Exhibit 10.3

 

 

ETHAN ALLEN INTERIORS INC.

 

CHANGE IN CONTROL SEVERANCE PLAN

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Table of Contents

 

                 

 

 

 

  

 

  

Page

 

INTRODUCTION

  

           

1.

 

PURPOSE OF THE PLAN

  

 

1

  

     

2.

 

EFFECTIVE DATE

  

 

1

  

     

3.

 

ADMINISTRATION OF THE PLAN

  

 

1

  

         

 

(a)

  

The Committee

  

 

1

  

 

 

(b)

  

Determinations by the Committee

  

 

1

  

 

 

(c)

  

Delegation of Authority

  

 

1

  

     

4.

 

PARTICIPATION IN THE PLAN

  

 

1

  

         

 

(a)

  

Designation of Participants

  

 

1

  

 

 

(b)

  

Terminating Status as a Participant

  

 

2

  

     

5.

 

CHANGE IN CONTROL

  

 

2

  

     

6.

 

ELIGIBILITY FOR BENEFITS UNDER THE PLAN

  

 

3

  

         

 

(a)

  

General

  

 

3

  

 

 

(b)

  

Cause

  

 

3

  

 

 

(c)

  

Good Reason

  

 

3

  

 

 

(d)

  

Certain Terminations Prior to a Change in Control

  

 

4

  

 

 

(e)

  

No Waiver

  

 

4

  

 

 

(f)

  

Notice of Termination After a Change in Control

  

 

4

  

 

 

(g)

  

Date of Termination

  

 

4

  

     

7.

 

OBLIGATIONS OF THE COMPANY UPON TERMINATION

  

 

4

  

         

 

(a)

  

Cause; Other than for Good Reason

  

 

4

  

 

 

(b)

  

Termination Without Cause; Good Reason Terminations

  

 

4

  

 

 

(c)

  

Timing of Payments and Release Condition

  

 

5

  

     

8.

 

MITIGATION

  

 

5

  

     

9.

 

RESOLUTION OF DISPUTES

  

 

6

  

     

10.

 

LEGAL EXPENSES AND INTEREST

  

 

6

  

     

11.

 

FUNDING

  

 

6

  

     

12.

 

NO CONTRACT OF EMPLOYMENT

  

 

6

  

     

13.

 

NON-EXCLUSIVITY OF RIGHTS

  

 

6

  

         

 

(a)

  

Future Benefits under Company Plans

  

 

6

  

 

 

(b)

  

Benefits of Other Plans and Agreements

  

 

7

  

     

14.

 

SUCCESSORS; BINDING AGREEMENT

  

 

7

  

     

15.

 

TRANSFERABILITY AND ENFORCEMENT

  

 

7

  

     

16.

 

NOTICES

  

 

7

  

  

 
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Table of Contents (continued)

 

                 

 

 

 

  

 

  

Page

 

     

17.

 

AMENDMENT OR TERMINATION OF THE PLAN

  

 

7

  

     

18.

 

WAIVERS

  

 

7

  

     

19.

 

VALIDITY

  

 

7

  

     

20.

 

GOVERNING LAW

  

 

7

  

     

21.

 

SECTION 409A

  

 

7

  

     

22.

 

HEADINGS

  

 

8

  

  

 
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ETHAN ALLEN INTERIORS INC.

 

CHANGE IN CONTROL SEVERANCE PLAN

 

1. Purpose of the Plan. This document establishes the Ethan Allen Interiors Inc.
Change in Control Severance Plan (the “Plan”) to assure the Company that it will
have the continued dedication of, and the availability of objective advice and
counsel from, key executives of the Company and its affiliates (as defined
below) notwithstanding the possibility, threat or occurrence of a Change in
Control.

 

2. Effective Date. The Change in Control Severance Plan (the “Plan”) shall
become effective on September 29, 2015.

 

3. Administration of the Plan.

 

(a) The Committee. The Plan shall be administered (i) by the Compensation
Committee members of the Board (the “Committee”), or (ii) in the absence of such
Committee or if the Committee is unable to act, by the Board. The members of the
Committee shall be entitled to all of the rights to indemnification and payment
of expenses and costs set forth in the Bylaws of the Company. In no event may
the protection afforded the Committee members in this Section 3(a) be reduced in
anticipation of or following a Change in Control.

