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): April 14, 2016 (April 11, 2016)
ARMSTRONG WORLD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania | 1-2116 | 23-0366390 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification No.) |
2500 Columbia Avenue P.O. Box 3001 Lancaster, Pennsylvania |
17603 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (717) 397-0611
NA
(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:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On April 4, 2016, Armstrong World Industries, Inc. (the Company) reported on a current report on Form 8-K the appointment on March 30, 2016 of Victor D. Grizzle as Chief Executive Officer and Brian L. MacNeal as Chief Financial Officer, and disclosed information about their 2016 compensation. The following disclosure provides information about equity grants made on April 11, 2016 to these executives, as well as to other members of the Companys senior executive tier.
In order to continue to promote the alignment of executive compensation and long-term shareholder value creation, the Management Development and Compensation Committee (the Committee) of the Company adopted certain changes to its executive compensation program. The Committee believes that the executive compensation program of the Company should reinforce a performance culture that closely aligns with the interests of its shareholders. Consistent with this philosophy, on April 11, 2016, the Committee implemented a new approach to long-term equity incentive compensation, including changes to performance metrics, performance awards and participation incentive ranges.
The Company has historically granted performance stock units (PSUs) that vested based on the achievement of return on invested capital (ROIC) targets over a three-year period. Commencing in 2016, the Companys equity compensation awards will consist of differentiated awards based on two leadership tiers, with PSUs granted to the Chief Executive Officer, Chief Financial Officer, Senior Vice President, Americas, and Senior Vice President, Ceiling Solutions, representing the senior executive tier of the Company, vesting based on the achievement of certain absolute total shareholder return targets (Absolute TSR 75% of the award) and certain free cash flow targets (FCF 25% of the award). The Committee believes that the tiered approach measured on Absolute TSR and FCF creates the desired focus on generating total shareholder return and directly aligns managements interests with those of the Companys shareholders.
On April 11, 2016, the Committee granted long-term incentive awards to the Companys senior leadership team and other eligible participants (collectively, the 2016 LTI Awards). Under the new program design, Messrs. Grizzle and MacNeal, as well as the other members of the senior executive tier, received 100% of their 2016 equity compensation awards in the form of PSUs. In prior years (with the exception of 2015), the Companys executive team received their long-term incentives in non-qualified stock options (60%) and PSUs (40%). The 2016 LTI Awards were granted under the Companys 2011 Long-Term Incentive Plan and will be settled in shares of the Companys common stock.
The Committee granted PSU awards to Messrs. Grizzle and MacNeal with target values of $5.25 million and $1.125 million, respectively. The 2016 LTI Awards to Messrs. Grizzle, MacNeal and the two other executives in the senior executive tier are intended to provide them with a compensation opportunity appropriate to their new positions and a significant incentive to focus on long-term shareholder value creation through the execution on the Companys post-separation strategic plan that aligns their interests with the interests of shareholders over the performance period. The Committee expects that any subsequent long-term incentive awards that might be made to these executives in 2017 and 2018 would be sized such that their total direct compensation opportunity over the performance period would approximate market median for total direct compensation opportunity. The Committee believes that these grants, following consummation of the recent spin-off of the flooring business, reinforce and provide increased incentives for the execution of the Companys three-year strategic plan and the creation of additional value-enhancing initiatives, which align with shareholders interests.
The number of shares eligible to vest under the 2016 LTI Awards to the senior executive tier are based on the achievement of applicable performance targets relative to (1) Absolute TSR (75% weight) and (2) FCF performance (25% weight) during the performance period (April 1, 2016 to December 31, 2018).
As further described below, at the end of the performance period, each recipient will be eligible to receive a number of PSUs (from 0 to 275% of the target PSU award) based on the Companys Absolute TSR and FCF performance over the performance period, subject to a maximum payout of 275%.
Each vested PSU will be payable in one share of common stock, subject to the maximum payout. In addition, for the 2016 LTI Awards, the Committee instituted a one-year, post-vesting holding period for any PSUs paid above target, such that the vested above-target PSUs will not be available to be sold until the one-year anniversary following the vesting date of the PSUs, subject to limited exceptions.
