Exhibit 10.1

PRIMUS GUARANTY, LTD.

INCENTIVE COMPENSATION PLAN

(including amendments through March 24, 2008)

Section 1. Purpose

The Plan authorizes the Administrator to provide Employees, who are in a
position to contribute to the long-term success of the Company or its
subsidiaries, with Shares, Share Units, and Options to acquire Shares in the
Company, as well as cash-based incentives. The Company believes that this
incentive program will cause those persons to increase their interest in the
welfare of the Company and its subsidiaries, and aid in attracting, retaining
and motivating employees of outstanding ability. The Plan is intended to qualify
certain compensation awarded under the Plan as “performance-based” compensation
under Code Section 162(m) to the extent deemed appropriate by the Administrator.

Section 2. Definitions

Capitalized terms not otherwise defined herein shall have the meanings set forth
in this Section.

(a) “Administrator” shall mean the Compensation Committee or the Board, where
the Board is acting as the Administrator or performing the functions of the
Administrator, as set forth in Section 4.

(b) “Award” means a compensatory award made pursuant to the Plan pursuant to
which a Grantee receives, or has the opportunity to receive, Shares or cash.

(c) “Board” means the Board of Directors of the Company.

(d) “Change in Control” shall have the meaning set forth in the Senior
Management Severance Pay Plan.

(e) “Cause” shall have the meaning ascribed thereto in any employment agreement
between the Company or any of its subsidiaries and the Grantee, or, if there is
no employment agreement or if any such employment agreement does not contain a
definition of “cause”, then Cause shall mean a finding by the Administrator that
the Grantee has (i) been charged with a felony or a crime involving moral
turpitude, (ii) committed an act of fraud or embezzlement against the Company or
its subsidiaries, (iii) failed, refused or neglected to substantially perform
his duties (other than by reason of a physical or mental impairment) or to
implement the directives of the Company, or (iv) willfully engaged in conduct
that is materially injurious to the Company, monetarily or otherwise.

(f) “Company” shall mean Primus Guaranty, Ltd., a corporation organized under
the laws of Bermuda.

(g) “Compensation Committee” means the Compensation Committee of the Board.

(h) “Disability” shall have the meaning ascribed thereto in any employment
agreement between the Company or any subsidiary of the Company and the Grantee,
or, if there is no employment agreement or if any such employment agreement does
not contain a definition of “disability”, then Disability shall mean the
Grantee’s inability, by reason of a physical or mental impairment, to
substantially perform his job functions for a period of six consecutive months.

 

 

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(i) “Economic Results” shall mean the adjustment of the Company’s United States
generally accepted accounting principles (“GAAP”) results by excluding any
unrealized gains or losses on Primus Financial Products, LLC’s (“Primus
Financial”) portfolio of credit swaps sold, and any realized gains from
termination of credit swaps sold prior to maturity, although it amortizes those
gains over the remaining original lives of the terminated contracts, except for
credit swamps purchased as investments.

(j) “Employee” shall mean any person or entity that is providing, or has agreed
to provide, services to the Company or a subsidiary of the Company, whether as
an employee, director or independent contractor.

(k) “Fair Market Value” of a Share on any given date shall mean the closing
price on the date of the grant, as quoted on the stock exchange or market on
which the Shares are listed.

(l) “Forfeiture” means the right of the Company or any of its affiliates to
acquire Shares issued under the Plan upon a Grantee’s termination of employment
with the Company and its subsidiaries at a price per Share that is less than
Fair Market Value, or, in the case of Share Units, the forfeiture by the Grantee
of the right to receive Shares at a future date or upon the occurrence of a
future event, in each case as set forth in a Grant Certificate.

(m) “Grant Certificate” shall mean a certificate accepted by the Grantee, or
other written agreement between the Company and the Grantee, evidencing the
grant of an Option, Share Unit or Shares hereunder and containing such terms and
conditions, not inconsistent with the Plan, as the Administrator shall approve.