 

(b) Determinations by the Committee. Subject to the express provisions of the
Plan and to the rights of the Participants (as defined below) pursuant to such
provisions, the Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to designate persons to be covered by
the Plan; to revoke such designations; to interpret the terms and provisions of
the Plan (and any notices or agreements relating thereto); and otherwise to
supervise the administration of the Plan in accordance with the terms hereof.
Prior to a Change in Control, all decisions made by the Committee pursuant to
the Plan shall be made in its sole discretion and shall be final and binding on
all persons, including the Company and Participants. The Committee’s
determinations need not be uniform, and may be made selectively among eligible
employees and among Participants, whether or not they are similarly situated.
Notwithstanding any provision in the Plan to the contrary, however, following a
Change in Control, any act, determination or decision of the Company or the
Committee, as applicable, with regard to the administration, interpretation and
application of the Plan must be reasonable, as viewed from the perspective of an
unrelated party and with no deference paid to the actual act, determination or
decision of the Company or the Committee, as applicable. Furthermore, following
a Change in Control, any decision by the Company or the Committee, as
applicable, shall not be final and binding on a Participant. Instead, following
a Change in Control, if a Participant disputes a decision of the Company or the
Committee relating to the Plan and pursues legal action, the court shall review
the decision under a “de novo” standard of review. In addition, following a
Change in Control, in the event that (i) the Company’s common stock is no longer
publicly traded and (ii) any securities of the Company’s Ultimate Parent (as
defined below) are publicly traded, then any decisions by the Board with respect
to whether a Participant was terminated for “Cause” shall be made by the board
of directors of the Ultimate Parent. For purposes of the Plan, “Ultimate Parent”
means a publicly traded corporation or entity which, directly or indirectly
through one or more affiliates, beneficially owns at least a plurality of the
then-outstanding voting securities of the Company (including any successor to
the Company by reason of merger, consolidation, the purchase of all or
substantially all of the Company’s assets or otherwise).

 

(c) Delegation of Authority. The Committee may delegate to one or more officers
or employees of the Company such duties in connection with the administration of
the Plan as it deems necessary, advisable or appropriate.

 

4. Participation in the Plan.

 

(a) Designation of Participants. The Board or the Committee shall from time to
time select the employees who are to participate in the Plan (the
“Participants”, and each individual, a "Participant") from among those
management or highly compensated employees of the Company and its affiliates it
determines to be appropriate to include as Participants, excepting the CEO who
shall be excluded as a Participant under this plan and whose employment
agreement shall take precedence over any benefits provided under this Plan,
given the purposes of the Plan and the potential effects on the employee of a
Change in Control. The Company shall notify each Participant in writing of his
or her participation in the Plan. For purposes of the Plan, the term “affiliate”
has the meaning set forth in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
includes any partnership or joint venture of which the Company or any of its
affiliates are general partners or co-venturers.

 

 
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(b) Terminating Status as a Participant. A person shall cease to be a
Participant upon (i) the termination of his or her employment by the Company or
any affiliate for any reason prior to a Change in Control, or (ii) the date that
the Company notifies the Participant in writing that such individual’s status as
a Participant has been revoked; provided that such revocation shall not become
effective until 12 months from the date that the revocation notice is provided.
Except as specifically provided herein, the Committee shall have absolute
discretion in the selection of Participants and in revoking their status as
Participants. Notwithstanding the foregoing, no revocation by the Committee of
any person’s designation as a Participant shall be effective if made (i) on the
day of, or within 24 months after, a Change in Control, (ii) prior to a Change
in Control, but at the request of any third party participating in or causing
the Change in Control or (iii) otherwise in connection with, in relation to, or
in anticipation of a Change in Control.