Under the new program design, Absolute TSR accounts for 75% of the target award to the senior executive tier and tracks the appreciation in share price of the Company stock, including dividends, and is annualized for the performance period. The ending share price for the Absolute TSR calculation will be based on the volume weighted average closing price of the Company stock for the highest consecutive 30 trading days in the 60 trading day period beginning with and immediately following January 2, 2019. The starting share price is based on the volume weighted average closing price of the Company stock for the 30 trading days immediately following April 1, 2016.
Absolute TSR | ||||
Annualized Performance Level | Payout | |||
Below 9% |
0 | % | ||
9% |
25 | % | ||
10% |
50 | % | ||
12% |
100 | % | ||
20% |
200 | % | ||
30% |
300 | % |
Cumulative FCF accounts for 25% of the target award to the senior executive tier. Cumulative FCF is defined as cash flow from operations, less cash used in investing activities.
Cumulative Free Cash Flow Performance Scale | ||||
Performance Level as Percent of Target | Payout | |||
80% |
25 | % | ||
100% |
100 | % | ||
113% |
150 | % | ||
118% |
175 | % | ||
125% |
200 | % |
All PSU awards require continued employment through December 31, 2018, and are subject to pro-rata vesting based on performance in the event of retirement, involuntary termination without cause, death or disability. The awards also provide for double trigger vesting in the event of a change of control of the Company. In the event of a change of control, the PSUs for the senior executive tier are earned at actual performance as of the date of the change in control and are subject to continued employment until the end of the performance period. However, if an executives employment is terminated by the Company without cause (including for good reason), or in the event of death or disability, upon or subsequent to the change in control, the PSU awards will become vested and payable based on performance.
The PSU awards are subject to clawback terms and conditions under which the Compensation Committee has the ability to take action to recoup stock-based awards from an executive in the event his or her employment is terminated for willful, deliberate or gross misconduct, as, for example, if we were required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws as a result of the executives misconduct which led to his or her termination of employment, or if an executive engages in injurious conduct after termination of employment.
The foregoing summary of the 2016 LTI Awards is not a complete description of all of the terms and conditions of the PSU awards granted to the executives in the senior executive tier and is qualified in its entirety by reference to the full text of the form of grant instrument, which is filed as an exhibit to this current report on Form 8-K.
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit
|
Description |
|
10.1 | Form of 2016 Award Agreement for Performance-Based RSU Grants |
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.
ARMSTRONG WORLD INDUSTRIES, INC. | ||||||||
By: |
/s/ Mark A. Hershey |
|||||||
Mark A. Hershey | ||||||||
Senior Vice President, General Counsel and Secretary | ||||||||
Date: |
April 14, 2016 |
EXHIBIT INDEX
Exhibit
|
Description |
|
10.1 | Form of 2016 Award Agreement for Performance-Based RSU Grants |
Exhibit 10.1
2016 Long-Term Performance-Based Restricted Stock Unit Grant Performance Goals Based on [Cumulative Free Cash Flow]//[Absolute TSR] |
ARMSTRONG WORLD INDUSTRIES 2500 Columbia Ave., P.O. Box 3001 Lancaster, PA 17604 717. 397.0611 |
Company Confidential
I am pleased to inform you that the Companys Management Development and Compensation Committee granted you the following:
Date of Grant:
Performance Units ( Target Award ):
Performance Period ( Performance Period ): April 1, 2016 through December 31, 2018
This award recognizes the importance of your role in achieving the Companys long-term strategy and is subject to the terms of the 2011 Long-Term Incentive Plan and the award agreement. The award agreement consists of this grant letter with the Performance Goals attached as Exhibit A and the Terms and Conditions attached as Exhibit B .
The Performance Units will be earned by achieving a Performance Goal based on [Cumulative Free Cash Flow] // [absolute Total Shareholder Return], subject to your continued employment through the end of the Performance Period. The Committee has established the Performance Goal set forth on Exhibit A , which allows you to earn up to [200%] [CFCF] // [300%] [TSR] of the Target Award, if you remain continuously employed by the Employer through the end of the Performance Period.
