Document:

EXHIBIT 10.9

 

S CORPORATION TERMINATION AND TAX SHARING AGREEMENT

 

This S Corporation Termination and Tax Sharing Agreement, dated as of [                ], 2020 (the “Agreement”), is made by and between Vertex, Inc., a Delaware corporation (the “Company”), and the trusts and individuals identified on the signature page hereto (each a “Shareholder” and collectively the “Shareholders”).

 

RECITALS:

 

A.            The Company has elected to be an S corporation (the “S Election”) under Section 1362 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

B.            The Company intends to conduct an initial public offering registered under the Securities Act of 1933, as amended (the “Public Offering”).

 

C.            On the Termination Date (as defined in Section 2.01) the Company’s status as an S corporation will terminate.

 

D.            The Shareholders are currently the only shareholders of the Company and will continue to be so until immediately before the consummation of the Public Offering.

 

E.            In connection with the Public Offering, and in order to induce the investment by the public in the Company, the Company and the Shareholders desire to provide for the termination of the Company’s status as an S Corporation and a tax allocation and indemnification agreement in connection with the tax periods prior to and following the Termination Date, as well as the other agreements set forth herein.

 

AGREEMENT:

 

NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Shareholders do hereby covenant and agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

“AAA” shall mean “accumulated adjustments account” as set forth in Section 1368(e)(1) of the Code.

 

“Assumed Tax Rate” shall mean, with respect to any tax period, the maximum combined federal income tax rate and applicable state blended income tax rates (as determined in accordance with the Company’s past practices) for taxpayers who are married and filing jointly, applicable for such period, taking into account the deductibility of state income tax for federal income tax purposes.

 

“C Short Year” shall have the meaning set forth in Section 1362(e)(1)(B) of the Code.

 

 

“Code” shall have the meaning set forth in Recital A.

 

“Post-Termination Distribution” shall mean a cash distribution during the Post-Termination Transition Period as set forth in Section 1371(e) of the Code to the extent it does not exceed the AAA.

 

“Post-Termination Transition Period” shall have the meaning set forth in Section 1377(b)(1) of the Code and shall begin on the day after the last day of the Company’s S Short Year.

 

“Public Offering” shall have the meaning set forth in Recital B.

 

“S Corporation” shall have the meaning set forth in Section 1361 of the Code.

 

“S Corporation Taxable Income” shall mean, for periods beginning on or after the date the Company became an S Corporation and ending with the close of the last day of the Company’s S Short Year, the sum of (i) the Company’s items of separately stated income and gain (within the meaning of Section 1366(a)(1)(A) of the Code) reduced, to the extent applicable, by the Company’s separately stated items of deduction and loss (within the meaning of Section 1366(a)(1)(A) of the Code) and (ii) the Company’s non-separately computed net income (within the meaning of Section 1366(a)(l)(B) of the Code).

 

“S Corporation Tax Year” shall mean any taxable period during which the Company had an S Election in effect, including the S Short Year.

 

“S Election” shall have the meaning set forth in Recital A.

 

“S Short Year” shall have the meaning set forth in Section 1362(e)(1)(A) of the Code.

 

“S Termination Year” shall have the meaning set forth in Section 1362(e)(4) of the Code.

 

“Tax Proceeding” shall have the meaning set forth in Section 2.02.

 

“Termination Date” shall have the meaning set forth in Section 2.01.

 

“Treasury Regulations” shall mean the regulations promulgated by the United States Treasury Department under the Code.

 

ARTICLE 2

S CORPORATION TERMINATION AND TAX SHARING

 

2.01 Termination of S Election. Pursuant to Section 1362(d) of the Code, the Company’s status as an S Corporation shall terminate on the earlier of (i) the effective date of the Company’s revocation of the S Election as agreed by the Shareholders holding more than one-half of the shares of the Company stock and set forth on the statement filed in accordance with and in the manner 

 

 

provided by Treasury Regulations Section 1.1362-6(a)(3) or (ii) the day on which the Company issues shares of the Company’s common stock in the Public Offering to one or more shareholders which causes the Company to no longer qualify as an S Corporation (the “Termination Date”).

 

2.02 Payments Related to Future Adjustments. In the event that any final determination of an adjustment (by reason of an amended return, claim for refund, audit, judicial decision or otherwise, which determination occurs after the Termination Date (each, a “Tax Proceeding”)) results in an increase in S Corporation Taxable Income, the Company shall distribute to each Shareholder within 30 days of such final determination, cash in an amount equal to (i) the product of (A) the amount of increase in taxable income to such Shareholder resulting from the adjustment and (B) the Assumed Tax Rate plus (ii) any interest and penalties imposed thereon.

 

2.03 Liability for Taxes Incurred During the S Short Year and for Tax Periods Ending Prior to the Termination Date. Each Shareholder severally, and not jointly, covenants and agrees that: (i) such Shareholder has duly included (to the best of such Shareholder’s knowledge), or will duly include, in such Shareholder’s federal, state and local income tax returns, such Shareholder’s respective allocable shares of all items of income, gain, loss, deduction, or credit attributable to the S Short Year of the Company, (ii) its federal, state and local income tax returns shall, to the extent required by applicable law, include such Shareholder’s allocable share of S Corporation Taxable Income of the Company from all sources through and including the close of business on the last day of the S Short Year of the Company, and (iii) such Shareholder shall, to the extent required by applicable law, pay any and all taxes such Shareholder is required to pay, as a result of being a shareholder of the Company, for all taxable periods (or that portion of any period) during which the Company was an S Corporation.