 

5. Change in Control. For purposes of the Plan, “Change in Control” means the
first to occur any of the following:

 

(a) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial
ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange
Act) of 50% or more of either (i) the then-outstanding shares of common stock of
the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that, for purposes of this Section, the
following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or one of its affiliates, or (D) any acquisition
pursuant to a transaction that complies with Sections 5(c)(i), 5(c)(ii) and
5(c)(iii);

 

(b) individuals who, as of the Effective Date hereof, constitute the Board (the
“Incumbent Board”) ceases for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director subsequent
to the date hereof whose election or nomination for election by the Company’s
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;

 

(c) consummation of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a “Business Combination”), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
or entity resulting from such Business Combination (including, without
limitation, a corporation or entity that, as a result of such transaction, owns
the Company or all or substantially all of the Company’s assets either directly
or through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or any corporation or entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation or
entity resulting from such Business Combination or the combined voting power of
the then-outstanding voting securities of such corporation or entity, except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation or entity resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement or of
the action of the Board providing for such Business Combination; or

 

(d) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

 

No Participant in this Plan who participates in any group conducting a
management buyout of the Company under the terms of which the Company ceases to
be a public company may claim that such buyout is a Change in Control under this
Plan and no such Participant shall be entitled to any payments or other benefits
under this Plan as a result of such buyout. For purposes of the Plan, no
Participant in this Plan shall be deemed to have participated in a group
conducting a management buyout of the Company unless, following the consummation
of the transaction, such Participant was the beneficial owner of more than 10%
of the then-outstanding voting securities of the Company or any successor
corporation or entity resulting from such transaction.

 

 
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6. Eligibility for Benefits under the Plan.

 

(a) General. If a Change in Control shall have occurred, each person who is a
Participant on the date the Change in Control is consummated shall be entitled
to the compensation and benefits provided in Section 7(b) upon the subsequent
termination of the Participant’s employment, provided that such termination
occurs prior to the second anniversary of the Change in Control, unless such
termination is (i) because of the Participant’s death or disability (as
determined under the Company’s Long Term Disability Plan in effect immediately
prior to the Change in Control), (ii) by the Company or its affiliate for Cause,
or (iii) by the Participant other than for Good Reason.

 

(b) Cause . For purposes of the Plan, “Cause” means:

 

(i) any material misappropriation of funds or property of the Company or its
affiliate by the Participant;

 

(ii) unreasonable and persistent neglect or refusal by the Participant to
perform his or her duties which is demonstrably willful and deliberate on the
Participant’s part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from the
Company specifying such breach;

 

(iii) conviction of the Participant of a securities law violation; or

 

(iv) found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any Federal or State
securities law or pleading of nolo contendere, or conviction of a felony or
pleading of nolo contendere to a felony.

 

Notwithstanding the foregoing provisions of this Section 6(b), the Participant
shall not be deemed to have been terminated for Cause after a Change in Control
unless and until there shall have been delivered to the Participant a copy of a
resolution duly adopted by the affirmative vote of not less than three quarters
of the entire membership of the Board at a meeting of the Board (after
reasonable notice to the Participant and an opportunity for Participant,
together with his or her counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Participant was guilty of conduct
set forth above in this Section 6(b) and specifying the particulars thereof in
detail.

 

(c) Good Reason. For purposes of the Plan, “Good Reason” means the occurrence
after a Change in Control of any of the following circumstances without the
Participant’s express written consent, unless such circumstances are fully
corrected prior to the Date of Termination (as defined below) specified in the
Notice of Termination (as defined below) given in respect thereof:

 

(i) the material diminution of the Participant’s duties, authorities or
responsibilities from those in effect immediately prior to the consummation of
Change in Control;

 

(ii) a material reduction in the Participant’s base salary or target bonus
opportunity as in effect on the date immediately prior to the consummation of
Change in Control;

 

(iii) the relocation of the Participant’s office from the location at which the
Participant is principally employed immediately prior to the date of the
consummation of Change in Control to a location 35 or more miles farther from
the Participant’s residence immediately prior to the Change in Control, and
recognizing that the Participant shall be expected to travel on the Company’s
business to an extent substantially consistent with the Participant’s business
travel obligations prior to the Change in Control;

 

(iv) the failure by the Company or its affiliate to pay any material
compensation or benefits due to the Participant;

 

(v) (A) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform the Plan, as contemplated in
Section 14; or

 

(vi) any purported termination of the Participant’s employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of the
Plan.