To the extent the Performance Goal is achieved and you satisfy the employment requirements, a number of shares of Company Stock equal to the Performance Units that are earned and vested will be distributed to you following the conclusion of the Performance Period in accordance with the payment terms set forth in the Terms and Conditions. The Company will withhold shares to satisfy your tax obligations unless prohibited by country law or unless you provide a payment to cover the tax withholding obligation. You have no ownership or voting rights relative to the Performance Units.
If the Company makes cash dividend payments during the Performance Period, the value of the dividends on shares attributable to the Performance Units will accrue as dividend equivalents in a non-interest bearing bookkeeping account. You will receive a cash payment equal to the accrued dividend equivalents at the end of the Performance Period, adjusted for the number of Performance Units that become earned and vested.
Employment Events
The following chart is a summary of the provisions which apply to this award in connection with termination of employment. The following is only a summary, and in the event of termination of employment, the award will be governed by the Terms and Conditions.
Event |
Provisions |
|
Voluntary Resignation
Termination for Cause |
All Performance Units and accrued dividend equivalents are forfeited. | |
55 / 5 Rule Termination
(55 years of age or older with 5 years of service)
Involuntary Termination Without Cause |
If termination occurs after 10 months following the Date of Grant, then to the extent that the Performance Goal is achieved for the Performance Period, Performance Units and accrued dividend equivalents are earned and vested pro-rata, based on the period of employment; otherwise the Performance Units and accrued dividend equivalents are forfeited. | |
Death
Long-Term Disability |
To the extent that the Performance Goal is achieved for the Performance Period, Performance Units and accrued dividend equivalents are earned and vested pro-rata, based on the period of employment. | |
After a Change in Control:
Involuntary Termination Without Cause
Death
Long-Term Disability |
Upon a Change in Control, Performance Units and accrued dividend equivalents are earned as described in Exhibit A and will vest as described in Exhibit B . |
In the event of any inconsistency between the foregoing summary and the Terms and Conditions or the 2011 Long-Term Incentive Plan, the Terms and Conditions or the 2011 Long-Term Incentive Plan, as applicable, will govern. Capitalized terms used but not defined in this grant letter will have the meanings set forth in the 2011 Long-Term Incentive Plan or the Terms and Conditions, as applicable. As described in the Terms and Conditions, if and to the extent that the terms of this award agreement conflict with the terms of a change in control agreement or employment agreement between you and the Company, the terms of this award agreement shall supersede the terms of the change in control agreement or employment agreement.
Please contact Kelly Strunk (717-396-3477) if you have questions.
Sincerely, |
Victor D. Grizzle |
Chief Executive Officer |
The information contained in this letter is confidential and any discussion, distribution or use of this information is prohibited.
Exhibit A
Performance Goal
Cumulative Free Cash Flow : Cumulative Free Cash Flow is defined as cash flow from operations, less cash used in investing activities, as determined by the Committee.
Cumulative Free Cash Flow Performance Scale | ||||
Performance Level | Payout | |||
Below 80% of Target Performance |
0 | % | ||
80% of Target Performance |
25 | % | ||
Target Performance |
100 | % | ||
113% of Target Performance |
150 | % | ||
118% of Target Performance |
175 | % | ||
125% of Target Performance or greater |
200 | % |
Absolute Total Shareholder Return : Absolute Total Shareholder Return ( Absolute TSR ) tracks the appreciation in share price of the Company Stock, including dividends, and is annualized for the Performance Period, as determined by the Committee. Specifically, Absolute TSR is calculated based on the following formula:
(Ending Share Price + Aggregate Dividends) | ^(1-2.75)-1 | |||||
Starting Share Price |
For purposes of the Absolute TSR calculation:
| Ending Share Price means the volume weighted average closing price of the Company Stock for the highest consecutive 30 trading days in the 60 trading day period beginning with and immediately following January 2, 2019. |
| Aggregate Dividends means a cumulative number of shares of Company Stock assuming same day reinvestment in Company Stock on the ex-dividend date of the dividends paid on a share of Company Stock during the Performance Period. |
| Starting Share Price means the volume weighted average closing price of the Company Stock for the 30 trading days beginning with and immediately following April 4, 2016. |
Absolute TSR | ||||
Performance Level | Payout | |||
Below 9% |
0 | % | ||
9% |
25 | % | ||
10% |
50 | % | ||
12% |
100 | % | ||
20% |
200 | % | ||
30% |
300 | % |
Threshold level performance must be achieved in order to earn any Performance Units for the Performance Goal. If actual performance is between performance levels, the number of Performance Units earned with respect to the Performance Goal will be interpolated on a straight line basis for pro-rata achievement for performance at or between performance levels. If the Performance Goal would produce fractional units, the number of Performance Units earned shall be rounded up to the nearest whole unit, but not in excess of an aggregate of [200%][CFCF] // [300%][TSR] of the Target Award.