 

2.04 Shareholder Indemnification for Tax Liabilities. The Shareholders severally (according to the relative percentage of the outstanding shares of the Company’s common stock owned by each Shareholder on the last day of any applicable period to which a liability described below relates) and not jointly, each hereby agree to indemnify and hold the Company harmless from, against and in respect of any unpaid income tax liabilities of the Company (including interest and penalties imposed thereon) (i) which are attributable to the Company’s S Corporation Taxable Income for the S Short Year or (ii) which are incurred by the Company as a result of a final determination of an adjustment (by reason of a Tax Proceeding) to the taxable income of the Shareholders for any period, including the S Short Year or thereafter, and which (in the case of this clause (ii)) are attributable to a decrease for any period in the Shareholders’ taxable income and a corresponding increase for any period in the taxable income of the Company.

 

2.05 Company Indemnification for Tax Liabilities. The Company hereby indemnifies and agrees to hold the Shareholders harmless from, against and in respect of income tax liabilities (including interest and penalties imposed thereon), if any, incurred by the Shareholders as a result of a final determination of an adjustment (by reason of a Tax Proceeding) to the taxable income of the Company for any period ending after the Termination Date (including, without limitation, the C Short Year) which results in an increase for any period in the taxable income of the Shareholders. The Company shall distribute to each Shareholder cash in an amount equal to (i) the product of 

 

 

(A) the amount of such increase in the taxable income of such Shareholder resulting from such final determination and (B) the Assumed Tax Rate, plus (ii) any interest and penalties imposed thereon.

 

2.06 Payments. The Shareholders or the Company, as the case may be, shall make any payment required under Sections 2.04 or 2.05 within 30 days after receipt of notice from the other party that a final determination of an adjustment (by reason of a Tax Proceeding) has occurred and a payment is due by such party to the appropriate taxing authority.

 

2.07 Termination Payments to Shareholders. Immediately prior to the Termination Date, the Company shall distribute to the Shareholders their pro rata share (the ownership of the shares of the Company’s common stock owned by each Shareholder) of an amount equal to the estimated federal and state tax liabilities of the Shareholders attributable to the operations of the Company during the S Short Year, and in respect of which no prior tax distribution shall have been made (the “Estimated Distribution”). No later than June 30, 2021, the Company shall make any necessary adjustments to finalize the Company’s taxable income for the S Short Year allocable to the Shareholders, and (x) if the amount of the Estimated Distribution to the Shareholders is less than the adjusted income tax liability of the Shareholders taking into account such finalized taxable income of the Company for the S Short Year, each Shareholder’s state income tax liabilities attributable to the operations of the Company for the S Short Year, and the Assumed Tax Rate (the “Final Distribution”), then the Company shall, within 30 days thereafter, distribute to the Shareholders their pro rata share of an amount equal to the excess of the Final Distribution over the Estimated Distribution; and (y) if the amount of the Final Distribution is less than the Estimated Distribution, then each Shareholder shall, within 30 days thereafter, deliver to the Company such Shareholder’s pro rata share of an amount equal to the excess of the Estimated Distribution over the Final Distribution. Promptly upon request, each Shareholder shall provide the Company with information related to such Shareholder reasonably necessary to allow the Company to determine the Final Distribution.

 

ARTICLE 3

ALLOCATION OF INCOME

 

3.01 Short Taxable Years. The parties acknowledge that the taxable year in which the Company’s status as an S Corporation is terminated pursuant to Section 2.01 will be an S Termination Year with respect to the Company. Pursuant to Section 1362(e)(1) of the Code, the S Termination Year of the Company shall be divided into two short taxable years: an “S Short Year” and a “C Short Year.”  The S Short Year shall be that portion of the Company’s S Termination Year ending on the day immediately preceding the Termination Date. Pursuant to Section 1362(e)(1)(B) of the Code, that portion of the S Termination Year beginning on the Termination Date and ending on the last day of the taxable year shall be the C Short Year of the Company.

 

3.02 Closing of the Books. The Company and each Shareholder agree that for income tax purposes (including for purposes of determining the Company’s S Corporation Taxable Income for its S Short Year), the Company shall allocate its items of income, gain, loss, deduction and 

 

 

credit for its calendar year between the S Short Year and the C Short Year in accordance with normal tax accounting rules (the “closing of the books” method).  The Company shall timely make the election under Section 1362(e)(3) of the Code.  Each Shareholder and the Company agree to provide such information and documentation (including any statement or consent required under Treasury Regulations Section 1.1362-6(b)) necessary to permit the Company to make such election validly.