 

(d) Certain Terminations Prior to a Change in Control. Anything in the Plan to
the contrary notwithstanding, if a Change in Control occurs and if the
Participant’s employment with the Company is terminated prior to the date on
which the Change in Control occurs, and if it is reasonably demonstrated by the
Participant that such termination of employment (i) was at the request of any
third party participating in or causing the Change in Control or (ii) otherwise
arose in connection with, in relation to, or in anticipation of the Change in
Control, then the Participant shall be entitled to all payments and benefits
under the Plan as though the Participant had terminated his or her employment
for Good Reason on the day after the Change in Control. For purposes of this
Section 6(d), a Change in Control means a Change in Control that is also a
change in ownership or effective control of the Company or a change in the
ownership of a substantial portion of the assets of the Company within the
meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as
amended, (the “Code”) and the Treasury regulations and guidance issued
thereunder (“Section 409A”).

 

 
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(e) No Waiver. The Participant’s continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason hereunder.

 

(f) Notice of Termination After a Change in Control. Any termination by the
Company, or by the Participant for Good Reason, shall be communicated by Notice
of Termination given in accordance with the Plan. For purposes of the Plan, a
“Notice of Termination” means a written notice that (i) indicates the specific
termination provision in the Plan relied upon, and (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Participant’s employment under the
provision so indicated. With respect to a Notice of Termination given by a
Participant in connection with a termination for “Good Reason” such notice must
be provided within ninety (90) days after the event that created the “Good
Reason”.

 

(g) Date of Termination. For purposes of the Plan, “Date of Termination” means
(i) if the Participant’s employment is terminated by the Company for Cause, the
date on which the Notice of Termination is given or any later date specified
therein (which, however, shall not be more than 15 days later), (ii) if the
Participant’s employment is terminated by the Participant for Good Reason, the
date specified in the Notice of Termination (which, however, shall not be less
than 30 days or more than 45 days later than the date on which the Notice of
Termination is given), or (iii) if the Participant’s employment is terminated by
the Company other than for Cause, the date on which the Company notifies the
Participant of such termination. In all instances, the Date of Termination shall
mean the date of the Participant’s separation from service within the meaning of
Section 409A.

 

7. Obligations of the Company upon Termination.

 

(a) Cause; Other than for Good Reason. If the Participant’s employment shall be
terminated for Cause, or if the Participant terminates his or her employment
other than for Good Reason, the Company shall pay the Participant his or her
annual salary through the Date of Termination, to the extent not already paid,
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which the Participant is entitled under any law, or compensation,
benefit or other plan or policy of the Company at the time such amounts are due,
and the Company shall have no further obligations to the Participant under the
Plan.

 

(b) Termination Without Cause; Good Reason Terminations. Any Participant who
becomes eligible for compensation and benefits pursuant to Section 6(a) shall be
paid or provided the following:

 

(i) his or her annual base salary through the Date of Termination, to the extent
not already paid, at the rate in effect at the time Notice of Termination is
given and annual incentive bonus (to the extent the Participant was eligible
prior to the Date of Termination) for the fiscal year prior to the Date of
Termination, to the extent not already paid;

 

(ii) as severance pay and in lieu of any further salary or bonus for the period
following the Date of Termination, the Participant shall receive a lump sum
payment equal to his or her “Annual Compensation”.