(n) “Grantee” shall mean an Employee granted an Award under the Plan.

(o) “IPO” shall mean consummation of an underwritten registered initial public
offering of the Company’s Shares.

(p) “ISO” shall mean any Option or portion thereof that is designated in a Grant
Certificate as an ISO and meets the requirements of an incentive stock option
under Section 422 of the Internal Revenue Code of 1986.

(q) “Nonqualified Option” shall mean any Option or portion thereof that either
is designated by the Administrator as such or is otherwise not an ISO.

(r) “Options” shall refer to options issued under and subject to the Plan.

(s) “Plan” shall mean the Primus Guaranty, Ltd. Incentive Compensation Plan as
set forth herein and as amended from time to time.

(t) “Qualified Member” means a member of the Committee who is a “non-employee
director” of the Company as defined in Rule 16b-3(b)(3) under the United States
Securities Exchange Act of 1934 and an “outside director” within the meaning of
Regulation § 1.162-27 under Code Section 162(m).

(u) “Retirement” shall mean the termination of a Grantee’s employment with the
Company and its subsidiaries that is approved by the Administrator and occurs on
or after the Grantee’s attainment of age 62.

(v) “Sale” shall mean the sale of the Company (whether by merger, consolidation,
recapitalization, reorganization, sale of securities, sale of assets or
otherwise) in one transaction or a series of related transactions to a person or
entity, pursuant to which such person or entity (together with its affiliates)
acquires (i) securities representing at least 50% of the value or a majority of
the voting power (with respect to any matter) of all securities of the Company,
assuming the conversion, exchange or exercise of all securities convertible,
exchangeable or exercisable for or into voting securities, or (ii) at least 50%
of the Company’s consolidated assets; provided that a Sale will not be deemed to
have occurred by reason of a primary issuance of securities by the Company in a
financing transaction.

(w) “Share” shall mean a common share, par value $.01, of the Company.

(x) “Share Units” shall have the meaning set forth in Section 6(e).

 

 

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(y) “Unvested Shares” shall refer to Shares issued under and subject to the Plan
that are subject to Forfeiture, except where such Forfeiture can occur only upon
a termination of employment for Cause.

Section 3. Shares Available under the Plan

(a) Aggregate Number of Shares Available for Awards. The total number of Shares
underlying Options and Share Units granted under the Plan plus the total number
of Shares awarded under the Plan other than pursuant the exercise of Options or
maturity of Share Units shall not exceed the sum of 11,149,213, plus the number
of Shares or Share Units awarded to Employees outside of the Plan, up to a
maximum of 4,700,000, that are forfeited or reacquired by the Company at a price
less than the Fair Market Value thereof upon such Employee’s termination of
employment with the Company and its subsidiaries (the “Plan Limit”). If Options
or Share Units are forfeited, cancelled or terminate unexercised for any reason,
or if Shares awarded under the Plan are reacquired by the Company pursuant to a
Forfeiture, then the Shares subject to such Options and Share Units and such
reacquired Shares shall be added back to the Plan Limit. The Plan Limit shall
not apply to any Unvested Shares or Share Units granted under the Plan pursuant
to awards made under any other plan, and such Share Units that are forfeited or
Unvested Shares that are reacquired by the Company pursuant to a Forfeiture
shall not increase the Plan Limit.

(b) Per Grantee Limitation on Share-Based Awards. In any calendar year, no
Grantee may be granted Awards that relate to more than 3 million Shares. This
Section 3(b) shall apply only with respect to Awards that are denominated by a
specified number of Shares, even if the Award may be settled in cash or a form
other than Shares. If the number of Shares ultimately payable in respect of an
Award is a function of future achievement of performance targets, then for
purposes of this limitation, the number of Shares to which such Award relates
shall equal the number of Shares that would be payable assuming maximum
performance was achieved.

(c) Per Grantee Limitation on Other Awards. In any calendar year, no Grantee may
be granted Awards not otherwise described in Section 3(b) that can be settled
for cash, Shares or other consideration having a value in excess of $10 million.