Change in Control:
[If a Change in Control occurs prior to the end of the Performance Period, the number of Performance Units earned with respect to the Cumulative Free Cash Flow Performance Goal will be based on actual Cumulative Free Cash Flow through the date of the Change in Control relative to the 2016, 2017 and 2018 portions of the total Cumulative Free Cash Flow target, as determined by the Committee before the Change in Control in its sole discretion. Cumulative Free Cash Flow through the date of the Change in Control shall be compared to the annual and quarterly targets for the period through the date of the Change in Control.] [CFCF]
[If a Change in Control occurs prior to the end of the Performance Period or prior to the end of the 60 trading day period following the end of the Performance Period, the number of Performance Units earned with respect to the Absolute TSR Performance Goal will be based on Absolute TSR through the date of the Change in Control, calculated by using the per-share sales price in the Change in Control as the Ending Share Price and as if the Change in Control date were the end of the Performance Period, as determined by the Committee before the Change in Control in its sole discretion] [TSR].
The Committee reserves discretion to provide for accelerated vesting of the earned Performance Units pursuant to Section 14(c) of the Plan.
EXHIBIT B
ARMSTRONG WORLD INDUSTRIES, INC.
2011 LONG-TERM INCENTIVE PLAN
PERFORMANCE RESTRICTED STOCK UNIT GRANT
TERMS AND CONDITIONS
1. Grant .
(a) Subject to the terms set forth below, Armstrong World Industries, Inc. (the Company ) has granted to the designated employee (the Grantee ) two target awards (the Target Award ) of performance-based restricted stock units (the Performance Units ) as specified in the 2016 Long-Term Performance Restricted Stock Unit Grant Letters to which these Grant Conditions relate (the Grant Letters ). The Date of Grant is April 11, 2016. The Performance Units are Stock Units with respect to common stock of the Company ( Company Stock ).
(b) The Performance Units shall be earned, vested and payable if and to the extent that the Cumulative Free Cash Flow and Absolute TSR performance goals set forth in the Grant Letters (the Performance Goals ), employment conditions and other terms of these Grant Conditions are met. The Performance Period for which the attainment of the Performance Goals will be measured is the period beginning April 1, 2016 and ending December 31, 2018.
(c) These Terms and Conditions (the Grant Conditions ) are part of the Grant Letters. This grant is made under the Armstrong World Industries, Inc. 2011 Long-Term Incentive Plan (the Plan ). Any terms not defined herein shall have the meanings set forth in the Plan.
2. Performance Goals; Vesting .
(a) The Grantee shall earn and vest in a number of Performance Units based on the attainment of the Performance Goals for the Performance Period, provided that the Grantee continues to be employed by the Company or its subsidiaries or affiliates (collectively the Employer ) through December 31, 2018 (the Vesting Date ). The Performance Units shall be earned based on attainment of the Performance Goals and shall vest based on the Grantees continued employment through the Vesting Date, or as otherwise provided below.
(b) After the end of the Performance Period, the Management Development and Compensation Committee (the Committee ) will determine whether and to what extent the Performance Goals have been met and the amount earned with respect to the Performance Units. The Grantee can earn up to 275% of the Target Award based on attainment of the Performance Goals, as set forth in the Grant Letters. Earned and vested Performance Units shall be payable as described in Section 5.
