Document:

fmao-ex101_7.htm

Exhibit 10.1

Employment Agreement between Farmers & Merchants State Bank and

Lars B. Eller, dated as of September 1, 2021

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made and entered into as of September 1, 2021, by and between Farmers & Merchants State Bank, a commercial bank organized under the laws of the State of Ohio (the “Bank”), and Lars B.  Eller (the “Executive”), and is joined in by Farmers & Merchants Bancorp, Inc., an Ohio corporation and parent holding company of the Bank (the “Corporation”).

 

WHEREAS, the Bank is engaged in the general business of banking;

 

WHEREAS, the Board of Directors of the Bank believes that the continued services of the Executive in the capacity of President and Chief Executive Officer of the Bank and the Corporation will be of great value to the Bank and the Corporation; and

 

WHEREAS, the Executive is willing to provide such services and continue employment with the Bank and the Corporation as President and Chief Executive Officer on a full-time basis for the term of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto have agreed and do hereby mutually agree as follows:

 

1.Term – Agreement to Serve.  The Bank hereby retains the services of the Executive commencing as of September 1, 2021 and ending August 31, 2024 (the “Employment Term”), to perform the duties of President and Chief Executive Officer of the Bank.  Pursuant to the terms of this Agreement, the Executive will also serve as President and Chief Executive Officer of the Corporation. The Executive hereby accepts such employment in consideration of the compensation and the other terms and conditions herein provided, and agrees to serve the Bank and the Corporation well and faithfully and to devote his best efforts to such employment as long as it shall continue hereunder.  During the period of such employment, the Executive will devote all necessary time and attention customary for full-time employment – reasonable vacations, periods of illness and the like excepted – to the affairs of the Bank.

 

2.Base Salary and Incentive Compensation.  As compensation for these services hereunder, the Bank will pay to the Executive, in installments and on dates in accordance with its normal payroll, during the period of his employment hereunder, an annual base salary at the rate of Three Hundred Eighty Nine Thousand Four Hundred and Eighty Dollars ($389,480), as the same may be adjusted upward by the Corporation (but not downward) from time to time during the Employment Term, or any extension thereof (hereinafter referred to as “Base Pay”).

 

3.Other Benefits.  In addition to the Base Pay, the Bank shall provide the Executive the following benefits during the Employment Term:

 

(a)Participation in the Bank’s Annual Cash Incentive Plan, which Plan includes a two-tier program based upon achievement of return on assets objectives and achievement of earnings per share objectives;

 

(b)Equity grants, with a target range of 4,000 shares of the Corporation’s common stock, pursuant to the Corporation’s Long-Term Equity Incentive Plan, as determined by the Corporation’s Compensation Committee, based upon Bank and Corporation performance, which shares will be restricted and subject to three-year cliff vesting;

 

(c)Equity Grants pursuant to the Corporation’s Long-Term Equity Incentive Plan in amounts equal to that provided to the nonemployee directors of the Corporation, currently granted in June of each year, which shares shall not be restricted; such grant equaled $6,000 in value of common shares of the Corporation in 2021;

 

 

(d)Participation in the Bank’s 401(k) Plan, in which the Bank matches 50% on the first 6% of contributions by the Executive and the Discretionary Profit Sharing Plan, in which the Bank contributes an additional discretionary percentage;

 

(e)Participation in other employee benefit plans or programs of the Bank or the Corporation to the extent that his position, tenure, salary and other qualifications make him eligible to participate, subject to the rules and regulations applicable thereto, including health insurance for Executive and his family and employee bonus plans, if any, as the same may be in effect from time to time;

 

(f)Term life insurance on the life of the Executive in the amount of $600,000 payable to his beneficiaries;

 

(g)A monthly car allowance of $600.00;

 

(h)Four (4) weeks paid vacation annually;

 

(i)Reimbursement of fees and expenses incurred in connection with business of the Bank including without limitation, gasoline expenses related to work travel, fees for attendance at banking related conventions and similar items.  The Executive agrees to comply with the Bank’s policies and procedures, including recordkeeping, regarding reimbursement of business expense as the same may be in force from time to time in connection with his rights to reimbursement for such expenses.  

 

Except as specifically set forth herein, termination of employment of the Executive at or prior to the end of the Employment Term, shall cause the immediate termination of these additional benefits.

 

4.Termination of Employment.  The employment of the Executive under the terms of this Agreement shall cease and terminate upon the occurrence of any of the following and the Executive shall be entitled to the compensation provided for herein.

 

(a)Expiration of Term. On the last day of the Employment Term.  In the event of a termination pursuant to this subparagraph, the Executive shall be entitled to receive the amount of annual Base Pay provided for in paragraph 2 hereof prorated through the last day of the Employment Term and any incentive compensation earned through such date.

 

(b)Death.  On the date of the Executive’s death.  In the event of the termination of employment by reason of death, the Executive shall be entitled to receive the amount of annual Base Pay provided for in paragraph 2 hereof prorated through the date of death and any incentive compensation earned through such date.