Section 4. Administration of the Plan

(a) Authority of the Administrator. The Plan shall be administered by the
Administrator. The Administrator may delegate to officers or managers of the
Company or any subsidiary of the Company the authority, subject to such terms as
the Administrator shall determine, to perform such functions as the
Administrator may determine, to the extent permitted under applicable law. At
any time that a member of the Compensation Committee is not a Qualified Member,
(i) any action of the Compensation Committee relating to an Award intended to
qualify as “performance-based compensation” within the meaning of Code Section
162(m) and regulations thereunder may be taken by a subcommittee, designated by
the Compensation Committee or the Board, composed solely of two or more
Qualified Members, and (ii) any action relating to an Award granted or to be
granted to a Grantee who is then subject to Section 16 of the Securities
Exchange Act of 1934 in respect of the Company may be taken either by the Board,
a subcommittee of the Compensation Committee consisting of two or more Qualified
Members or by the Compensation Committee but with each such member who is not a
Qualified Member abstaining or recusing himself or herself from such action,
provided that, upon such abstention or recusal, the Committee remains composed
of two or more Qualified Members. Such action, authorized by such a subcommittee
or by the Compensation Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
the Plan. Other provisions of the Plan notwithstanding, the Board may perform
any function of the Administrator under the Plan, and that authority
specifically reserved to the Board under the terms of the Plan, the Company’s
Articles of Incorporation, By-Laws, or applicable law shall be exercised by the
Board and not by the Administrator. The Board shall serve as the Administrator
in respect of any Awards made to any non-employee director. The Administrator
shall have full and final authority to take the following actions, in each case
subject to and consistent with the provisions of the Plan:

(i) to select the Employees to whom Awards may be granted, and the number of
Shares or cash-value relating thereto;

 

 

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(ii) to determine the terms and conditions of any Awards granted under the Plan,
including, with respect to Options granted under the Plan, including the
exercise price, conditions relating to exercise, and termination of the right to
exercise;

(iii) to determine the conditions relating to the Forfeiture of Unvested Shares
or Share Units;

(iv) to determine whether any Option shall be an ISO or a Nonqualified Option;

(v) to determine the restrictions or conditions related to the delivery, holding
and disposition of Shares issued under the Plan;

(vi) to prescribe the form of each Grant Certificate;

(vii) to adopt, amend, suspend, waive and rescind such rules and regulations and
appoint such agents as the Administrator may deem necessary or advisable to
administer the Plan;

(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Grant
Certificate or other instrument hereunder; and

(ix) to make all other decisions and determinations as may be required under the
terms of the Plan or as the Administrator may deem necessary or advisable for
the administration of the Plan.

(b) Manner of Exercise of Administrator Authority. Any action of the
Administrator with respect to the Plan shall be final, conclusive and binding on
all persons, including the Company, subsidiaries of the Company, Grantees, or
any person claiming any rights under the Plan from or through any Grantee,
except to the extent the Administrator may subsequently modify, or take further
action not consistent with, its prior action. If not specified in the Plan, the
time at which the Administrator must or may make any determination shall be
determined by the Administrator, and any such determination may thereafter be
modified by the Administrator (subject to Section 14). The express grant of any
specific power to the Administrator, and the taking of any action by the
Administrator, shall not be construed as limiting any power or authority of the
Administrator. The Administrator may delegate to officers or managers of the
Company or any subsidiary of the Company the authority, subject to such terms as
the Administrator shall determine, to perform such functions as the
Administrator may determine, to the extent permitted under applicable law.