 

For purposes of the Plan, “Annual Compensation” means the sum of (A) the
Participant’s annual base salary at the highest rate of salary during the
12-month period immediately prior to the Date of Termination or, if higher,
during the 12 month period immediately prior to the Change in Control (in each
case, as determined without regard for any reduction for deferred compensation,
401(k) Plan contributions and similar items), and (B) the higher of (1) the
average annual bonus the Participant earned with respect to the three fiscal
years immediately prior to the fiscal year in which the Change in Control
occurs; and (2) the average annual bonus the Participant earned with respect to
three fiscal years immediately prior to the fiscal year in which the Date of
Termination occurs;

 

(iii) a prorated annual bonus for the portion of the fiscal year elapsed prior
to the Date of Termination in an amount equal to the average annual bonus the
Participant earned with respect to three fiscal years immediately prior to the
fiscal year in which the Date of Termination occurs prorated for the portion of
the fiscal year elapsed prior to the Date of Termination;

 

 
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(iv) It is the object of this subsection to provide for the maximum after-tax
income to each Participant with respect to any payment or distribution to or for
the benefit of the Participant, whether paid or payable or distributed or
distributable pursuant to the Plan or any other plan, arrangement or agreement,
that would be subject to the excise tax imposed by Section 4999 of the Code or
any similar federal, state or local tax that may hereafter be imposed (a
“Payment”) (Section 4999 of the Code or any similar federal, state or local tax
are collectively referred to as the “Excise Tax”). Accordingly, before any
Payments are made under this Plan, a determination will be made as to which of
two alternatives will maximize such Participant’s after-tax proceeds, and the
Company must notify the Participant in writing of such determination. The first
alternative is the payment in full of all Payments potentially subject to the
Excise Tax. The second alternative is the payment of only a part of the
Participant’s Payments so that the Participant receives the largest payment and
benefits possible without causing the Excise Tax to be payable by the
Participant. This second alternative is referred to in this subsection as
“Limited Payment”. The Participant’s Payments shall be paid only to the extent
permitted under the alternative determined to maximize the Participant’s
after-tax proceeds, and the Participant shall have no rights to any greater
payments on his or her Payments. If Limited Payment applies, Payments shall be
reduced in a manner that would not result in the Participant incurring an
additional tax under Section 409A of the Code. Accordingly, Payments not
constituting nonqualified deferred compensation under Section 409A shall be
reduced first, in this order but only to the extent that doing so avoids the
Excise Tax (e.g., accelerated vesting or payment provisions in an award will be
ignored to the extent that such provisions would trigger the Excise Tax):

 

 

•

 

Payment of the severance amounts under Section 7(b)(ii)-(v) hereof to the extent
such payments do not constitute deferred compensation under Section 409A.

 

 

•

 

Performance-based awards in accordance with the 1992 Stock Option Plan as
amended or restated or succeeded (the “Stock Option Plan”).

 

 

•

 

Non-performance, service-based awards in accordance with the Stock Option Plan.

 

 

•

 

Awards of Options and SARs under the Stock Option Plan.

 

In the event of conflict between the order of reduction under this Plan and the
order provided by any other Company document governing a Payment, then the order
under this Plan shall control.

 

All determinations required to be made under this Section 7(b)(vi) shall be made
by KPMG LLP, or, if KPMG LLP is not the Company’s nationally recognized
independent accounting firm immediately prior to the Change in Control, such
other nationally recognized accounting firm serving as the Company’s independent
accounting firm (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and the Participant within ten (10) business
days of the termination of employment giving rise to benefits under the Plan, or
such earlier time as is requested by the Company. All fees, costs and expenses
(including, but not limited to, the costs of retaining experts) of the
Accounting Firm shall be borne by the Company. In the event the Accounting Firm
determines that the Payments shall be reduced, it shall furnish the Participant
with a written opinion to such effect. The determination by the Accounting Firm
shall be binding upon the Company and the Participant.

 

(c) Timing of Payments and Release Condition. All payments under Sections
7(b)(ii), 7(b)(iii), 7(b)(iv) and 7(b)(v) shall be due and payable in a lump sum
on the 60th day after the Date of Termination; provided that the Participant
executes the attached agreement set forth at Exhibit A (or a substantially
similar agreement) on or before the 60th day after the Date of Termination. The
Participant shall forfeit all rights under this Plan if such agreement is not
executed by that date. The timing of all payments and benefits under this Plan
shall be made consistent with the requirements of Section 409A, and
notwithstanding any provision of the Plan to the contrary, any amount or benefit
that is payable to a Participant who is a “specified employee” (as defined in
Section 409A) shall be delayed until the date which is first day of the seventh
month after the date of such Participant’s termination of employment (or, if
earlier, the date of such Participant’s death), if paying such amount or benefit
prior to that date would violate Section 409A.