 

(c)Termination by the Bank with Cause.  For Cause at any time by the Bank.  For purposes hereof, the term “Cause” shall mean: (i) removal by order of a regulatory agency having jurisdiction over the Bank or the Corporation; (ii) dishonesty or material inappropriate behavior, such as illegal harassment of employees; (iii) misappropriation of Bank, or customer property; (iv) commission of a felony or crime of moral turpitude; or (v) the Executive’s willful and repeated failure to perform his duties under this Employment Agreement, which failure has not been cured within thirty (30) days after the Bank gives notice thereof to the Executive; it being expressly understood that negligence or bad judgment shall not constitute “Cause” so long as such negligent act or omission shall be without intent of personal profit and is reasonably believed by the Executive to be in or not adverse to the best interests of the Bank.  In the event of a termination for Cause pursuant to this subparagraph, the Executive shall be entitled to receive the amount of annual Base Pay provided for in paragraph 2 hereof prorated through the date of termination of the Executive’s employment by the Bank.

 

(d)Disability.  Upon receipt by the Executive of written notice from the Bank that the Executive is unable, by reason of Disability, to continue the proper performance of his duties hereunder.  For purposes of this Agreement, the Executive’s Disability shall mean disability as determined under the plans, 

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policies, or programs applicable to the Executive and if no such plan, policy, or program exists, Disability shall mean the Executive is unable to perform the material and substantial functions or duties of the Executive’s position due a medical condition (including mental conditions).  In the event of a termination of employment pursuant to this subparagraph, the Executive shall be entitled to receive the amount of annual Base Pay provided for in paragraph 2 hereof prorated through the date of termination of the Executive’s employment by the Bank and any incentive compensation earned through such date of termination of the Executive’s employment as determined by the Bank, and shall also be entitled to receive any disability benefits payable to him under the terms of the Bank’s disability insurance plan.

(e)Termination following a Change in Control of the Bank.  If a “Change of Control” (as defined on Exhibit A attached hereto) occurs during the Employment Term, and the Executive’s employment with the Bank is involuntarily terminated without Cause at the time or during the period of twelve (12) months following such Change in Control, the Executive shall be entitled to receive as separation pay in a single lump sum, payable within fourteen (14) days of his termination of employment with the Bank, a cash payment equal to two (2) times the sum of (i) his then annual Base Pay (at a rate not lower than his rate of Base Pay in effect immediately prior to the effective date of the Change in Control), plus (ii) the average amount, paid as a cash bonus and other incentive compensation, for the three-year period ending with the date of the Change in Control.  In addition, to the payments set forth in (i) and (ii) in the immediately preceding sentence, the Bank shall continue Executive’s coverage in the Bank’s health, disability, dental, and life insurance at the same levels that had been provided immediately prior to his termination of employment in connection with a Change of Control commencing on the date of termination of the Executive’s employment (or, if later, the effective date of the Change in Control) and shall end on the last day of the 12th consecutive whole month thereafter.  Notwithstanding anything to the contrary in this Agreement, if any benefit payable to the Executive under this Subsection 4(e) would otherwise be treated as an excess parachute payment subject to the disallowed deduction and an excise tax under the excess parachute rules of Internal Revenue Code sections 280G and 4999, the Bank shall reduce the separation benefit payable under this Subsection 4(e) to the maximum benefit that would not result in any such excise tax.

 

(f)Regulatory Limitations.  If any amount otherwise payable to the Executive pursuant to this Section 4 of the Agreement is prohibited or limited by any statute, regulation, order, consent decree or similar limitation in effect at the time the payments would otherwise be paid, including, without limitation, the requirements of 12 U.S.C. §1828(k) and regulations promulgated thereunder (a “Limiting Rule”): (i) the Bank shall pay the maximum amount that may be paid after applying the Limiting Rule; and (ii) shall use commercially reasonable efforts to obtain the consent of the appropriate agency or body to pay any amounts that cannot be paid due to the application of the Limiting Rule.  The Executive agrees that the Bank and the Corporation shall not have breached any of their respective obligations under this Agreement if they are not able to pay all or some portion of any payment due to the Executive as a result of the application of a Limiting Rule.

 

5.Confidential Information.  The Executive shall not at any time, in any manner, while employed by the Bank or thereafter, either directly or indirectly, except in the course of carrying out the Bank’s business or as previously authorized in writing on behalf of the Bank, disclose or communicate to any person, firm, or corporation, any information of any kind concerning any matters affecting or relating to the Bank’s business or any of its data, figures, projections, estimates, customer lists or customer information, tax records, personnel histories, and accounting procedures of the Bank or the Corporation, without regard to whether any or all of such information would otherwise be deemed confidential or material.  The covenants in this Section 5 shall survive termination of the Executive’s employment under this Agreement regardless of the reason for the Executive’s termination.

 

6.Covenant Not to Compete.  

 

(a)Throughout the term of the Agreement and during a Restricted Period of one (1) year immediately following any termination of the Executive’s employment under this Agreement, including any expiration of the term of this Agreement, the Executive agrees that he will not, except on behalf of the Bank or with the express written consent of the Bank:

 

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(i)directly or indirectly engage in the business of banking or any other business in which the Bank or the Corporation directly or indirectly engages during the term of the Agreement.  For purposes of this Section 6, the Executive shall be deemed to engage in a business if he directly or indirectly, engages or invests in, owns, manages, operates, controls or participates in the ownership, management, operation or control of, is employed by, associated or in any manner connected with, or renders services or advice to, any business engaged in banking, provided, however, that Executive may invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if two conditions are met: (A) such securities are listed on any national or regional securities exchange (or have been registered under Section 12(g) of the Securities Exchange Act of 1934); and (B) the Executive does not beneficially own (as defined Rule 13d-3 promulgated under the Securities Exchange Act of 1934) in excess of 1% of the outstanding capital stock of such enterprise.  The Executive previously disclosed one investment to the Bank, which the Bank acknowledges and agrees that the Executive may retain, even though technically inconsistent with the provisions of this Section 6(a)(i).  

