Incentive Compensation Plan Performance Goals and Target Payments

On July 26, 2019, the Board of Directors of Key Tronic Corporation (“Company”), upon the recommendation of its Compensation Committee, established the performance goals and target payment percentages for each participant in the incentive compensation plan (“Plan”) for the Company’s fiscal year 2020.

A minimum Company profit goal must be achieved in order for any payments to be made to participants in the Plan. Payments under the Plan for fiscal year 2020 will be based on three profit goal performance levels established by the Board: entry level, expected value level and overachievement level. If overachievement level is exceeded, the participants will participate in a bonus pool equal to 25% of the profit goal performance achieved in excess of overachievement level. Payments under the Plan will be a percentage of the participant’s base salary paid during fiscal year 2020.

The following executive officers of the Company are among the participants in the Plan: Craig D. Gates, President & CEO; Brett R. Larsen, Executive Vice President of Administration, CFO and Treasurer; Douglas G. Burkhardt, Executive Vice President of Worldwide Operations; Philip S. Hochberg, Executive Vice President of Business Development; and Duane D. Mackleit, Vice President of Program Management. Under the Plan the potential payment percentages established by the Board for fiscal year 2020 for the President & CEO range from 10% of base salary paid during fiscal year 2020 if entry level performance is achieved to 150% if overachievement level performance is achieved. The potential payment percentages established by the Board for fiscal year 2020 for the Executive Vice President of Administration, CFO and Treasurer, range from 6% if entry level performance is achieved to 90% if overachievement level performance is achieved, for the Executive Vice President of Worldwide Operations, and the Executive Vice President of Business Development range from 5% of base salary paid during fiscal year 2020 if entry level performance is achieved to 75% if overachievement level performance is achieved and for the Vice President of Program Management range from 3.5% of base salary paid during fiscal year 2020 if entry level is achieved to 52.5% if overachievement level performance is achieved. Payment percentages will be interpolated for actual performance levels achieved between entry level and expected value level and between expected value level and overachievement level.

Payments under the Plan will be made as soon as administratively possible after the end of fiscal year 2020. A participant must be an active employee of the Company at the time payments are made under the Plan in order to receive a payment.

Fiscal Years 2020-2022 Long-Term Incentive Plan Performance Measures and Awards

On July 26, 2019, the Board of Directors upon recommendation of its Compensation Committee, established long term incentive plan performance measures for the three fiscal year period 2020 through 2022. The Board of Directors also approved target awards for the three year period for each of the Company’s officers and non-employee Directors. The fiscal 2020-2022 performance measures are based on a combination of sales growth targets compared to the industry and return on invested capital targets. No cash awards will be made to participants if actual Company performance does not exceed the minimum target performance measures. The payments after the end of fiscal year 2022 to the following executive officers for the three year performance period, if expected target performance measures are achieved, are as follows: Craig D. Gates, President and CEO – $400,000, Brett R. Larsen, Executive Vice President of Administration, CFO and Treasurer – $190,000, Douglas G. Burkhardt, Executive Vice President of Worldwide Operations – $150,000, Philip S. Hochberg, Executive Vice President of Business Development – $150,000 and Duane D. Mackleit, Vice President of Program Management – $70,000. The payment after the end of fiscal year 2022 to each non-employee Director of the Company for said three year period, if expected target performance measures are achieved, is $35,000. Actual cash payments to participants may range from $0 to 150% above target depending on the extent to which Company performance is less than or exceeds the expected target performance measures.

2010 Incentive Plan Awards

On July 26, 2019, the Board of Directors granted Stock Appreciation Rights (“SARS”) awards under the Company’s 2010 Incentive Plan, as amended and restated on October 23, 2014, to Craig D. Gates, President & CEO in the amount of 25,000 SARS, to Brett R. Larsen, Executive Vice President of Administration, CFO and Treasurer in the amount of 11,250 SARS, to Douglas G. Burkhardt, Executive Vice President of Worldwide Operations in the amount of 10,000 SARS, to Philip S. Hochberg, Executive Vice President of Business Development in the amount of 10,000 SARS, and to Duane D. Mackleit, Vice President of Program Management in the amount of 5,000 SARS. The Board of Directors also granted awards under the Plan to each non-employee Director of the Company in the amount of 3,750 SARS. These SARS will vest on the third anniversary of the grant date of the awards, and only to the extent the Company’s return on invested capital (“ROIC”) over the vesting period compared to the weighted average of a selected group of peer companies over the same period has reached the levels set forth below as of the vesting date:

ROIC = Operating Income divided by (Assets – Interest Free Debt)

(Assets exclude cash and deferred tax assets)

The SARS expire five years from the grant date, subject to earlier termination in accordance with the terms of the 2010 Incentive Plan, as amended and restated on October 23, 2014, and Stock Appreciation Rights Agreement. The award or a portion of the award may be exercised by giving written notice to the Company, in form and substance satisfactory to the Company, which will state the election to exercise the award and the number of SARS being exercised. Upon the exercise of the award, the grantee will be entitled to receive payment in cash or common stock in an amount determined by multiplying: (a) the difference between the per share fair market value of the Common Stock of Key Tronic Corporation on the date of exercise over the per share base price of the SARS of $4.93 per share by (b) the number of SARS exercised.

About Key Tronic Corporation (NASDAQ:KTCC)

Key Tronic Corporation, doing business as KeyTronicEMS Co., is engaged in contract manufacturing for a range of products. The Company provides electronic manufacturing services (EMS) and solutions to original equipment manufacturers (OEMs) of a range of products. The Company provides engineering services, procurement and distribution, materials management, manufacturing and assembly services, in-house testing, and customer service. The Company provides EMS services, such as product design, surface mount technologies (SMT) and pin through hole capability for printed circuit board assembly (PCBA), tool making, precision plastic molding, sheet metal fabrication, liquid injection molding, complex assembly, automated tape winding, prototype design and full product assembly. The Company’s manufacturing operations are located in Oakdale, Minnesota; Fayetteville, Arkansas; Corinth, Mississippi; Harrodsburg, Kentucky, and foreign manufacturing operations in Juarez, Mexico, and Shanghai, China.