 

8. Mitigation. Except as provided in Section 13(b), the Participant shall not be
required to mitigate the amount of any payment provided for in the Plan by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in the Plan be reduced by any compensation earned by the
Participant as a result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Participant to
the Company, or otherwise.

 

9. Resolution of Disputes. If there shall be any dispute between the Company and
the Participant (a) in the event of any termination of the Participant’s
employment by the Company, as to whether such termination was for Cause, or
(b) in the event of any termination of employment by the Participant, as to
whether Good Reason existed, then, unless and until there is a final,
nonappealable judgment by a court of competent jurisdiction declaring that such
termination by the Company was for Cause or that the determination by the
Participant of the existence of Good Reason was not made in good faith, the
Company shall pay all amounts, and provide all benefits, to the Participant
and/or the Participant’s family or other beneficiaries, as the case may be, that
the Company would be required to pay or provide pursuant to the Plan as though
such termination were by the Company without Cause or by the Participant with
Good Reason; provided, however, that the Company shall not be required to pay
any disputed amount pursuant to this Section except upon receipt of a written
undertaking by or on behalf of the Participant to repay all such amounts to
which the Participant is ultimately adjudged by such court not to be entitled.
Notwithstanding the foregoing, the payment of any amount in settlement of a
dispute described in this Section shall be made in accordance with the
requirements of Section 409A.

 

 
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10. Legal Expenses and Interest.

 

(a) If, with respect to any alleged failure by the Company to comply with any of
the terms of the Plan or any dispute between the Company and the Participant
with respect to the Participant’s rights under the Plan, a Participant in good
faith hires legal counsel with respect thereto or institutes any negotiations or
institutes or responds to legal action to assert or defend the validity of, to
interpret, enforce his or her rights under, or recover damages for violation of
the terms of the Plan, then (regardless of the outcome) the Company shall pay,
as they are incurred, the Participant’s actual reasonable expenses for
attorneys’ fees and disbursements. The Company agrees to pay such amounts within
10 days following the Company’s receipt of an invoice from the Executive,
provided that the Executive shall have submitted an invoice for such amounts at
least 30 days before the end of the calendar year next following the calendar
year in which such fees and disbursements were incurred.

 

(b) To the extent permitted by law, the Company shall pay to the Participant on
demand a late charge on any amount not paid in full when due after a Change in
Control under the terms of the Plan. Except as otherwise specifically provided
in the Plan, the late charge shall be computed by applying to the sum of all
delinquent amounts a late charge rate. The late charge rate shall be a fixed
rate per year that shall equal the sum of 3% plus the “prime rate” of JPMorgan
Chase Bank, NA or successor institution (“JPMorgan”) publicly announced by
JPMorgan to be in effect on the Date of Termination, or if JPMorgan no longer
publicly announces a prime rate on such date, any substantially equivalent rate
announced by JPMorgan to be in effect on such date (or, if JPMorgan does not
exist on such date, the prime rate published by the Wall Street Journal on such
date) (provided, however, that such rate shall not exceed any applicable legally
permissible rate).

 

11. Funding. The Company may, in its discretion, establish a trust to fund any
of the payments which are or may become payable to Participant under the Plan,
but nothing included in the Plan shall require that the Company establish such a
trust or other funding arrangement. Whether or not the Company sets any assets
aside for the purposes of the Plan, such assets shall at all times prior to
payment to Participants remain the assets of the Company subject at all times to
the claims of its creditors. Neither the Company nor the Board nor the Committee
shall be deemed to be a trustee or fiduciary with respect to any amount to be
paid under the Plan.

 

12. No Contract of Employment. The Participant and the Company acknowledge that,
except as may otherwise be provided under any written agreement between the
Participant and the Company, the employment of the Participant by the Company is
“at will” and, subject to such payments as may become due under the Plan, such
employment may be terminated by either the Participant or the Company at any
time and for any reason.