 

(ii)directly or indirectly, for the benefit of any bank or financial institution or any company or other entity affiliated, directly or indirectly, with another bank or financial institution other than the Bank, solicit the employment or services of, hire, or assist in the hiring, or request, induce or attempt to influence any employee of the Bank to terminate that employee’s employment with the Bank.

 

(iii)directly or indirectly request, induce or attempt to influence any existing or prospective customers, vendors or licensors of the Bank to curtail or cancel any business they may transact with the Bank.  “Prospective customers” shall mean individuals or entities that the Executive shall have had substantive personal contact with on behalf of the Bank seeking to secure such prospective customer as a customer of the Bank within the one year immediately preceding the termination of the Agreement or the expiration of the Agreement.  

 

(b)The parties acknowledge that this Section 6 is fair and reasonable under the circumstances.  It is the desire and intent of the parties that the provisions of this Section 6 shall be enforced to the fullest extent permitted by law.  Accordingly, if any particular portion of this Section 6 shall be adjudicated to be invalid or unenforceable, this Section 6 shall be deemed amended to:

 

(i)reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, 

 

(ii)delete therefrom the portion thus adjudicated to be invalid or unenforceable, such reformation or deletion to apply only with respect to the operation of this Section 6 in the particular jurisdiction in which such adjudication is made. 

 

	

	
(c)During the term of the Executive’s employment hereunder, the covenants contained in this Section 6 shall apply without regard to geographic location.  Upon the termination of the Executive’s employment, the covenants contained in this Section 6 shall apply only to counties in which the Bank then has its main office or a branch office and counties contiguous thereto.  Currently the Bank maintains offices in Ohio and Indiana, but may expand beyond such states in the future.

 

(d)The covenants in this Section 6 shall survive termination of the Executive’s employment under this Agreement regardless of the reason for the Executive’s termination.

 

7.Non-Assignability.  Neither party to this Agreement shall have the right to assign this Agreement or any rights or obligations hereunder.

 

8.Binding Effect.  This Agreement shall be binding upon and inure to the benefit of any successor of the Bank, and any such successor shall be deemed substituted for the Bank under the terms of this Agreement.  As used in this Agreement, the term “successor” shall include any person, firm, corporation, or other business entity 

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which, at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets or business of the Bank.

 

9.Entire Agreement.  This Agreement contains the entire agreement of the parties hereto concerning the subject matter hereof, and cancels any and all other oral or written agreements or understandings between the parties with respect to the subject matter hereof.  The Agreement may not be changed orally, but only by agreement in writing signed by both parties.

 

10.Authorization for Acts of Bank.  Any act, request, approval, consent or opinion of the Bank hereunder shall be authorized, given or expressed by resolution of its Board of Directors.

 

11.Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payment made to or for the benefit of the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.

 

12.Governing Law.  This Agreement is executed and delivered in the State of Ohio and is intended to be interpreted, construed and enforced in accordance with the laws of such State.

 

13.Regulatory Prohibition, Claw Back Provision and other Limitations.  Notwithstanding any other provision of this Agreement to the contrary, any payment(s) made to or for the benefit of the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.  In addition, the Bank or any of its successors, including the Federal Deposit Insurance Corporation in its capacity as receiver of the Bank, retains the legal right to demand the return of any payments made under the terms of this Agreement should the Bank or its successors later obtain information indicating the Executive has committed, is substantially responsible for, or has violated, the respective acts or omissions, conditions, or offenses outlined under 12 C.F.R. 359.4(a)(4). By execution of this Agreement the Bank and Executive acknowledge, agree and stipulate to, and all provisions of this Agreement shall be subordinate to and become null in void in the event of any conflict with, the following: (i) the provision of 12 CFR 359, or any consent or approval granted under the provisions of this part by the FDIC (in its corporate capacity), shall not in any way bind any receiver of a failed insured depository institution; (ii) any consent or approval granted under the provisions of  12 CFR 359 by the FDIC or any other federal banking agency shall not in any way obligate such agency or receiver to pay any claim or obligation pursuant to any golden parachute, severance indemnification or other agreement; (iii) claims for employee welfare benefits or other benefits which are contingent, even if otherwise vested, when the FDIC is appointed as receiver for any depository institution, including any contingency for termination of employment, are not provable claims or actual, direct compensatory damage claims against such receiver; and (iv) nothing in 12 CFR 359 may be construed to permit the payment of salary or any liability or legal expense of any IAP (as the same is defined in the Federal Deposit Insurance Act) contrary to 12 U.S.C. 1828(k)(3).

 

14.Limitations Under Section 409A of the Internal Revenue Code.  The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, the requirements of Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be limited, construed and interpreted in accordance with such intent.  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of the Agreement, references to a “termination,” “termination of employment” or like terms shall mean separation from service.  All reimbursements and in-kind benefits provided under this Agreement, including without limitation under Section 3 or 4, shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iii) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.