(c) Limitation of Liability. The Administrator shall be entitled to, in good
faith, rely or act upon any report or other information furnished to it by any
officer or other employee of the Company or any of its subsidiaries, the
Company’s independent certified public accountants or any executive compensation
consultant, legal counsel or other professional retained by the Company to
assist in the administration of the Plan. To the fullest extent permitted by
applicable law, neither the Administrator, any member of the Compensation
Committee, nor any officer or employee of the Company acting on their behalf,
shall be personally liable for any action, determination or interpretation taken
or made in good faith with respect to the Plan, and the Administrator, each
member of the Compensation Committee and any officer or employee of the Company
acting on its behalf shall, to the extent permitted by law, be fully indemnified
and protected by the Company with respect to any such action, determination or
interpretation.

Section 5. Awards.

(a) Type of Awards. The Administrator shall have the discretion to determine the
type of Awards to be granted under the Plan. Such Awards may be in a form
payable in either Shares or cash, including, but not limited to, options to
purchase Shares, Shares, and Share units. The Administrator is authorized to
grant Awards as a bonus, or to grant Awards in lieu of obligations of the
Company or any subsidiary to pay cash or grant other awards under other plans or
compensatory arrangements, to the extent permitted by such other plans or
arrangements. Shares issued pursuant to an award in the nature of a purchase
right (e.g., options) shall be purchased for such consideration, paid for at
such times, by such methods, and in such forms, including cash, Shares, other
awards, or other consideration, as the Administrator shall determine.

 

 

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(b) Terms and Conditions of Awards. The Administrator shall determine the size
of each Award to be granted (including, where applicable, the number of Shares
to which an award will relate), and all other terms and conditions of each such
award (including, but not limited to, any exercise price, grant price, or
purchase price, any restrictions or conditions relating to transferability,
forfeiture, exercisability, or settlement of an award, and any schedule or
performance conditions for the lapse of such restrictions or conditions, and
accelerations or modifications thereof, based in each case on such
considerations as the Administrator shall determine). The Administrator may
determine whether, to what extent, and under what circumstances an award may be
settled, or the exercise price of an award may be paid, in cash, Shares, other
awards, or other consideration, or an award may be canceled, forfeited, or
surrendered. The right of a Grantee to exercise or receive a grant or settlement
of any award, and the timing thereof, may be subject to such performance
conditions as may be specified by the Administrator. The Administrator may use
such business criteria and measures of performance as it may deem appropriate in
establishing performance conditions, and may exercise its discretion to reduce
or increase the amounts payable under any Award subject to performance
conditions, except as limited under Section 11(a) in the case of a Performance
Award intended to qualify under Code Section 162(m).

Section 6. Terms Relating to Options.

(a) Generally. Options granted under the Plan shall be subject to the terms of
the Plan and such other terms as the Administrator shall set forth in a Grant
Certificate. Unless otherwise determined by the Administrator and set forth in a
Grant Certificate:

(i) Vesting. Options shall vest in four equal installments on the first, second,
third and fourth anniversaries of the date of grant.

(ii) Exercise Price. The exercise price per Share shall be the Fair Market Value
of a Share on the date of grant of the Option.

(iii) Termination of Options. Upon the Grantee’s termination of employment with
the Company and its subsidiaries for any reason, Options that are not then
vested and exercisable (after taking into account any accelerated vesting
pursuant to Section 10) shall immediately terminate. Options that are vested and
exercisable (after taking into account any accelerated vesting pursuant to
Section 10) shall generally remain exercisable until, and terminate upon, the
91st day following such termination of employment; provided, however, that (i)
if such termination is for Cause, the Options will terminate immediately, and
(ii) if such termination is on account of death, Disability or Retirement, the
Options will remain exercisable until, and terminate upon, the first anniversary
of such termination. In any event, each Option will terminate upon the tenth
anniversary of the date of grant, or such earlier time as may be provided by
action of the Administrator pursuant to Section 8.

(iv) Tax Status. Each Option shall be a Nonqualified Option.