 

13. Non-exclusivity of Rights.

 

(a) Future Benefits under Company Plans. Nothing in the Plan shall prevent or
limit the Participant’s continuing or future participation in any plan, program,
policy or practice of the Company or any of its affiliates, nor shall anything
herein limit any rights or reduce any benefits the Participant may have under
any agreement or arrangement with the Company or any of its affiliates. Amounts
that are vested benefits or that the Participant is otherwise entitled to
receive under any plan, policy, practice or program of or any agreement or
arrangement with the Company or any of its affiliates at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or agreement or arrangement except as explicitly modified by
the Plan.

 

(b) Benefits of Other Plans and Agreements. If the Participant becomes entitled
to receive compensation or benefits under the terms of the Plan, such
compensation or benefits will be reduced by other severance benefits payable
under any plan, program, policy or practice of or agreement or other arrangement
between the Participant and the Company (not including payments or distributions
under the Company’s Stock Option Plan). It is intended that the Plan provide
compensation or benefits that are supplemental to severance benefits and that
are actually received by the Participant pursuant to any plan, program, policy
or practice of or agreement or arrangement between the Participant and the
Company, such that the net effect to the Participant of entitlement to any
similar benefits that are contained both in the Plan and in any other existing
plan, program, policy or practice of or agreement or arrangement between the
Participant and the Company will be to provide the Participant with the greater
of the benefits under the Plan or under such other plan, program, policy,
practice, or agreement or arrangement. This Plan is not intended to modify,
amend, terminate or otherwise affect the Company’s Stock Option Plan (or a
successor plan), which shall remain a fully independent and separate plan.

 

 
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14. Successors; Binding Agreement. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform the Plan in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in the Plan, “Company” means the Company as
herein defined and any successor to its business and/or assets which assumes and
agrees to perform the Plan, by operation of law or otherwise.

 

15. Transferability and Enforcement.

 

(a) The rights and benefits of the Company under the Plan shall be transferable,
but only to a successor of the Company, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by or against its
successors and assigns. The rights and benefits of Participant under the Plan
shall not be transferable other than by the laws of descent and distribution.

 

(b) The Company intends the Plan to be enforceable by Participants. The rights
and benefits under the Plan shall inure to the benefit of and be enforceable by
any Participant and the Participant’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Participant should die while any amount would still be payable
to the Participant hereunder had the Participant continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of the Plan to the Participant’s devisee, legatee or other designee or, if
there is no such designee, to the Participant’s estate.

 

16. Notices. Any notices referred to herein shall be in writing and shall be
deemed given if delivered in person or by facsimile transmission, telexed or
sent by U.S. registered or certified mail to the Participant at his or her
address on file with the Company (or to such other address as the Participant
shall specify by notice), or to the Company at its principal executive office,
Attn: Secretary.

 

17. Amendment or Termination of the Plan. The Board reserves the right to amend,
modify, suspend or terminate the Plan at any time, provided that:

 

(a) without the written consent of the Participant, no such amendment,
modification, suspension or termination shall adversely affect the benefits or
compensation due under the Plan to any Participant whose employment has
terminated prior to such amendment, modification, suspension or termination and
is entitled to benefits and compensation under Section 7(b);

 

(b) no such amendment, modification, suspension or termination that has the
effect of reducing or diminishing the right of any Participant to receive any
payment or benefit under the Plan will become effective prior to the first
anniversary of the date on which written notice of such amendment, modification,
suspension or termination was provided to the Participant, and if such
amendment, modification, suspension or termination was effected (i) on the day
of or subsequent to the Change in Control, (ii) prior to the Change in Control,
but at the request of any third party participating in or causing a Change in
Control or (iii) otherwise in connection with, in relation to, or in
anticipation of a Change in Control, such amendment, modification, suspension or
termination will not become effective until the second anniversary of the Change
in Control; and

 

(c) the Board’s right to amend, modify, suspend or terminate the Plan is subject
to the requirements of Section 409A to the extent such requirements apply to the
Plan.