 

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed on its behalf by the Chairman of its Board of Directors, and the Executive has signed this Agreement, all as of the date and year first above written.

 

 

	
Executive
	
Farmers & Merchants State Bank

 

 

 

	
/s/ Lars B. Eller
	
/s/ Jack C. Johnson

Lars B. EllerJack C. Johnson, Board Chairman

 

 

 

 

Farmers & Merchants Bancorp, Inc. hereby agrees to be bound be the terms hereof, joins in this Agreement and fully guarantees the performance of the terms hereof by the Bank.  

 

 

Farmers & Merchants Bancorp, Inc.

 

 

 

	
/s/ Jack C. Johnson
	

Jack C. Johnson, Board Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 10.1

 

Exhibit A

Change in Control Definition:

A “Change in Control” shall mean a “Change in Ownership” as defined in (a) hereof; a “Change in Effective Control” as defined in (b), hereof; or a “Change in Ownership of a Substantial Portion of Assets” as defined in (c) hereof, each of which shall be interpreted in a manner consistent with the definitions of these terms in Treasury Regulation Section 1.409A-3(i)(5).

 

(a)Change in Ownership. For purposes of this Agreement, a change in the ownership of the Bank or the Corporation occurs on the date – 

 

(i)that any one person, or more than one person acting as a group (as defined in subsection (d) hereof), acquires ownership of stock of the Bank or the Corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Bank or the Corporation. However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Bank or the Corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Bank or the Corporation (or to cause a change in the effective control of the Bank or the Corporation within the meaning of subsection (b) hereof). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Bank or the Corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section.

 

(ii)of the consummation of any merger, consolidation or reorganization with any other corporation pursuant to which the shareholders of the Bank or the Corporation immediately prior to the merger, consolidation or reorganization do not immediately thereafter directly or indirectly own more than fifty percent of the combined voting power of the voting securities entitled to vote in the election of directors of the merged, consolidated or reorganized entity.

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(b)Change in the Effective Control. For purposes of this Agreement, a change in the effective control of the Bank or the Corporation occurs on the date that either – 

 

(i)Any one person, or more than one person acting as a group (as determined under subsection (d) hereof), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Bank or the Corporation possessing 35 percent or more of the total voting power of the stock of the Bank or the Corporation; or

 

(i)a majority of members of the Bank’s or the Corporation’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Bank’s or the Corporation’s board of directors prior to the date of the appointment or election.

 

In the absence of an event described in subsection (b)(i) or (ii) above, a change in the effective control of the Bank or the Corporation will not have occurred.

 

(c)Change in the Ownership of a Substantial Portion of the Bank’s or the Corporation’s Assets. For purposes of this Agreement, a change in the ownership of a substantial portion of the Bank’s or the Corporation’s assets occurs on the date that any one person, or more than one person acting as a group (as determined in subsection (d) hereof), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Bank or the Corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Bank or the Corporation immediately prior to such acquisition or acquisitions.  For this purpose, gross fair market value means the value of the assets of the Bank or the Corporation or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

There is no Change in Control Event under this subsection (c) when there is a transfer to an entity that is controlled by the shareholders of the Bank or the Corporation immediately after the transfer, as provided in this paragraph. A transfer of assets by the Bank or the Corporation is not treated as a change in the ownership of such assets if the assets are transferred to –

 

(i)A shareholder of the Bank or the Corporation (immediately before the asset transfer) in exchange for or with respect to its stock;

 

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(ii)An entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Bank or the Corporation;

 

(iii)A person, or more than one person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Bank or the Corporation; or

 

(iv)An entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person described in section (iii) above.

 

For purposes of this subsection (c) and except as otherwise provided, a person’s status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which the transferor corporation has no ownership interest before the transaction, but which is a majority-owned subsidiary of the transferor corporation after the transaction is not treated as a change in the ownership of the assets of the transferor corporation.

 

(d)Persons Acting as a Group. Persons will not be considered to be acting as a group solely because they purchase assets or purchase or own stock of the same corporation at the same time, or as a result of the same public offering. However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, purchase or acquisition of assets, or similar business transaction with Bank or the Corporation. If a person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving rise to the change and not with the ownership interest in the other corporation.  Notwithstanding the foregoing, no trust department or designated fiduciary or other trustee of such trust department of the Bank or a subsidiary of the Bank or the Corporation, or other similar fiduciary capacity of the Bank or the Corporation with direct voting control of the stock, shall be treated as a person or group within the meaning of hereof.  Further, no profit-sharing, employee stock ownership, employee stock purchase and savings, employee pension, or other employee benefit plan of the Bank or the Corporation or any of their respective subsidiaries, and no trustee of any such plan in its capacity as such trustee, shall be treated as a person or group within the meaning hereof.

 

9Document

Exhibit 4.5

CAPITAL SOUTHWEST CORPORATION

2021 EMPLOYEE RESTRICTED STOCK AWARD PLAN 

1.    PURPOSE 

This Plan is intended to foster and promote the long-term financial success of Capital Southwest Corporation and its Subsidiaries (the “Company Group”); to reward performance and to increase shareholder value by providing Participants appropriate incentives and rewards; to enable the Company Group to attract and retain the services of outstanding individuals upon whose judgment, interest and dedication the successful conduct of the Company Group’s businesses are largely dependent; to encourage Participants’ ownership interest in Capital Southwest Corporation; and to align the interests of employees with that of the Company’s shareholders.