 

ARTICLE 4

TAX MATTERS

 

4.01. Refunds. If the Company receives a refund of any income tax (including penalties and interest) for any period prior to the Termination Date, or as to which it has previously been indemnified by any Shareholder pursuant to this Agreement, the Company shall pay an amount equal to such refund, within 30 days after receipt thereof, to such Shareholder in accordance with such Shareholder’s proportionate ownership of the shares of the Company’s common stock on the last day of any applicable period to which the refund relates. If a Shareholder receives a refund of any income tax (including penalties and interest) as to which such Shareholder has previously been indemnified by the Company pursuant to this Agreement, such Shareholder shall, within 30 days after receipt thereon, remit an amount equal to such refund to the Company.

 

4.02. Notice and Tax Proceedings.

 

(a)                                 Each of the Company and the Shareholders agree that upon receipt of written notice of any Tax Proceeding or related matters that may affect the income tax liability of a party under this Agreement, such person shall use reasonable efforts to promptly (and in any event, not later than 10 days after receipt of such notice) notify each other party hereto.

 

(b)                                 The Company will have the option to represent itself in any Tax Proceeding involving the Company at its own expense and using advisors of the Company’s choice. Each Shareholder shall have the right, but not the obligation, to participate in such Tax Proceeding at such Shareholder’s own expense.

 

(c)                                  The Company and the Shareholders shall reasonably cooperate with each other in any applicable Tax Proceeding, including executing all instruments reasonably required to effectuate the provisions of this Section 4.02.  The parties shall make available to each other, as reasonably requested, and to any taxing authority as required by applicable law, all information, records or documents relating to the liability for taxes covered by this Agreement and will preserve any such information, records or documents until the expiration of the applicable statute of limitations (taking into account extensions thereof).  The party requesting such information shall reimburse the other party for all reasonable out-of-pocket expenses incurred in providing such requested information.

 

 

(d)                                 Notwithstanding anything to the contrary herein, no party shall take any action in any Tax Proceeding without the prior written consent of each affected party, which consent shall not be unreasonably withheld, conditioned or delayed.

 

(e)                                  Breach by a Shareholder of any of the provisions of this Section 4.02 will terminate the Company’s obligation to make payments to such Shareholder under Article 2 to the extent any such breach materially prejudices the result of any Tax Proceeding.

 

4.03. Inconsistent Reporting. If a Shareholder hereafter reports an item on such Shareholder’s income tax return in a manner materially inconsistent with the tax treatment reflected in the Schedule K-1 or other tax information provided to the Shareholders by the Company for a taxable period during which the Company’s S Election was in effect, the Shareholder shall notify the Company of such treatment before filing the Shareholder’s income tax return. If such Shareholder fails to notify the Company of such inconsistent reporting, such Shareholder shall be liable to the Company for any losses, costs or expenses (including reasonable attorneys’ fees) arising from such inconsistent reporting, including an audit.

 

ARTICLE 5

MISCELLANEOUS

 

5.01 Post-Termination Distributions. To the extent practicable and to the extent consistent with applicable law, payments or other distributions made to the Shareholders pursuant to Article 2 will be treated as Post-Termination Distributions for U.S. federal income tax purposes and any correspondingly applicable state and/or local tax purposes.

 

5.02 Other Distributions. To the extent that the Company’s tax return preparers determine that such payments or distributions cannot be properly treated as Post-Termination Distributions, then the amount of any distribution made to the Shareholders pursuant to Article 2 shall be increased by the amount of the Shareholders’ additional tax liability, if any, resulting from such payments or distributions, as reasonably determined by the Company’s tax return preparers, assuming that the Shareholders pay tax at the Assumed Tax Rate.

 

5.03 Confidentiality. Each of the parties agrees that any information furnished pursuant to this Agreement is confidential and, except as and to the extent required by law, or otherwise during the course of an audit or contest or other administrative or legal proceeding, shall not be disclosed to any person or entity.

 

5.04 Successors and Access to Information. This Agreement shall be binding upon and inure to the benefit of any successor, heirs or personal representatives to any of the parties, by merger, acquisition of assets or stock in the Company or otherwise, to the same extent as if the successor, heir or personal representative had been an original party to this Agreement or the applicable Shareholder for the taxable period in question, and in such event, all references herein to a party shall refer instead to the successor, heir or personal representative of such party; provided, however, that for purposes of calculating the tax liability to which any payments under this Agreement would relate, an original Shareholder’s tax liability shall be taken into account, but 

 

 

any payments in connection therewith shall be made to the successor, heir or personal representative of such original Shareholder.

 

5.05 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware excluding (to the greatest extent permissible by law) any rule of law that would cause the application of the laws of any jurisdiction other than the State of Delaware.

 

5.06 Headings. The headings in this Agreement are for convenience only and shall not be deemed for any purpose to constitute a part or to affect the interpretation of this Agreement.

 

5.07 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart.

 

5.08 Electronic Transmission. Any facsimile or electronically transmitted copies hereof or signature hereon shall, for all purposes, be deemed originals.

 

5.09 Notices. Any notice or communication required or permitted to be given under this Agreement shall be in writing (including telecopy communication) and mailed, telecopied or delivered to the parties at the addresses specified in the Company’s books and records relating to ownership of Company stock or at such other address as one party may specify by notice to the other party. All such notices and communications shall be effective when received. Any payment required to be made under this Agreement shall be mailed or delivered to the parties at the addresses specified in the Company’s books and records relating to ownership of Company stock or at such other address or account as one party may specify by notice to the other party.

