Exhibit 10.7
VECTOR GROUP LTD.
SENIOR EXECUTIVE ANNUAL BONUS PLAN
Adopted January 27, 2006
1. Purpose
     This Senior Executive Annual Bonus Plan (the “Plan”) is applicable to those
employees of Vector Group Ltd. (the “Company”) and its subsidiaries who are
considered to be executive officers of the Company (“Covered Employees”),
including members of the Board of Directors (the “Board”) who are such
employees. The Plan is designed to reward, through additional cash compensation,
Covered Employees who are selected to participate in the Plan (each, a
“Participant”) for their significant contribution toward improved profitability
and growth of the Company.
2. Administration
     The Plan shall be administered by a committee (the “Committee”) comprised
exclusively of members of the Board who are “outside directors” within the
meaning of Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended
(the “Code”) and Treasury Regulation 1.162-27(e)(3). The Committee shall be
appointed from time to time by the Board and shall consist of not less than two
of the then members of the Board who are “outside directors”, as defined above.
Unless otherwise designated by the Board, the Compensation Committee of the
Board shall serve as the Committee to administer the Plan. The Committee shall
have the authority, subject to the provisions herein, (a) to select Covered
Employees to participate in the Plan; (b) to establish and administer the
performance goals and the award opportunities applicable to each Participant and
certify whether the goals have been attained; (c) to construe and interpret the
Plan and any agreement or instrument entered into under or in connection with
the Plan; (d) to establish, amend, and waive rules and regulations for the
Plan’s administration; and (e) to make all other determinations that may be
necessary or advisable for the administration of the Plan. The Committee’s
determinations under the Plan need not be uniform and may be made selectively
among Participants, whether or not such Participants are similarly situated. Any
determination by the Committee pursuant to the Plan shall be final, binding and
conclusive on all employees and Participants and anyone claiming under or
through any of them.
3. Eligibility
     All Covered Employees shall be eligible to be selected to participate in
the Plan. The Committee shall select the Covered Employees who shall participate
in the Plan in any year no later than the applicable deadline (the
“Determination Date”) for the establishment of performance goals permitting the
compensation payable to such Covered Employee for such year hereunder to qualify
as “qualified performance-based compensation” under Treasury
Regulation 1.162-27(e).

 

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4. Establishment of Performance Goals and Award Opportunities
     No later than the Determination Date for each year, the Committee shall
establish, in writing, the method for computing the amount of compensation that
will be payable under the Plan to each Participant in the Plan for such year if
the performance goals established by the Committee for such year are attained in
whole or in part and if the Participant’s employment by the Company or a
subsidiary continues without interruption during that year. Such method shall be
stated in terms of an objective formula or standard that precludes discretion to
increase the amount of the award that would otherwise be due upon attainment of
the goals and may be different for each Participant. Notwithstanding anything to
the contrary contained herein, the Committee may, however, exercise negative
discretion (within the meaning of Treasury Regulation 1.162-27(e)(2)(iii)(A))
with respect to any award hereunder to reduce any amount that would otherwise be
payable hereunder.
     No later than the Determination Date for each year, the Committee shall
establish in writing the performance goals for such year, which shall be based
on any of the following performance criteria, either alone or in any
combination, on either a consolidated or business unit or divisional level, and
which shall include or exclude discontinued operations, acquisition expenses and
restructuring expenses, as the Committee may determine: net earnings (either
before or after interest, taxes, depreciation and amortization), economic
value-added (as determined by the Committee), sales or revenue, net income
(either before or after taxes), operating earnings, cash flow (including, but
not limited to, operating cash flow and free cash flow), cash flow return on
capital, return on net assets, return on stockholders’ equity, return on assets,
return on capital, stockholder returns, dividends and/or other distributions,
return on sales, gross or net profit margin, productivity, expense, margins,
operating efficiency, customer satisfaction, working capital, debt, debt
reduction, earnings per share, price per share of stock, market share,
completion of acquisitions, business expansion, product diversification, new or
expanded market penetration and other non-financial operating and management
performance objectives. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items, as the Committee may specify: extraordinary, unusual
or non-recurring items; effects of changes in tax law, accounting principles or
other such laws or provisions affecting reported results; effects of currency
fluctuations; effects of financing activities (e.g., effect on earnings per
share of issuing convertible debt securities); expenses for restructuring,
productivity initiatives or new business initiatives; impairment of tangible or
intangible assets; litigation or claim judgments or settlements; non-operating
items; acquisition expenses; and effects of assets sales or divestitures. Any
such performance criterion or combination of such criteria may apply to the
Participant’s award opportunity in its entirety or to any designed portion or
portions of the award opportunity, as the Committee may specify.
5. Maximum Award
     The maximum amount of compensation that may be paid under the Plan to any
Participant for any year is $5,000,000.