2.    DEFINITIONS

(a)    “1940 Act” means the Investment Company Act of 1940, as amended.

(b)    “Affiliate” means any “parent corporation” or “subsidiary corporation” of the Company, as such term is defined in Code Sections 424(e) and 424(f).

(c)    “Award Agreement” means a written or electronic agreement evidencing and setting forth the terms of a Restricted Stock Award.

(d)    “Board of Directors” means the board of directors of the Company.

(e)    “Cause” means, unless otherwise specified in the Award Agreement or in an employment agreement with any member of the Company Group, with respect to a Participant:

(i)    Commission of any act or acts of personal dishonesty intended to result in substantial personal enrichment to the Employee to the detriment of any Company Group member;

(ii)    Conviction of, or entering into a plea of nolo contendere to, a felony;

(iii)    In the case of an Employee, repeated failures to perform his responsibilities that are demonstrably willful and deliberate;

(iv)    Intentional, repeated or continuing violation of any of the applicable Company Group member’s policies or procedures that occurs or continues after notice to the Participant that he or she has violated such policy or procedure; or

(v)    Any material breach of a written covenant or agreement with a Company Group member, including the terms of this Plan or any material breach of fiduciary duty to a Company Group member.

A Participant shall be considered to have been discharged for Cause if the Company determines within 30 days after his resignation or discharge that discharge for Cause was warranted.

(f)    “Change in Control” means

(i)    The date any one person, or more than one “person” acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person(s)) ownership of Common Stock possessing 51% or more of the total voting power of the Common Stock of the Company;

(ii)    Individuals who at any time during the term of this Agreement constitute the board of directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii) considered as though such person were a member of the Incumbent Board;

(iii)    Any consolidation or merger to which the Company is a party, if following such consolidation or merger, shareholders of the Company immediately prior to such consolidation or merger shall not beneficially own securities representing at least 51% of the combined voting power of the outstanding voting securities of the surviving or continuing corporation; or

(iv)    Any sale, lease, exchange or other transfer (in one transaction or in a series of related transactions) of all, or substantially all, of the assets of the Company, other than to an entity (or entities) of which the Company or the shareholders of the Company immediately prior to such transaction beneficially own securities representing at least 51% of the combined voting power of the outstanding voting securities.

(g)    “Code” means the Internal Revenue Code of 1986, as amended.

(h)    “Committee” means the Compensation Committee of the Board of Directors.

(i)    “Common Stock” means the Common Stock of the Company, par value, $0.25 per share.

(j)    “Company” means Capital Southwest Corporation, a corporation organized under the laws of the State of Texas, and all successors to it.

(k)    “Date of Grant” means the date when the Company completes the corporate action necessary to create the legally binding right constituting a Restricted Stock Award.

(l)    “Disability” has the meaning set forth in Code Section 22(e)(3).

(m)    “Effective Date” means the date the Plan is approved by the shareholders of the Company.

(n)    “Employee” means any person employed by the Company or a Subsidiary. Directors who are employed by the Company or a Subsidiary shall be considered Employees under the Plan.

(o)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(p)    “Fair Market Value” on any date means the closing sales price of the Common Stock on the Nasdaq Global Select Market (or any other such exchange on which the Common Stock may be traded in the future) on the date of determination. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal.  The Committee’s determination of Fair Market Value shall be conclusive and binding on all persons.

(q)    “Good Reason” means, unless otherwise specified in the Award Agreement or in an employment agreement with any member of the Company Group, with respect to a Participant, any one or combination of the following events without the Participant’s consent:

(i)    A diminution in the Participant’s compensation;

(ii)    a diminution in the Participant’s authority, duties or responsibilities; and

(iii)    a relocation of 50 miles or more of the Participant’s primary work location.

A Participant shall be considered to have terminated for Good Reason only if: (A) the Participant provides notice to the Company of the Good Reason event(s) within 30 days of the initial occurrence of such event(s); (B) the Company has 60 days from the date such notice is received to cure such Good Reason event(s) but fails to do so; and (C) the Participant voluntarily terminates employment within 6 months of the initial occurrence of such Good Reason event(s).

(r)    “Participant” means any person who holds an outstanding Restricted Stock Award.

(s)    “Plan” means this Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan.

(t)    “Restricted Stock” or “Restricted Stock Award” means, individually or collectively, a grant of Shares under the Plan.

(u)    “Share” means a share of Common Stock.

(v)    “Subsidiary” means any subsidiary of the Company.

(w)    “Termination of Service” shall mean the termination of employment of an Employee by the Company and any Subsidiaries. A Participant’s service shall not be deemed to have terminated because of a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service. Furthermore, a Participant’s service with the Company Group shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company or a Subsidiary; provided, however, that if any such leave exceeds 90 days, on the 91st day of such leave the Participant’s service shall be deemed to have terminated unless the Participant’s leave of absence is approved by the Committee. Except as otherwise provided in any Award Agreement, the Participant’s service shall be deemed to have terminated upon the entity for which the Participant performs service ceasing to be a Subsidiary (or any successor). Subject to the foregoing, the Company, in its discretion, shall determine whether a Participant’s service has terminated and the effective date of such termination.