(b) Exercise of Options. Only the vested portion of any Option may be exercised.
A Grantee shall exercise an Option by delivery of written notice to the Company
setting forth the number of Shares with respect to which the Option is to be
exercised, together with a certified check or bank draft payable to the order of
the Company for an amount equal to the sum of the exercise price for such Shares
and any employment tax required to be withheld. The Administrator may, in its
sole discretion, permit other forms of payment, including notes or other
contractual obligations of a Grantee to make payment on a deferred basis. Before
the Company issues any Shares to a Grantee pursuant to the exercise of an
Option, the Company shall have the right to require that the Grantee make such
provision, or furnish the Company such authorization, necessary or desirable so
that the Company may satisfy its obligation under applicable income tax laws to
withhold for income or other taxes due upon or incident to such exercise. The
Administrator, may, in its discretion, permit such withholding obligation to be
satisfied through the withholding of Shares that would otherwise be delivered
upon exercise of the Option.

(c) Transferability. No Option may be sold, transferred, assigned, pledged or
otherwise encumbered, except by will or the laws of descent and distribution,
and an Option shall be exercisable during the Grantee’s lifetime only by the
Grantee. Upon a Grantee’s death, the estate or other beneficiary of such
deceased Grantee shall be subject to all the terms and conditions of the Plan
and Grant Certificate, including the provisions relating to the termination of
the right to exercise the Option.

 

 

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(d) Option Grant Guidelines. Beginning in 2003, the number of Shares subject to
Option grants in a particular year will be targeted at 1% of the total
outstanding Shares. Option awards will be concentrated among a small number of
key employees who, in the opinion of the Administrator, are likely to make the
greatest contribution to the creation of shareholder value over the vesting
period.

Section 7. Terms Relating to Awards of Shares and Share Units.

(a) Grant and Restrictions. The Administrator may award Shares that either are
or are not subject to vesting. Unvested Shares shall be subject to such
restrictions on transferability and other restrictions as the Administrator may
impose, which restrictions may lapse separately or in combination at such times,
under such circumstances, in such installments, or otherwise, as the
Administrator may determine. Except to the extent restricted under the terms of
the Plan and any Grant Certificate, a Grantee awarded Unvested Shares shall have
all of the rights of a shareholder including, without limitation, the right to
vote Unvested Shares or the right to receive dividends thereon. The
Administrator may require the Grantee to pay (in cash or such other form as
determined by the Administrator) for Shares at a price per Share up to the Fair
Market Value thereof. The grant of Shares or the lapse of restrictions on
Unvested Shares shall be conditional on the Grantee’s satisfaction of any
withholding tax obligation that arises in connection therewith.

(b) Forfeiture. Except as otherwise determined by the Administrator, upon
termination of employment or service (as determined under criteria established
by the Administrator) during the applicable restriction period, Unvested Shares
that are at that time subject to Forfeiture shall be reacquired by the Company
or its subsidiaries for such consideration as determined by the Administrator
and set forth in a Grant Certificate; provided, however, that the Administrator
may provide in any Grant Certificate, or may determine in any individual case,
that restrictions or Forfeiture conditions relating to Unvested Shares will be
waived in whole or in part in the event of termination resulting from specified
causes.

(c) Dividends. Any dividends paid on Unvested Shares shall be either paid at the
dividend payment date in cash or in Unvested Shares having a Fair Market Value
equal to the amount of such dividends, or the payment of such dividends shall be
deferred and/or the amount or value thereof automatically reinvested in
additional Unvested Shares, other Awards, or other investment vehicles, as the
Administrator shall determine or permit the Grantee to elect. Shares distributed
in connection with a stock split or stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
Forfeiture to the same extent as the Unvested Shares with respect to which such
stock or other property has been distributed, unless otherwise determined by the
Administrator.

(d) Bonus Plan Awards. The non-cash portion of an award under the Bonus Plan
shall be awarded under this Plan as Unvested Shares, all of which Shares shall
subject to Forfeiture upon a Grantee’s termination of employment with the
Company and its subsidiaries for any reason prior to the first anniversary of
the date the Shares are awarded, two-thirds of which shall be subject to
Forfeiture upon any such termination on or after such first anniversary, but
prior to the second anniversary of the date of grant, and one-third of which
shall be subject to Forfeiture upon any such termination on or after such second
anniversary, but prior to the third anniversary of the date of grant, except as
otherwise provided in an employment agreement between the Grantee and the
Company or its subsidiaries.