 

5.10 Severability. If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent practicable. In any event, all other provisions of this Agreement shall be deemed valid, binding, and enforceable to their full extent.

 

5.12 Successor Provisions. Any reference herein to any provisions of the Code or Treasury Regulations shall be deemed to include any amendments or successor provisions thereto as appropriate.

 

5.13 Integration; Amendments. Except as explicitly stated herein, this Agreement embodies the entire understanding between the parties relating to its subject matter and supersedes and terminates all prior agreements and understandings among the parties with respect to such matters. No promises, covenants or representations of any kind, other than those expressly stated herein, have been made to induce any party to enter into this Agreement. This Agreement shall not be modified or terminated except by a writing duly signed by each of the parties hereto, and no waiver of any provisions of this Agreement shall be effective unless in a writing duly signed by the party sought to be bound.

 

 

5.14 Waiver of Jury Trial. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING OUT OF THIS AGREEMENT. EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.14.

 

[Signature Page Follows]

 

 

	
 
    	
VERTEX, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
[SHAREHOLDER]
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:Exhibit 10.10

 

VERTEX INC. & SUBSIDIARIES

 

2010 LONG-TERM REWARDS PLAN

 

[As Amended and Restated November 29, 2011]

 

For Performance Periods Beginning on and after January 1, 2010

 

 

I.             Introduction

 

This 2010 Long-Term Rewards Plan (the “Plan” or “LTRP”) is effective for awards made under it solely for performance periods beginning on and after January 1, 2010. The Company’s Long-Term Incentive Plan adopted in 2009 will continue to govern awards made under it prior to January 1, 2010.

 

The purpose of this Plan is to advance the interests of Vertex, Inc. (the “Company”), and to increase shareholder value by providing key employees of the Company and of its subsidiaries, consistent with the Company’s compensation philosophy, with long-term rewards that will:

 

·              Align the long term interests of participants with those of shareholders

 

·              Provide competitive compensation opportunities for key managers

 

·              Support attracting and retaining talented individuals

 

The Plan is a multi-year performance plan under which the Compensation Committee of the Company’s Board of Directors (the “Committee”) may make long-term participation awards, to be settled in cash to the extent earned after a specified performance period.

 

II.            General

 

No portion of any award under this Plan shall be deemed earned until it has been calculated and becomes payable, at the end of the applicable performance period or otherwise, as provided in and subject to the terms and conditions of the Plan.

 

Unless otherwise specified by the Committee the Company’s annual audited consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America or such other accounting principles as may be required or permitted by the Financial Accounting Standards Board, shall be the sole and conclusive source of information concerning the Company’s financial condition and results of operations for all purposes under the Plan.

 

III.          Initial Committee Determinations

 

January 1 of each year the Plan is in effect shall begin a new multi-year performance period, the duration of which shall be determined by the Committee. Unless otherwise specified by the Committee a performance period shall consist of three consecutive calendar years.

 

For each performance period for which participation awards are to be made, the Committee shall determine the “Performance Metrics,” a “Target CAGR” for each Performance Metric, “Percentage Factors,” and “Thresholds” (all as hereinafter defined)

 

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which shall be applicable in calculating “Earned Awards” and “Enhanced Awards” (as hereinafter defined) for that performance period.

 

IV.          Key Employees

 

Awards of participations for a performance period under the Plan may be made to key employees of the Company or of any subsidiary of the Company who are recommended for participation by the Chief Executive Officer (CEO) and approved by the Committee.  The Committee may also award participations for a performance period under the Plan to employees who are hired or promoted after the beginning of that performance period.  Any recommendation to make an award to such a new or promoted employee after the beginning of a performance period shall be submitted by the CEO to the Committee. The participation awarded to such new or promoted employee shall become effective on the first day of a calendar quarter to be specified by the Committee. The “Designated Participation” (as hereinafter defined) awarded to each such new or promoted employee shall be prorated based on the percentage of full calendar quarters remaining in the performance period from the award’s effective date.  Individuals who terminate employment from the Company and are later rehired will be treated the same as new hires.

 

V.            Participations

 

Each award of an individual participation under the Plan shall be made by the Committee to a key employee recommended by the CEO as provided in Section IV, above, and shall specify the following:

 

Employee’s name

 

Performance period for the award

 

Employee’s “Designated Participation”

 

A Designated Participation shall be an amount expressed either in units, dollars, or as a percentage of the employee’s base salary for the first year of the performance period (or, if the employee is a newly hired or promoted employee awarded a participation after the start of the performance period, the employee’s annual base salary in effect when the participation becomes effective). Designated Participations shall be determined in the discretion of the Committee on the basis of the Company’s long-term-reward compensation philosophy and an assessment of each participant’s contributions and future potential. A Designated Participation (subject to proration, if any, as provided in Section VII.a, below) shall be used solely in calculating the employee’s pro rata share of the “Award Pool” or of the “Enhanced Award Pool” (both as hereinafter defined) following the end of the applicable performance period.