3.    ADMINISTRATION

The Committee shall administer the Plan. The Committee shall consist of two or more disinterested directors of the Company, who shall be appointed by the Board of Directors. A member of the Board of Directors shall be deemed to be “disinterested” only if he satisfies such requirements as the Securities and Exchange Commission may establish for non-employee directors administering plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan and subject to the approval by the required majority of the Company’s directors, as defined in Section 57(o) of the 1940 Act:

(a)    The Committee shall have the sole and complete authority to:

(i)    Determine the Employees to whom Restricted Stock Awards are granted, the type and amounts of Restricted Stock Awards to be granted and the time of all such grants;

(ii)    Determine the terms, conditions and provisions of, and restrictions relating to, each Restricted Stock Award granted;

(iii)    Interpret and construe the Plan and all Award Agreements;

(iv)    Prescribe, amend and rescind rules and regulations relating to the Plan;

(v)    Determine the content and form of all Award Agreements;

(vi)    Determine all questions relating to Restricted Stock Awards under the Plan, including whether any conditions relating to a Restricted Stock Award have been met;

(vii)    Consistent with the Plan and with the consent of the Participant, as appropriate, amend any outstanding Restricted Stock Award or amend the exercise date or dates thereof;

(viii)    Determine the duration and purpose of leaves of absence that may be granted to a Participant without constituting termination of the Participant’s employment for the purpose of the Plan or any Restricted Stock Award;

(ix)    Maintain accounts, records and ledgers relating to Restricted Stock Awards;

(x)    Maintain records concerning its decisions and proceedings;

(xi)    Employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; and

(xii)    Do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and to carry out the objectives of the Plan.

(b)    Each Restricted Stock Award shall be evidenced by an Award Agreement containing such provisions as may be approved by the Committee. Each Award Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of the Award Agreement, shall be bound by the terms and restrictions of the Plan and the Award Agreement. The terms of each Award Agreement shall be in accordance with the Plan, but each Award Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, and at a minimum, the Committee shall set forth in each Award Agreement (i) the number of Shares subject to the Restricted Stock Award; (ii) the expiration date of the Restricted Stock Award; (iii) the manner, time, and rate (cumulative or otherwise) of vesting of such Restricted Stock Award; and (iv) the restrictions, if any, placed upon such Restricted Stock Award, or upon Shares which may be issued upon vesting of such Restricted Stock Award. The Chairman of the Committee and such other directors and officers as shall be designated by the Committee is hereby authorized to execute Award Agreements on behalf of the Company and to cause them to be delivered to the recipients of Restricted Stock Awards.

4.    STOCK SUBJECT TO THE PLAN

(a)    General Limitations.

(i)    Subject to adjustment as provided in Section 11 of the Plan, the maximum number of Shares reserved for issuance in connection with Restricted Stock Awards under the Plan is 1,200,000 Shares. Subject to adjustment as provided in Section 11 of the Plan, the total number of Shares that may be outstanding as Restricted Stock under the Plan and the Company’s 2021 Non-Employee Director Restricted Stock Award Plan (together, the “Plans”) shall not exceed 10% of the outstanding Shares on the effective date of the Plan plus 10% of the Shares issued or delivered by the Company (other than pursuant to any Employee compensation plans) during the term of the Plans.

(ii)    The amount of voting securities that would result from the exercise of all the Company’s outstanding warrants, options, and rights, together with any Restricted Stock issued pursuant to this Plan and any other compensation plan of the Company, at the time of issuance shall not exceed 25% of the outstanding voting securities of the Company; provided, however, that if the amount of voting securities that would result from the exercise of all the Company’s outstanding warrants, options, and rights issued to the Company’s directors, officers, and employees, together with any Restricted Stock issued pursuant to this Plan and any other compensation plan of the Company, would exceed 15% of the outstanding voting 

securities of the Company, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options, and rights, together with any Restricted Stock issued pursuant to this Plan and any other compensation plan of the Company, at the time of issuance shall not exceed 20% of the outstanding voting securities of the Company.

(b)    Other Rules.

(i)    The number of Shares associated with a Restricted Stock Award originally counted against the limitations as the result of the grant of the Restricted Stock Award shall be restored against the limitations and be available for reissuance under this Plan if and to the extent the Restricted Stock Award is surrendered, cancelled, expires, terminates or is forfeited for any reason.

(ii)    Shares withheld by, or otherwise remitted to satisfy a Participant’s tax withholding obligations upon the lapse of restrictions on a Restricted Stock, or upon any other payment or issuance of Shares under the Plan shall not become available for issuance or reissuance under the Plan.

(iii)    Shares issued under the Plan may be either authorized but unissued Shares, authorized Shares previously issued held by the Company in its treasury which have been reacquired by the Company, or Shares purchased by the Company in the open market.

5.    ELIGIBILITY

Subject to the terms of the Plan, all Employees shall be eligible to receive Restricted Stock Awards under the Plan as selected and determined by the Committee.

6.    RESTRICTED STOCK AWARDS

The Committee may, subject to the limitations of the Plan and the availability of Shares reserved but not previously awarded under this Plan, grant Restricted Stock Awards to eligible Employees upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a)    Payment of the Restricted Stock Award. The Restricted Stock Award may only be made in whole Shares.