(e) Share Units. In lieu of awarding Shares under the foregoing provisions of
this Section 7 (including Section 7(d)), the Administrator may award “Share
Units”, which represent the right of the Grantee to receive delivery of a
specified number of Shares at a future date or upon the occurrence of a future
event as specified by the Administrator, subject to satisfaction by the Grantee
of the same vesting conditions that would have been imposed had the award been
in the form of Unvested Shares. The Grantee shall have no rights or obligations
as a shareholder unless and until Shares are actually delivered upon maturity of
the Share Unit award.

Section 8. Adjustment Upon Changes in Capitalization

In the event any recapitalization, forward or reverse split, reorganization,
merger, consolidation, incorporation, spin-off, combination, repurchase,
exchange of Shares or other securities, dividend or distribution of Shares or
other special and nonrecurring dividend or distribution (whether in the form of
cash, securities or other

 

 

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property), liquidation, dissolution, sale or purchase of assets or other similar
transactions or events, affects the Shares such that an adjustment is, in the
sole discretion of the Administrator, appropriate in order to prevent dilution
or enlargement of the rights of Grantees under the Plan, then the Administrator
shall equitably adjust any or all of (i) the number and kind of securities
deemed to be available thereafter for grants of awards under Section 3, (ii) the
number and kind of securities subject to Unvested Shares, Share Units or
outstanding Options, and (iii) the exercise price per Share. In addition, the
Administrator is authorized to make adjustments in the terms and conditions of,
and the criteria included in, Unvested Shares, Share Units or Options
(including, without limitation, cancellation of Options and Share Units in
exchange for the intrinsic (i.e., in-the-money) value, if any, of the vested
portion thereof, or substitution of Unvested Shares, Share Units or Options
using securities or other obligations of a successor or other entity) in
recognition of unusual or nonrecurring events (including, without limitation, a
Sale or an event described in the preceding sentence) affecting the Company or
any subsidiary of the Company or the financial statements of the Company or any
subsidiary of the Company, or in response to changes in applicable laws,
regulations, or accounting principles.

Section 9. Restrictions on Shares.

(a) Restrictions on Issuing Shares. No Shares shall be issued or transferred to
an Employee under the Plan unless and until all applicable legal requirements
have been complied with to the satisfaction of the Administrator. The
Administrator shall have the right to condition the award or delivery of Shares
or exercise of any Option on the Grantee’s undertaking in writing to comply with
such restrictions on any subsequent disposition of the Shares issued or
transferred thereunder as the Administrator shall deem necessary or advisable as
a result of any applicable law, regulation, official interpretation thereof, or
any underwriting agreement.

(b) Repurchase Right. Unless otherwise provided in an employment agreement
between the Company or any of its subsidiaries and the Grantee, the Company
shall have the right (but not the obligation) to repurchase any or all of the
Shares acquired by a Grantee under the Plan upon a Grantee’s termination of
employment with the Company and its subsidiaries for any reason. Such right
shall be exercisable by the Company during the 90 day period following the later
of the date of termination or the date the Grantee acquires the Shares, or such
longer period as may be necessary so that the exercise of such right does not
give rise to a compensation expense pursuant to Accounting Principles Board
Opinion 25 (or any successor thereto). The price per Share to be paid by the
Company should it choose to exercise its repurchase right shall equal the Fair
Market Value per Share; provided, however, that if the reason for the Grantee’s
termination of employment constitutes Cause, then the price per Share to be paid
by the Company shall equal the lesser of the price per Share paid by the Grantee
(if any), or the Fair Market Value per Share. The Company’s repurchase right
shall lapse upon an IPO, except where such repurchase right arises by reason of
the Grantee’s termination of employment for Cause.

