee reasonably determines that the Performance Units and/or any related benefits under this Award Agreement fails to comply with Section 409A, the Company and Grantee shall work together to adopt such amendments to this Award Agreement or adopt other policies or procedures (including amendments, policies and procedures with retroactive effective to the extent allowable by applicable laws), or take any other commercially reasonable actions necessary or appropriate to comply with the requirements of Section 409A. Nothing in this Agreement shall be construed as a guarantee of any particular tax treatment to Grantee. Grantee shall be solely responsible for the tax consequences with respect to all amounts payable under this Award Agreement, and in no event shall the Company have any responsibility or liability if this Award Agreement does not meet any applicable requirements of Section 409A.
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[Signature Page to Follow]
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IN WITNESS WHEREOF, the Company by one of its duly authorized representatives has executed this Award Agreement as of the day and year first above written.
METHODE ELECTRONICS, INC.
By: /s/ Darren M. Dawson
Darren M. Dawson
Its: Chair, Compensation Committee
Please indicate your acceptance of the terms and conditions of this Award Agreement by signing in the space provided below and returning a signed copy of this Award Agreement to the Company. IF A FULLY EXECUTED COPY OF THIS AWARD AGREEMENT HAS NOT BEEN RECEIVED BY THE COMPANY BY OCTOBER 23, 2020, THE AWARD UNDER THIS AWARD AGREEMENT SHALL BE CANCELLED.
BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE RECEIVED A COPY OF THE PLAN AND ARE FAMILIAR WITH THE TERMS AND PROVISIONS THEREOF, INCLUDING THE TERMS AND PROVISIONS OF THIS AWARD AGREEMENT. YOU HAVE REVIEWED THE PLAN AND THIS AWARD AGREEMENT IN THEIR ENTIRETY, HAVE HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AWARD AGREEMENT AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AWARD AGREEMENT. FINALLY, YOU HEREBY AGREE TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL DECISIONS OR INTERPRETATIONS OF THE ADMINISTRATOR UPON ANY QUESTIONS ARISING UNDER THE PLAN OR THIS AWARD AGREEMENT.
The undersigned hereby accepts, and agrees to, all terms and provisions of this Award Agreement and the Plan as they pertain hereto.
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GRANTEE
/s/ Kevin Martin
Kevin Martin
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Exhibit A
Threshold Fiscal 2025 EBITDA $270 million
Target Fiscal 2025 EBITDA $300 million
Maximum Fiscal 2025 EBITDA $330 million
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Exhibit B
If Fiscal 2025 EBITDA achieved is less than Threshold Fiscal 2025 EBITDA, then no Restricted Stock will vest. If Fiscal 2025 EBITDA achieved equals or exceeds Threshold Fiscal 2025 EBITDA, then the following formula will be used to calculate the percentage of Restricted Stock that will vest (subject to a maximum of 100%):
(i) 50%, plus (ii) 50% multiplied by a fraction equal to (Fiscal 2025 EBITDA achieved less Threshold Fiscal 2025 EBITDA) divided by (Target Fiscal 2025 EBITDA less Threshold Fiscal 2025 EBITDA)
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Exhibit C
If Fiscal 2025 EBITDA achieved is less than Target Fiscal 2025 EBITDA, then no Performance Units shall be earned. If Fiscal 2025 EBITDA achieved equals or exceeds Target Fiscal 2025 EBITDA, then the following formula will be used to calculate the number of Performance Units earned:
The number of Performance Units multiplied by a fraction (subject to a maximum of one (1)), the numerator of which shall equal (i) Fiscal 2025 EBITDA achieved minus (ii) Target Fiscal 2025 EBITDA, and the denominator of which shall equal (a) Maximum Fiscal 2025 EBITDA minus (b) Target Fiscal 2025 EBITDA.
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Exhibit D
Following is an example (not actual numbers) of the calculation of whether the net impact of an acquisition on Fiscal 2025 earnings per share (EPS) is positive.
| Fiscal 2025 | ||||
| Methode |
| Acquired |
| Methode |
| Actual | - | Unit | = | Pro Forma |
EBITDA | $ 300,000,000 |
| $ 11,000,000 |
| $ 289,000,000 |
Depr. & Amor. | $ 50,000,000 |
| $ 1,000,000 |
| $ 49,000,000 |
Interest expense (income) | $ 5,000,000 |
| $ 200,000 |
| $ 4,800,000 |
Income before taxes | $ 245,000,000 |
| $ 9,800,000 |
| $ 235,200,000 |
Income tax (20% eff. tax rate) | $ 49,000,000 |
| $ 1,960,000 |
| $ 47,040,000 |
Net income | $ 196,000,000 |
| $ 7,840,000 |
| $ 188,160,000 |
Basic common shares O/S | 39,600,866 |
|
|
| 38,100,866 |
Shares issued for acquisition | - |
| 1,500,000 |
|
|
Basic EPS | $ 4.95 |
|
|
| $ 4.94 |
| Actual > Pro Forma = Accretive | ||||
| Actual < Pro Forma = Not Accretive |
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