(b)    Terms of the Restricted Stock Awards. The Committee shall determine the dates on which Restricted Stock Awards granted to a Participant shall vest and any specific conditions which must be satisfied prior to the vesting of any installment or portion of the Restricted Stock Award. Any such vesting period will be no shorter than one year as of the Date of Grant. Notwithstanding the foregoing, up to 5% of the maximum number of Shares available for issuance under this Plan as provided for in Section 4(a), as such may be adjusted under Section 11, may be used for awards that do not at the Date of Grant comply with the one-year minimum vesting period. The Committee may, in its sole discretion, accelerate the vesting of any Restricted Stock Awards after the Date of Grant except in the event of a Change in Control. The acceleration of any Restricted Stock Award shall create no right, expectation or reliance on the part of any other Participant or that certain Participant regarding any other Restricted Stock Awards.

(c)    Termination of Service. Unless otherwise determined by the Committee or as otherwise provided herein, upon a Participant’s Termination of Service for any reason, including retirement, other than Disability or death, the Participant’s unvested Restricted Stock Awards as of the date of termination shall be forfeited and any rights the Participant had to such unvested Restricted Stock Awards shall become null and void. Unless otherwise provided in the applicable Award Agreement, in the event of a Participant’s Termination of Service due to Disability or death, all unvested Restricted Stock Awards held by such Participant shall immediately vest.

(d)    Treatment Upon a Change in Control. In the event of a Change in Control, all unvested Restricted Stock Awards held by a Participant that were granted on or after the Effective Date shall vest upon the Change in 

Control if either (i) within two years following the Change in Control, the Participant’s service is involuntarily terminated for reasons other than for Cause or the Participant terminates his or her employment or service for Good Reason or (ii) such Restricted Stock Awards are not assumed or converted into replacement awards in a manner described in Section 11(b)(iii). All unvested Restricted Stock Awards held by a Participant that were granted before the Effective Date shall continue to be subject to the terms of the Plan as in effect prior to the Effective Date.

7.    DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS

(a)    Dividends. A Participant holding a Restricted Stock Award shall, unless otherwise provided in the applicable Award Agreement, be entitled to receive, with respect to each such Share covered by a Restricted Stock Award, a payment equal to any dividends or distributions.

(b)    Voting of Restricted Stock Awards. After a Restricted Stock Award has been granted, but for which Shares covered by such Restricted Stock Award have not yet vested, the Participant shall be entitled to vote such Shares subject to the rules and procedures adopted by the Committee for this purpose.

(c)    Restrictive Legend. Each certificate issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, at the discretion of the Board of Directors, each such certificate shall be held by the Company until the Restricted Stock has vested. Each such certificate shall bear the following (or a similar) legend:
“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the Capital Southwest Corporation 2021 Employee Restricted Stock Plan and an agreement entered into between the registered owner and Capital Southwest Corporation. A copy of such plan and agreement is on file at the principal office of Capital Southwest Corporation.”

8.    RIGHTS OF PARTICIPANTS

Nothing contained in this Plan or in any Award Agreement confers on any person any right to continue in the employ or service of the Company or an Affiliate or interferes in any way with the right of the Company or an Affiliate to terminate a Participant’s services.

9.    DESIGNATION OF BENEFICIARY

A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Restricted Stock Award to which the Participant would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Participant fails to designate a beneficiary, then the Participant’s estate will be deemed to be the beneficiary.

10.    TRANSFERABILITY OF RESTRICTED STOCK AWARDS

No Restricted Stock Award granted hereunder shall be transferable, voluntarily or involuntarily, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code.

11.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR A CHANGE IN CONTROL

(a)    Adjustment Clause. In the event of any change in the outstanding Shares by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, extraordinary dividend, exchange of shares or other change affecting the outstanding shares of Stock as a class without the Company’s receipt of consideration, or other equity restructuring within the meaning of Financial Accounting Standard No. 123 (revised 2004), appropriate adjustments shall be made to the aggregate number of shares of Stock with respect to which Restricted Stock Awards may be made under the Plan. The Committee shall also make appropriate adjustments described in the previous sentence in the event of any distribution of assets to shareholders other than a normal cash dividend. Adjustments, if any, and any determination or interpretations, made by the Committee shall be final, 

binding and conclusive. Any adjustment made under this Section 11 will be made in accordance with any required action by shareholders of the Company, the provisions of any applicable corporate law and the approval of the required majority, as defined in Section 57(o) of the 1940 Act, of the Company’s directors. Conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. Except as expressly provided herein, no issuance by the Company of shares of any class or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to a Restricted Stock Award.

(b)    Change in Control. If a Change in Control occurs, the Committee may, in its discretion and subject to the limitations set forth in Section 6(d) of the Plan:

(i)    Cancel outstanding Restricted Stock Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Restricted Stock Awards, as determined by the Committee or the Board of Directors in its sole discretion;

(ii)    Substitute other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for Shares subject to outstanding Restricted Stock Awards; and

(iii)    Arrange for the assumption of Restricted Stock Awards, or replacement of Restricted Stock Awards with new awards based on other property or other securities (including, without limitation, other securities of the Company and securities of entities other than the Company), by the affected Subsidiary, Affiliate, or division or by the entity that controls such Subsidiary, Affiliate, or division following the transaction (as well as any corresponding adjustments to Restricted Stock Awards that remain outstanding based upon Company securities);

No such adjustments may, however, change the vesting schedule for an outstanding Restricted Stock Award upon a Change in Control or otherwise change the value of benefits available to a Participant under an outstanding Restricted Stock Award.