 

If a Designated Participation is awarded to a member of the Company’s Corporate Leadership Team or any successor team or similar group as may be identified by the Committee, and thereafter during the performance period to which the Designated Participation applies that individual for any reason ceases to be a member of such team but remains an employee of the Company, the Committee shall have the right to reduce

 

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such individual employee’s Designated Percentage, on a prorated basis or otherwise, in such a fashion and to such extent as the Committee in its sole discretion may deem reasonable under the circumstances. In taking any such action the Committee shall take into consideration the manner by which their action will be implemented in the calculation of any Earned Award or Enhanced Award as hereinafter provided.

 

Prior to awarding any Designated Participation for a performance period under the Plan the Committee should consider whether to specify any Performance Metrics, Thresholds, or Percentage Factors, different from those provided in  Sections VI.a, VI.b, and VI.c, to be applicable to the award.

 

In awarding a Designated Participation under the Plan to any employee of a subsidiary that is a foreign entity, the Committee may, but need not, impose such additional terms and conditions, including but not limited to requirements with respect to deductions and other withholdings, as it, in its discretion, deems advisable.

 

VI.          Calculation and Payment of Earned Awards and Enhanced Awards

 

a.                                      Performance Metrics

 

“Performance Metrics” for each performance period will be key strategic measures tied to the long-term consolidated performance of the Company.  They will be established by the Committee within ninety days following the start of each performance period and communicated to plan participants.  Performance Metrics so established will be in effect for the entire performance period unless amended by the Committee in its discretion due to special situations. The Committee shall communicate amended Performance Metrics to participants within thirty days of amending.  The Committee may establish different Performance Metrics for each performance period.

 

Unless otherwise specified by the Committee, the Performance Metrics (each, a “Performance Metric”) shall be the Company’s consolidated:

 

1.                                      Revenue

 

2.                                      Pre-tax Net Income

 

3.                                      Net CGO

 

For the purposes of the Plan:  “Net CGO” shall mean, with respect to any applicable calendar year, consolidated (i) net cash generated by the Company’s operating activities, less (ii) purchases and capitalized property and equipment and capitalized software additions.

 

b.                                      Thresholds

 

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For each Performance Metric the Committee may establish a minimum acceptable annual level of performance (“Threshold”) for each calendar year including the last in any performance period.  Any Threshold shall be established by the Committee   at the same time it establishes the Performance Metrics for a performance period and communicated to Plan participants.

 

If in any year of a performance period (including, without limitation, the last calendar year of any performance period) the Company’s consolidated performance is below any Threshold applicable to that performance period, no “Earned Award” or “Enhanced Award” (both as hereinafter defined) or any other award under the Plan shall become payable to any participant for that performance period, at the end of the performance period or otherwise, whether or not other Thresholds applicable to that performance period, if any, have been achieved. Notwithstanding the foregoing the Committee may, in its sole discretion, approve the payment of an amount in lieu of any Earned Award or Enhanced Award (in such amount as the Committee may specify) at the end of a performance period in spite of the Company’s failure to have achieved any Threshold.

 

Unless otherwise specified by the Committee, the sole Threshold for each calendar year of a performance period shall be the Company’s achievement of ninety percent (90%) of the consolidated Pre-tax Net Income budgeted for that year in the final annual budget approved by the Company’s Board of Directors.

 

c.                                       Percentage Factors

 

As used herein, a Percentage Factor shall be a stated percentage by which growth in a Performance Metric over a performance period is to be multiplied in calculating an Award Pool, an Enhanced Award Pool or a “Target Award Pool” (as hereinafter defined). Each Percentage Factor applicable to a performance period will be established by the Committee within ninety days following the start of the performance period and communicated to Plan participants. Once established a Percentage Factor applicable to a particular performance period may be changed for that performance period only if the Committee decides, in its discretion, that a different Percentage Factor, which it shall specify, is necessary or appropriate. The Committee shall communicate any new Percentage Factor to participants within thirty days of making the change. The Committee may establish different Percentage Factors for each performance period.

 

Unless otherwise specified by the Committee, the Percentage Factors applicable to the following Performance Metrics shall be:

 

	
Performance Metric
    	
 
    	
Percentage   Factors
    
	
 
    	
 
    	
 
    
	
1.
    	
Revenue
    	
 
    	
1.25%
    
	
2.
    	
Pre-Tax Net Income
    	
 
    	
6.00%
    
	
3.
    	
Net CGO
    	
 
    	
6.00%
    

 

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d.              Target CAGR

 

For each performance period the Committee shall establish a “Target CAGR” for each Performance Metric. “Target CAGR” shall mean the specified annual growth rate that, compounded over a specified performance period, will be required to increase the dollar value of a Performance Metric from the dollar value achieved in the calendar year ended immediately prior to the beginning of the performance period to a higher dollar value targeted by the Committee for achievement in the last year of the performance period.

 

e.               Award Pool; Target Award Pool; Enhanced Award Pool

 

Upon receipt of the Company’s audited annual consolidated financial statements for the last calendar year of any performance period during which all Thresholds were met, but in no event later than 120 days following the end of the performance period, the Company shall determine the Award Pool, the Target Award Pool, and the Enhanced Award Pool (all as calculated below) for that performance period.