 

18. Waivers. The Participant’s or the Company’s failure to insist upon strict
compliance with any provision of the Plan or the failure to assert any right the
Participant or the Company may have hereunder, including, without limitation,
the right of the Participant to terminate employment for Good Reason, shall not
be deemed to be a waiver of such provision or right or any other provision or
right under the Plan.

 

19. Validity. The invalidity or unenforceability of any provision of the Plan
shall not affect the validity or enforceability of any other provision of the
Plan, and such other provisions shall remain in full force and effect to the
extent permitted by law.

 

20. Governing Law. To the extent not preempted by federal law, all questions
pertaining to the construction, regulation, validity and effect of the
provisions of the Plan shall be determined in accordance with the laws of the
State of New York without regard to the conflict of laws principles thereof.

 

 
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21. Section 409A. (a) General. It is intended that payments and benefits made or
provided under this Plan shall not result in penalty taxes or accelerated
taxation pursuant to Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and the Plan shall be interpreted and administered in
accordance with that intent. If any provision of the Plan would otherwise
conflict with or frustrate this intent, that provision will be interpreted and
deemed amended so as to avoid the conflict. Any payments that qualify for the
“short-term deferral” exception, the separation pay exception or another
exception under Section 409A of the Code shall be paid under the applicable
exception. For purposes of the limitations on nonqualified deferred compensation
under Section 409A of the Code, each payment of compensation under this Plan
shall be treated as a separate payment of compensation for purposes of applying
the exclusion under Section 409A of the Code for short-term deferral amounts,
the separation pay exception or any other exception or exclusion under
Section 409A of the Code. In no event may a Participant, directly or indirectly,
designate the calendar year of any payment under this Plan. Despite any contrary
provision of this Plan, any references to “termination of employment” or “Date
of Termination” or similar term shall mean and refer to the date of a
Participant’s “separation from service,” as that term is defined in Section 409A
of the Code and Treasury regulation Section 1.409A-1(h).

 

(b) Delay of Payment. Notwithstanding any other provision of this Plan to the
contrary, if a Participant is considered a “specified employee” for purposes of
Section 409A of the Code (as determined in accordance with the methodology
established by the Company as in effect on the termination date), any payment
that constitutes nonqualified deferred compensation within the meaning of
Section 409A of the Code that is otherwise due to a Participant under this Plan
during the six (6)-month period immediately following a Participant’s separation
from service (as determined in accordance with Section 409A of the Code) on
account of a Participant’s separation from service shall be accumulated and paid
to such Participant on the first (1st) business day of the seventh (7th) month
following such Participant’s separation from service (the “Delayed Payment
Date”). If such Participant dies during the postponement period, the amounts and
entitlements delayed on account of Section 409A of the Code shall be paid to the
personal representative of such Participant’s estate on the first to occur of
the Delayed Payment Date or thirty (30) calendar days after the date of his or
her death.

 

(c) Reimbursement and In-Kind Benefits. Notwithstanding anything to the contrary
in this Plan, all reimbursements and in-kind benefits provided under this Plan
that are subject to Section 409A of the Code shall be made in accordance with
the requirements of Section 409A of the Code, including, where applicable, the
requirement that (i) any reimbursement is for expenses incurred during the
Participant’s lifetime (or, if longer, through the twentieth (20th) anniversary
of the Effective Date) or during a shorter period of time specified in this
Plan); (ii) the amount of expenses eligible for reimbursement, or in-kind
benefits provided, during a calendar year may not affect the expenses eligible
for reimbursement, or in-kind benefits to be provided, in any other calendar
year; (iii) the reimbursement of an eligible expense will be made no later than
the last day of the calendar year following the year in which the expense is
incurred; and (iv) the right to reimbursement or in-kind benefits is not subject
to liquidation or exchange for another benefit.

 

22. Headings. The headings and paragraph designations of the Plan are included
solely for convenience of reference and shall in no event be construed to affect
or modify any provisions of the Plan.

 

             

Dated: September 29, 2015

 

 

 

THE BOARD OF DIRECTORS OF

ETHAN ALLEN INTERIORS INC.

  

 
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Exhibit A

Form of Release

 

[Company's standard form of release to be inserted]

 

 

9