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6. Attainment of Performance Goals Required
     Awards shall be paid under this Plan for any year solely on account of the
attainment of the performance goals established by the Committee with respect to
such year. Awards shall also be contingent upon the Participant remaining
employed by the Company or a subsidiary of the Company during such year. In the
event of termination of employment by reason of death, disability or retirement
(each as determined by the Committee) during the Plan year, an award shall be
payable under this Plan to the Participant or the Participant’s estate for such
year, which shall be paid at the same time as the award the Participant would
have received for such year had no termination of employment occurred, and which
shall be equal to the amount of such award multiplied by a fraction the
numerator of which is the number of full or partial calendar months elapsed in
such year prior to termination of employment and the denominator of which is the
number twelve. A Participant whose employment terminates prior to the end of a
Plan year for any reason other than as described above shall not be entitled to
any award under the Plan for that year.
7. Shareholder Approval and Committee Certification Contingencies; Payment of
Awards
     Payment of any awards under the Plan shall be contingent upon the approval
of the Plan by the affirmative vote of at least a majority of the Company’s
shareholders casting votes (including abstentions) at the next annual meeting of
the Company’s shareholders. Unless and until such shareholder approval is
obtained, no award shall be paid pursuant to the Plan. Payment of any award
under the Plan shall also be contingent upon the Committee’s certifying in
writing that the performance goals and any other material terms applicable to
such award were in fact satisfied, in accordance with applicable Treasury
Regulations under Code Section 162(m). Unless and until the Committee so
certifies, such award shall not be paid. Unless the Committee provides
otherwise, (a) earned awards shall be paid no later than 2 1/2 months after the
end of the year with respect to which such award is earned, and (b) such payment
shall be made in cash (subject to any payroll tax withholding the Company may
determine applies).
     To the extent necessary for purposes of Code Section 162(m), the Plan shall
be resubmitted to shareholders for their re-approval with respect to awards
payable for the taxable years of the Company commencing on and after 5th
anniversary of initial shareholder approval.
8. Amendment, Termination and Term of Plan
     The Board of Directors may amend, modify or terminate the Plan at any time
in whole or in part, but no such action shall adversely affect any rights or
obligations with respect to awards theretofore made under the Plan. The Plan
will remain in effect until terminated by the Board.
9. Interpretation and Construction
     Any provision of the Plan to the contrary notwithstanding, (a) awards under
the Plan are intended to qualify as “qualified performance-based compensation”
under Treasury Regulation 1.162-27(e) and (b) any provision of the Plan that
would prevent an award under the Plan from so qualifying shall be administered,
interpreted and construed to carry out such intention and any

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provision that cannot be so administered, interpreted and construed shall to
that extent be disregarded. No provision of the Plan, nor the selection of any
Covered Employee to participate in the Plan, shall constitute an employment
agreement or affect the duration of any Participant’s employment, which shall
remain “employment at will” unless an employment agreement between the Company
and the Participant provides otherwise. Both the Participant and the Company
shall remain free to terminate the Participant’s employment at any time to the
same extent as if the Plan has not been adopted. The existence of the Plan
and/or any award under the Plan shall not limit, affect or restrict in any way
the right or power of the Board or the shareholders to take or authorize any
action, or to refrain from taking or authorizing any action, with respect to the
stock, assets, obligations or business of the Company and/or any of its
subsidiaries.
     Notwithstanding any provisions of the Plan to the contrary, if any benefit
provided under the Plan is subject to the provisions of Section 409A of the Code
and the regulations issued thereunder, the provisions of the Plan shall be
administered, interpreted and construed in a manner necessary to comply with
Section 409A of the Code and the regulations and other guidance issued
thereunder (or disregarded to the extent such provision cannot be so
administered, interpreted, or construed) so that no Participant will be subject
to any additional tax imposed under Section 409A of the Code.
10. No Funding of Plan
     The Company shall not be required to establish any special or separate fund
or to make any other segregation of assets to assure the payment of any award
under the Plan. All benefits under the Plan shall be paid from the general
assets of the Company.
11. Governing Law
     The terms of the Plan shall be governed by the laws of the State of
Delaware, without reference to the conflicts of laws principles thereof.

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