 

The Award Pool shall be calculated as follows:

 

(i) The Company shall calculate the growth in each Performance Metric over the performance period.  Growth in a Performance Metric shall equal the dollar excess in the value of the Performance Metric achieved in the last calendar year of the performance period over the dollar value of the same Performance Metric achieved in the calendar year ended immediately prior to the beginning of the performance period. (In no event shall growth be recognized as less than zero.)

 

(ii) The growth in each Performance Metric, as so calculated, shall be multiplied by the Percentage Factor applicable to that Performance Metric (such product, the “Performance Metric Contribution”).

 

(iii) The sum of the Performance Metric Contributions for all of the Performance Metrics applicable to a performance period shall constitute that performance period’s Award Pool.

 

The Target Award Pool shall be calculated as follows:

 

(i) The Company shall determine what the dollar growth in each Performance Metric would have been over the performance period if its dollar value in the calendar year ended immediately prior to the beginning of the performance period had grown over the performance period at exactly the Target CAGR.

 

(ii) The growth in each Performance Metric, as so calculated, shall be multiplied by the Percentage Factor applicable to that Performance Metric (such product, the “Target Performance Metric Contribution”).

 

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(iii)  The sum of the Target Performance Metric Contributions for all of the Performance Metrics applicable to a performance period shall constitute that performance period’s Target Award Pool.

 

The Enhanced Award Pool shall be calculated as follows:

 

(i)  The Committee shall determine the actual compounded annual growth rate (“Actual CAGR”) achieved over the performance period by each applicable Performance Metric. If the Actual CAGR for all of the Performance Metrics exceeded their respective Target CAGRs for that performance period, the Committee shall determine the “CAGR Percentage Increase” for each Performance Metric using the following formula:

 

CAGR Percentage Increase = (Actual CAGR – Target CAGR)

Target CAGR

 

The Committee shall then determine the “Applicable CAGR Percentage Increase,” which shall be the lowest CAGR Percentage Increase among those calculated, as above, for all of the Performance Metrics.

 

(ii)  For each full 1.0% (that is, rounding any fractional percentage down to the next lowest whole number) of the Applicable CAGR Increase up to but not exceeding 20%, the Company shall increase the Target Award Pool by 5.0%.

 

(iii)  A dollar amount equal to the Target Award Pool as so increased (but not in any event increased in excess of 100%) shall constitute that performance period’s Enhanced Award Pool.

 

(f)          Earned Award; Enhanced Award

 

The sole award, if any, payable to eligible participants with respect to any completed performance period, shall be either an Earned Award or an Enhanced Award:

 

(i)  If the Award Pool for the performance period exceeds the Enhanced Award Pool for that performance period, the Company shall pay each eligible participant an Earned Award.

 

(ii)  If the Enhanced Award Pool for the performance period exceeds the Award Pool for that performance period, the Company shall pay each eligible participant an Enhanced Award.

 

If Designated Participations for the performance period have been awarded in units,

 

(i)  “Earned Award” for an eligible participant shall mean the dollar amount equal to the product of the “Award Pool Unit Value” (as defined below) multiplied by

 

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the number of units held by the participant for that performance period after proration, if any, as provided in Section VII.a, below.

 

(ii)  “Enhanced Award” for an eligible participant shall mean the dollar amount equal to the product of the “Enhanced Award Pool Unit Value” (as defined below) multiplied by the number of units held by the participant for that performance period after proration, if any, as provided in Section VII.a, below.

 

(iii)  The “Award Pool Unit Value” shall be the quotient, expressed in dollars, of the value of the Award Pool divided by the aggregate number of units held by all eligible participants for that performance period after all prorations, if any, as provided in Section VII.a, below.

 

(iv)  The “Enhanced Award Pool Unit Value” shall be the quotient, expressed in dollars, of the value of the Enhanced Award Pool divided by the aggregate number of units held by all eligible participants for that performance period after all prorations, if any, as provided in Section VII.a, below.

 

If Designated Participations for the performance period have been awarded in dollars or as a percentage of participant’s base salary for the first year of the performance period

 

(i)  “Earned Award” for an eligible participant shall mean an amount equal to the product of the value of the Award Pool multiplied by the eligible participant’s “Award Percentage” (as defined below).

 

(ii) “Enhanced Award” for an eligible participant shall mean an amount equal to the product of the value of the Enhanced Award Pool multiplied by the eligible participant’s Award Percentage.

 

(iii)  Each eligible participant’s “Award Percentage” shall be equal to the quotient of the eligible participant’s Designated Participation expressed in dollars (after proration, if any, as provided in Section VII.a, below) divided by the aggregate of all eligible participants’ Designated Participations for that performance period expressed in dollars (after all prorations, if any, as provided in Section VII.a,  below).

 

g.             Change in Control

 

In the event of a Change in Control during any year except the first calendar year of a performance period, an Earned Award shall be calculated as provided in Section VI.f and paid as provided in Section IX, except that the growth in each Performance Metric shall equal the excess  of the value of the Performance Metric achieved in the calendar year immediately preceding the calendar year in which the Change in Control occurs over the value of the Performance Metric achieved in the calendar year ended immediately prior to the beginning of the performance period. No Enhanced Award shall be paid under the Plan in the event of any Change in Control during a performance period.