(c) If a Change in Control occurs, the amount earned with respect to the Performance Units shall be determined as of the date of the Change in Control as described in the Grant Letters. The earned Performance Units shall continue to vest based on the Grantees continued employment through the Vesting Date, except as otherwise provided herein. Earned and vested Performance Units shall be payable as described in Section 5. Notwithstanding the foregoing, if the Performance Units are not assumed by, or replaced by substantially identical grants by, the successor company in the Change in Control, the earned Performance Units shall vest as of the date of the Change in Control, and such earned and vested Performance Units shall be paid as of the date of the Change in Control if the Change in Control is a 409A CIC (as defined below) and if permitted by the plan termination provisions of the regulations under section 409A of the Code. If payment at the date of the Change in Control is not permitted under section 409A, the earned and vested Performance Units shall be payable as described in Section 5.
(d) Except as described below, no Performance Units shall be earned prior to the Committees determination of achievement of the Performance Goals, and to the extent that the Performance Goals are not attained, the Performance Units shall be immediately forfeited and shall cease to be outstanding as of the date of the Committees determination.
3. Termination of Employment .
(a) General Rule . Except as described below, if the Grantee ceases to be employed by the Employer prior to the Vesting Date, the Performance Units shall be forfeited as of the termination date and shall cease to be outstanding.
(b) 55/5 Rule Termination . If, after ten months following the Date of Grant but prior to the Vesting Date, the Grantee ceases to be employed by the Employer on account of a 55 / 5 Rule Termination (as defined below), the Grantee shall earn and vest in a pro-rated portion of the outstanding Performance Units based on the extent to which the Performance Goals are achieved for the Performance Period. In the event of a Change in Control, the amount achieved for the Performance Period shall be determined as of the Change in Control date as described in the Grant Letters. The pro-rated portion shall be determined by multiplying the number of Performance Units earned based on attainment of the Performance Goals by a fraction, the numerator of which is the number of months that elapsed during the period beginning on April 1, 2016 through the Grantees termination date, and the denominator of which is 33. A partial month after the month of grant shall count as a full month for purposes of this calculation. The pro-rated earned Performance Units shall be paid as described in Section 5.
(c) Involuntary Termination before a Change in Control . If, before a Change in Control and after ten months following the Date of Grant but prior to the Vesting Date, the Grantee ceases to be employed by the Employer on account of Involuntary Termination (as defined below), the Grantee shall earn and vest in a pro-rated portion of the outstanding Performance Units based on the extent to which the Performance Goals are achieved for the Performance Period. In the event of a subsequent Change in Control, the amount achieved for the Performance Period shall be determined as of the Change in Control date as described in the Grant Letters. The pro-rated portion shall be determined
by multiplying the number of Performance Units earned based on attainment of the Performance Goals by a fraction, the numerator of which is the number of months that elapsed during the period beginning on April 1, 2016 through the Grantees termination date, and the denominator of which is 33. A partial month after the month of grant shall count as a full month for purposes of this calculation. The pro-rated earned Performance Units shall be paid as described in Section 5.
(d) Death or Long-Term Disability Before a Change in Control . If, before a Change in Control, the Grantee ceases to be employed by the Employer prior to the Vesting Date on account of death or Long-Term Disability (as defined below), the Grantee shall earn and vest in a pro-rated portion of the outstanding Performance Units based on the extent to which the Performance Goals are achieved for the Performance Period. In the event of a subsequent Change in Control, the amount achieved for the Performance Period shall be determined as of the Change in Control date as described in the Grant Letters. The pro-rated portion shall be determined by multiplying the number of Performance Units earned based on attainment of the Performance Goals by a fraction, the numerator of which is the number of months that elapsed during the period beginning on April 1, 2016 through the Grantees termination date and the denominator of which is 33. A partial month after the month of grant shall count as a full month for purposes of this calculation. The pro-rated earned Performance Units shall be paid as described in Section 5.