12.    TAX WITHHOLDING

The Company’s obligation to make cash payments pursuant to a Restricted Stock Award or deliver Shares, or any other event with respect to rights and benefits hereunder, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment tax withholding obligations. To the extent that the Company is required to withhold any federal, state or local income and employment taxes in respect of any compensation income realized by the Participant in respect of Shares acquired pursuant to a Restricted Stock Award, or in respect of any Shares becoming vested, then the Company shall deduct from any payments of any kind otherwise due to such Participant the aggregate amount of such federal, state or local income and employment taxes required to be so withheld. If no such payments are due or become due to such Participant, or if such payments are insufficient to satisfy such federal, state or local income or employment taxes, then such Participant will be required to pay to the Company, or make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that he or she already owns, having a value equal to the amount required to be withheld. The value of the Shares to be withheld, or delivered to the Company, shall be based on the Fair Market Value of Shares on the date the amount of tax to be withheld is determined. In no event will the Fair Market Value of Shares to be withheld and delivered pursuant to this Section 12 exceed the minimum amount required to be withheld, unless (a) an additional amount can be withheld and not result in adverse accounting consequences, (b) such additional withholding amount is authorized by the Committee, and (c) the total amount withheld does not exceed the Participant’s estimated tax obligations attributable to the applicable transaction. As an alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld.

13.    AMENDMENT OF THE PLAN AND RESTRICTED STOCK AWARDS

(a)    The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, prospectively or retroactively. Failure to ratify or approve amendments or modifications by shareholders shall be effective only as to the specific amendment or modification requiring such approval or ratification. Other provisions of this Plan will remain in full force and effect. No such termination, modification or amendment may adversely affect the rights of a Participant under an outstanding Restricted Stock Award without the written permission of such Participant.

(b)    The Committee may amend any Award Agreement, prospectively or retroactively; provided, however, that no such amendment shall adversely affect the rights of any Participant under an outstanding Restricted Stock Award without the written consent of such Participant.

14.    RIGHT OF OFFSET

The Company will have the right to offset against its obligation to deliver Shares (or other property) under the Plan or any Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, repayment obligations under any Restricted Stock Awards, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) that the Participant then owes to the Company and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. This right of offset shall not be an exclusive remedy and the Company’s election not to exercise the right of offset with respect to any amount payable to a Participant shall not constitute a waiver of this right of offset with respect to any other amount payable to the Participant or any other remedy.

15.    DETRIMENTAL ACTIVITY AND RECAPTURE PROVISIONS

Any Award Agreement may reference a clawback policy of the Company or provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if a Participant, either (a) during employment or other service with the Company Group or (b) within a specified period after termination of such employment or service, engages in any detrimental activity, as described in the applicable Award Agreement or such clawback policy. In addition, notwithstanding anything in this Plan to the contrary, any Award Agreement or such clawback policy may also provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any Shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules or regulations promulgated by the Securities and Exchange Commission, the NASDAQ or any national securities exchange or national securities association on which the Shares may be traded.

16.    EFFECTIVE DATE OF PLAN

The Plan shall become effective immediately upon its approval by the Company’s shareholders.

17.    TERMINATION OF THE PLAN

The right to grant Restricted Stock Awards under the Plan will terminate 10 years after the Effective Date. The Board of Directors has the right to suspend or terminate the Plan at any time, provided that no such action will, without the consent of a Participant, adversely affect a Participant’s rights under an outstanding Restricted Stock Award.

18.    APPLICABLE LAW; COMPLIANCE WITH LAWS

(a)    The Plan will be administered in accordance with the laws of the State of Texas and applicable federal law. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any Shares under the Plan unless such issuance would comply with all applicable laws and the applicable requirements 

of any securities exchange or similar entity. Prior to the issuance of any Shares under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares.

(b)    It is the intention of the Company that no Restricted Stock Award shall be “deferred compensation” subject to Code Section 409A, and the Plan and the terms and conditions of all Restricted Stock Awards shall be interpreted accordingly.

(c)    Notwithstanding anything in this Plan or an Award Agreement to the contrary, nothing in this Plan or in an Award Agreement prevents a Participant from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations, and for purpose of clarity, a Participant is not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Exchange Act.

19.    NO GRANTS IN CONTRAVENTION OF THE 1940 ACT

(a)    At all times during such periods as the Company qualifies or intends to qualify as a “business development company,” no Restricted Stock Award may be granted under the Plan if the grant or terms of such Restricted Stock Award would cause the Company to violate Section 61 of the 1940 Act (or any other provision of the 1940 Act applicable to “business development companies”), and, if approved for grant, such an award will be void and of no effect.

(b)    In furtherance of the intent that Restricted Stock Awards available to be granted under the Plan be limited to those that can be granted by a “business development company” qualifying as such under the 1940 Act, except as otherwise permitted by exemptive relief or other relief that may be granted by the Securities and Exchange Commission or its staff and determined by the Board of Directors, Restricted Stock may be awarded only in exchange for full payment thereof (as determined by the Board of Directors).

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