 

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No Earned Award shall be payable with respect to any performance period (i) if a Change in Control occurs in the first calendar year of the performance period, or (ii) if the Company’s performance, for any calendar year of the performance period completed prior to the effective date of the Change in Control, is below any Threshold applicable to that performance period, whether or not other Thresholds applicable to that performance period, if any, have been achieved.

 

Following a Change in Control participants shall have no further rights to any award under the Plan except as provided in this Subsection VI.g.

 

“Change in Control” means:  (i) any issuance or sale of the Company’s voting shares to a third party provided the issuance or sale consists of shares that will constitute more than 50% of the voting power of all of the Company’s issued and outstanding voting shares immediately following such issuance or sale, (ii) a statutory merger (regardless of whether or not the Company is the surviving entity) or a sale of all or substantially all of the assets of the Company, but only if the merger or sale results in members of  the Westphal Family (defined below) or their nominees holding directly and indirectly, less than an absolute majority of votes that may be cast by all shareholders of the surviving company in the election of directors, or (iii) a sale of a portion of the Company’s shares to a third party which, when taken together with one or more prior sales of the Company’s shares to third parties since January 1, 2010, results in there having occurred upon such sale, taken together with such prior sales, an event that cumulatively meets the conditions of (i), above.

 

“Westphal Family” means Rainer and Antoinette Westphal and their descendants.

 

h.             Forfeiture Pursuant to ICR Process

 

Notwithstanding any other provision in the Plan to the contrary, if a participant receives a final rating of “Does Not Meet” or two consecutive final ratings of “Usually Meets” through the Individual Contribution Rating (ICR) process (or reasonably similar ratings under any replacement individual performance review process that might be adopted by the Company) at any time during or with respect to any portion of a performance period, the participant shall forfeit, and have no further rights to, any Earned Award or Enhanced Award under the Plan for that performance period.  Such employee shall be treated as a new hire for purposes of re-entry into the Plan at a later date.

 

VII.         Termination of Employment

 

a.             Disability, Death, Retirement or Termination without Cause

 

If a participant’s employment has been terminated during a performance period by (i) disability (as determined by the Committee in its sole discretion) or death, (ii) “Retirement” (as defined below), or (iii) his or her involuntary termination without “Cause” (as defined below), and following that performance period Earned Awards or

 

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Enhanced Awards for the performance period are payable pursuant to Section VI.f, the Company shall pay to such participant (or his or her beneficiary or guardian, as applicable), following the end of the performance period, his or her Earned Award or Enhanced Award, if any, calculated in accordance with Section VI.f but with his or her Designated Participation prorated based on the percentage of full calendar quarters in the performance period in which he or she had been an employee during the performance period.  If a participant’s employment is terminated after the end of a performance period by disability (as determined by the Committee in its sole discretion), death, Retirement, or involuntary termination without Cause, and provided Earned Awards or Enhanced Awards for that performance period are then payable pursuant to Section VI.f but have not yet been paid, the Company shall pay to the participant (or his or her beneficiary or guardian, as applicable) an award equivalent to the Earned Award or Enhanced Award, if any, he or she would have received had the participant’s employment not been so terminated.  Awards payable under this Section VII.a will be paid to the participant (or his or her beneficiary or guardian, as applicable) on the same date as all other awards for such performance period are paid. For the purposes of this Section VII.a, “Retirement” shall mean an employee’s voluntary termination of employment after reaching age 65 (or such earlier age as may have been agreed to in writing by the Committee prior to the start of the applicable performance period).

 

If during a performance period a Change in Control occurs after a participant’s employment has been terminated as provided in this Subsection VII.a, that participant’s rights to an Earned Award shall be determined under Subsection VI.f as if he or she were still an employee participant, but the participant shall not be entitled to any Enhanced Award due to such Change in Control.

 

b.             Other Terminations

 

If an employee either voluntarily terminates employment (other than by Retirement) or is terminated for Cause at any time during or after a performance period (prior to the date any award with respect to such performance period is paid), the employee shall thereby  (i) forfeit, and have no rights with respect to, any participation, Earned Award, Enhanced  Award, or any other award hereunder that may be or become payable for that performance period, at the end of the performance period or otherwise, and (ii) thereafter not be deemed an eligible participant under the Plan for any purpose.

 

c..            “Cause” means, unless otherwise defined in a participant’s employment agreement (in which case, such definition shall control):  (i) the conviction of a felony or entering of a plea of nolo contendere for a crime involving an act of fraud, dishonesty or moral turpitude, (ii) violation of the non-competition provisions of the participant’s employment agreement, if applicable, (iii) a material violation of the non-disclosure provisions of the participant’s employment agreement, if applicable, (iv) a breach of any other provisions of the participant’s employment agreement, if applicable, if, after 15 days written notice to the participant, the participant fails to cure such breach, or if such breach is not subject to cure, fails on an on-going basis thereafter to comply with the provisions of the employment agreement with respect to which the participant was in

 

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such breach, (v) failure to comply with a reasonable directive of the Board of Directors or the President of the Company and if, after 5 days written notice to the participant, the participant fails to so comply, (vi) repeated and continuous failure to comply with a reasonable directive of the Board or the President, (vii) commission of an act of fraud, misappropriation of funds or embezzlement in connection with the participant’s employment, or (viii) commission of an act of gross malfeasance or gross negligence causing a material injury to the property or the business of the Company.