(e) Involuntary Termination, Death and Disability on or after a Change in Control. If the Grantees employment terminates on account of Involuntary Termination, death or Long-Term Disability on or after a Change in Control and prior to the Vesting Date, the Grantee shall vest in the Performance Units earned as of the Change in Control date as described in the Grant Letters. If the Grantee has a Change in Control Severance Agreement with the Company ( Change in Control Agreement ), on and after a Change in Control, the term Involuntary Termination shall have the meaning given a termination by the Company without Cause in the Change in Control Agreement, and shall include without limitation a termination for Good Reason as defined in the Change in Control Agreement. The Grantee agrees that, subject to the immediately preceding sentence, if and to the extent that these Grant Conditions conflict with the terms of the Change in Control Agreement or any employment agreement between the Company and the Grantee, these Grant Conditions shall supersede the provisions of the Change in Control Agreement and employment agreement applicable to vesting of performance units on and after a Change in Control, notwithstanding anything in the Change in Control Agreement or employment agreement to the contrary.
(f) Coordination of Provisions . If the Grantee terminates employment in a termination that is both a 55 / 5 Rule Termination and an Involuntary Termination, the termination shall be treated as an Involuntary Termination for purposes of the Grant Condition and Grant Letters.
4. Definitions . For purposes of these Grant Conditions and the Grant Letters:
(a) 55 / 5 Rule Termination shall mean the Grantees termination of employment other than for Cause after the Grantee has attained age 55 and has completed at least five years of service with the Employer.
(b) Cause shall mean any of the following, as determined in the sole discretion of the Employer: (i) commission of a felony or a crime involving moral turpitude; (ii) fraud, dishonesty, misrepresentation, theft or misappropriation of funds with respect to the Employer; (iii) violation of the Employers Code of Conduct or employment policies, as in effect from time to time; (iv) breach of any written noncompetition, confidentiality or nonsolicitation covenant of the Grantee with respect to the Employer; or (v) gross negligence or misconduct in the performance of the Grantees duties with the Employer.
(c) Involuntary Termination shall mean the Employers termination of the Grantees employment other than for Cause.
(d) Long-Term Disability shall mean the Grantee is receiving long-term disability benefits under the Employers long-term disability plan.
5. Payment .
(a) Except as provided below, after the end of the Performance Period, if the Committee certifies that the Performance Goals and other conditions to payment of the Performance Units have been met, the Company shall issue shares of Company Stock to the Grantee equal to the number of earned and vested Performance Units, subject to applicable tax withholding and subject to compliance with section 409A of the Code and as described in Section 20(h) of the Plan. Payment of earned and vested Performance Units shall be made in 2019 as soon as practicable after the Committee certifies the extent to which the Performance Goals and other conditions to payment of the Performance Units have been met, but not later than May 31, 2019, except as provided below. All unpaid Performance Units shall be forfeited in the event of termination for Cause.
(b) If the Grantees employment terminates for any reason other than Cause upon or within two years after a Change in Control that meets the requirements of a 409A CIC, the Grantees Performance Units that are unpaid, earned and vested (if any) shall be paid within 60 days after the termination date, subject to compliance with section 409A of the Code, if applicable, and as described in Section 20(h) of the Plan. The Company shall issue shares of Company Stock to the Grantee equal to the number of the earned and vested Performance Units, subject to applicable tax withholding. If a Change in Control does not meet the requirements of a 409A CIC, the Grantees earned and vested Performance Units (if any) shall be paid on the date described in subsection (a).
(c) Any fractional shares will be rounded up to the nearest whole share, but not exceeding 275% of the Target Award.
6. Dividend Equivalents . Dividend Equivalents shall accrue with respect to Performance Units and shall be payable subject to the same Performance Goals, vesting terms and other conditions as the Performance Units to which they relate. Dividend
Equivalents shall be credited on the Performance Units when dividends are declared on shares of Company Stock from the Date of Grant until the payment date for the vested Performance Units. The Company will keep records of Dividend Equivalents in a non-interest bearing bookkeeping account for the Grantee. No interest will be credited to any such account. Vested Dividend Equivalents shall be paid in cash at the same time and subject to the same terms as the underlying vested Performance Units. If and to the extent that the underlying Performance Units are forfeited, all related Dividend Equivalents shall also be forfeited.