 

VIII.       Plan Authority

 

The Plan has been approved by the Board of Directors and is administered by the Committee.  The Committee has discretion to interpret the Plan, prescribe, amend and rescind rules and regulations necessary or appropriate for the administration of the Plan, and to make such other determinations and take such other actions in regard to the Plan, or awards earned under the Plan, as it deems necessary or advisable. Any action authorized or directed under the Plan to be taken by the Committee may also be taken by the Company’s Board of Directors.

 

To the extent any Earned Award or Enhanced Award is deferred compensation subject to section 409A of the Internal Revenue Code, the provisions of the Plan applicable to such Earned Award or Enhanced Award shall be construed and interpreted in accordance with the requirements of such section in order to avoid the imposition of additional tax under such section.

 

The Plan may be amended or discontinued by the Committee or the Board of Directors at any time and for any or no reason.

 

IX.          Timing of Payment

 

Final performance determination will be made as soon as administratively practical upon receipt of the Company’s  audited annual financial statements for the last calendar year of any performance period during which Thresholds were met, but in no event later than 120 days following the end of the performance period.  Except in the event of a Change in Control, Earned Awards or Enhanced Awards will be paid not later than April 30 following the last day of the final calendar year of the applicable performance period.  For purposes of the preceding sentence, payment shall be treated as made on such April 30 if payment is made on a later date that is as soon as practicable after such April 30 and within the same calendar year. A participant shall have no discretion over the payment date and shall have no right to interest as a result of payment on such a later date.  In the event of a Change in Control, Earned Awards will be paid (i) within 30 days after the Change in Control becomes effective, if the Change in Control is also a change in control event as defined in regulations issued under section 409A of the Internal Revenue Code, or (ii) in any other case, within the period described above in this Section.

 

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X.            Method of Payment

 

All awards under the Plan will be paid as a lump-sum cash payment through the Company’s normal payroll procedures.  The Company shall be entitled to withhold or deduct from any payment of an award hereunder all amounts that may be required to be withheld or deducted under the U.S. Internal Revenue Code or regulations promulgated thereunder, or under any other laws or regulations, whether U.S. or foreign, applicable to such payment.

 

XI.          Governing Document

 

If any of the terms of the Plan relating to payments made in the event of a termination of employment conflict with any other agreement to which the employee is subject, the terms of the Plan shall control.

 

XII.        Beneficiary Designation

 

Each employee shall designate the person(s) as the beneficiary(ies) to whom any amounts payable under the Plan shall be paid in the event of the employee’s death prior to such payment.  Each beneficiary designation shall be substantially in the form set forth in Appendix A attached hereto and shall be effective only when filed with the Committee during the Participant’s lifetime.  An employee may change his or her beneficiary designation without the consent of any previously designated beneficiary by filing a new beneficiary designation with the Committee.  The filing of a new beneficiary designation shall cancel all beneficiary designations previously filed.  If the employee fails to designate a beneficiary or the designated beneficiary predeceases the employee, any amounts payable shall be paid to the employee’s surviving spouse, or if the employee has no surviving spouse, to the employee’s estate.

 

XIII.       Payment to Guardian

 

If an award is payable under the Plan to a minor, a person declared incompetent or a person incapable of handling the disposition of property, the Committee may direct the payment of such award to the guardian, legal representative or person having the care and custody of the minor, incompetent or incapable person.  The Committee may require proof of incompetency, minority, incapacity or guardianship as the Committee may deem appropriate prior to the payment.  The payment shall completely discharge the Committee, the Board of Directors and the Company from all liability with respect to the award payment.

 

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APPENDIX A

 

VERTEX, INC. & SUBSIDIARIES

 

2010 LONG-TERM REWARDS PLAN

 

BENEFICIARY DESIGNATION FORM

 

This form is for your use under the Vertex Inc. & Subsidiaries 2010 Long-Term Rewards Plan (the “Plan”) to name a beneficiary for the award that may be paid to you under the Plan.  You should complete two copies of the form, sign and date them, and deliver both copies to Human Resources. Human Resources will return one copy to you signed and dated by Vertex

 

*          *          *          *

 

I understand that in the event of my death before I receive an award that may be payable to me under the Plan, the award will be paid to the beneficiary designated by me below or, if none or if my designated beneficiary predeceases me, to my surviving spouse or, if none, to my estate.  I further understand that the last beneficiary designation filed by me during my lifetime and accepted by Vertex cancels all prior beneficiary designations previously filed by me under the Plan.

 

I hereby state that                              [insert name], residing at                                                                  [insert address], whose Social Security number is                   , is designated as my beneficiary.

 

	
 
    	
 
    	
 
    
	
Signature of   Participant
    	
 
    	
Date
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Name of Participant   (please print)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ACCEPTED:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
VERTEX, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Date

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