7. Delivery of Shares . The Companys obligation to deliver shares upon the vesting of the Performance Units shall be subject to applicable laws, rules and regulations and also to such approvals by governmental agencies as may be deemed appropriate to comply with relevant securities laws and regulations.
8. Holding Requirements . Shares of Company Stock distributed for Performance Units earned in excess of the applicable Target Award must be held by the Grantee for one year following the Vesting Date (the Holding Period ) and may not be assigned, transferred, pledged or otherwise disposed of by the Grantee, other than by will or the laws of descent and distribution, during the Holding Period. However, if the Grantees employment with the Employer terminates for any reason, or a Change in Control occurs, the holding requirement of this Section 8 shall lapse as of the date of the Grantees termination of employment or the Change in Control, as applicable.
9. No Shareholder Rights . No shares of Company Stock shall be issued to the Grantee on the Date of Grant, and the Grantee shall not be, nor have any of the rights or privileges of, a shareholder of the Company with respect to any Performance Units.
10. No Right to Continued Employment . The grant of Performance Units shall not confer upon the Grantee any right to continued employment with the Employer or interfere with the right of the Employer to terminate the Grantees employment at any time.
11. Incorporation of Plan by Reference . The Grant Letters and these Grant Conditions are made pursuant to the terms of the Plan, the terms of which are incorporated herein by reference, and shall in all respects be interpreted in accordance therewith. The decisions of the Committee shall be conclusive upon any question arising hereunder. The Grantees receipt of the Performance Units constitutes the Grantees acknowledgment that all decisions and determinations of the Committee with respect to the Plan, the Grant Letters, these Grant Conditions, and the Performance Units shall be final and binding on the Grantee and any other person claiming an interest in the Performance Units.
12. Withholding Taxes . The Employer shall have the right to deduct from all payments made hereunder and from other compensation an amount equal to the federal (including FICA), state, local and foreign taxes required by law to be withheld with respect to the Performance Units. The Employer will withhold shares of Company Stock payable hereunder to satisfy the tax withholding obligation on amounts payable in shares, unless the Grantee provides a payment to the Employer to cover such taxes, in accordance with procedures established by the Committee. The share withholding amount shall not exceed the Grantees minimum applicable tax withholding amount.
13. Company Policies . All amounts payable under the Grant Letters and these Grant Conditions shall be subject to any applicable clawback or recoupment policies, share trading policies and other policies that may be implemented by the Companys Board of Directors from time to time.
14. Assignment . The Grant Letters and these Grant Conditions shall bind and inure to the benefit of the successors and assignees of the Company. The Grantee may not sell, assign, transfer, pledge or otherwise dispose of the Performance Units, except to a successor grantee in the event of the Grantees death.
15. Section 409A . The Grant Letters and these Grant Conditions are intended to comply with section 409A of the Code or an exemption, consistent with Section 20(h) of the Plan, including the six-month delay for specified employees in accordance with the requirements of section 409A of the Code, if applicable. In furtherance of the foregoing, if the Performance Units or related Dividend Equivalents constitute nonqualified deferred compensation within the meaning of section 409A of the Code, vested Performance Units and related Dividend Equivalents shall be settled on the earliest date that would be permitted under section 409A of the Code without incurring penalty or accelerated taxes thereunder.
16. Successors . The provisions of the Grant Letters and these Grant Conditions shall extend to any business that becomes a successor to the Company or its subsidiaries or affiliates on account of a merger, consolidation, sale of assets, spinoff or similar transaction with respect to any business of the Company or its subsidiaries or affiliates with which the Grantee is employed, and if this grant continues in effect after such corporate event, references to the Company or its subsidiaries or affiliates or the Employer in the Grant Letters and these Grant Conditions shall include the successor business and its affiliates, as appropriate. In that event, the Company may make such modifications to the Grant Letters and these Grant Conditions as it deems appropriate to reflect the corporate event.
17. Governing Law . The validity, construction, interpretation and effect of the Grant Letters and these Grant Conditions shall be governed by, and determined in accordance with, the applicable laws of the Commonwealth of Pennsylvania, excluding any conflicts or choice of law rule or principle.
* * *