(c) Shareholders’ Agreement. As a condition to the grant of an Option, Shares or
Share Units, or as a condition to the delivery of any Share pursuant to a Share
Unit or upon exercise of an Option, the Administrator shall have the right to
require that the Grantee become a party to the Primus Guaranty, Ltd.
Shareholders’ Agreement, dated March 14, 2002, as the same may be amended from
time to time.

(d) Transfer of ISO Shares. The Grantee shall notify the Company of any transfer
of Shares that were acquired upon exercise of an ISO that occurs within one year
of such exercise or two years of the date the ISO was granted.

(e) Certificates for Shares. Shares issued under the Plan may be evidenced in
such manner as the Administrator shall determine. If certificates representing
Shares are registered in the name of a Grantee, such certificates may bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Shares, and the Company may retain physical possession of the
certificates, in which case the Grantee shall be required to have delivered a
power of transfer to the Company, endorsed in blank, relating to the Shares.

Section 10. Acceleration of Vesting.

All Options, Share Units and Unvested Shares held by a Grantee shall become (i)
fully vested upon a termination of the Grantee’s employment with the Company and
its subsidiaries by reason of the Grantee’s death, Disability or Retirement, and
(ii) fully vested immediately upon a Change in Control.

 

 

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Section 11. Performance Awards

(a) Performance Awards Granted to Designated Covered Employees. If the
Administrator determines that an Award to be granted to an eligible person who
is designated by the Administrator as likely to be a Covered Employee (as
defined below) should qualify as “performance-based compensation” for purposes
of Code Section 162(m), the grant, exercise, and/or settlement of such Award (a
“Performance Award”) shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 11(a). This
Section 11(a) shall not apply to Awards that otherwise qualify as
“performance-based compensation” by reason of Regulation §1.162-27(e)(2)(vi)
(relating to certain stock options and stock appreciation rights).

(i) Performance Goals Generally. The performance goals for such Performance
Awards shall consist of one or more business criteria and a targeted level or
levels of performance with respect to each such criteria, as specified by the
Administrator consistent with this Section 11(a). Performance goals shall be
objective and shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder (including Regulation §1.162-27 and successor regulations
thereto), including the requirement that the level or levels of performance
targeted by the Administrator result in the achievement of performance goals
being “substantially uncertain.” The Administrator may determine that such
Performance Awards shall be granted, exercised, and/or settled upon achievement
of any one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, exercise, and/or settlement of such
Performance Awards. Performance goals may differ for Performance Awards granted
to any one Grantee or to different Grantees.

(ii) Business Criteria. One or more of the following business criteria for the
Company, on a consolidated basis, and/or for specified subsidiaries, divisions,
or other business units of the Company (where the criteria are applicable),
shall be used by the Administrator in establishing performance goals for such
Performance Awards: (1) earnings per share; (2) revenues; (3) cash flow;
(4) cash flow return on investment; (5) return on net assets, return on assets,
return on investment, return on invested capital, return on equity;
profitability; (6) economic value added (“EVA”); (7) operating margins or profit
margins; (8) income or earnings before or after taxes; pretax earnings; pretax
earnings before interest, depreciation and amortization; operating earnings;
pretax operating earnings, before or after interest expense and before or after
incentives, and extraordinary or special items; net income; (9) total
stockholder return or stock price; (10) book value per share; (11) expense
management; improvements in capital structure; working capital; costs; (12) any
of the above goals as compared to the performance of a published or special
index deemed applicable by the Administrator including, but not limited to, the
Standard & Poor’s 500 Stock Index or a group of comparator companies; and (13)
Economic Results or such measures as the Compensation Committee may deem
appropriate. EVA means the amount by which a business unit’s earnings exceed the
cost of the equity and debt capital used by the business unit during the
performance period, as determined by the Administrator. Income of a business
unit may be before payment of bonuses, capital charges, non-recurring or
extraordinary income or expense, and general and administrative expenses for the
performance period, if so specified by the Administrator.

(iii) Performance Period; Timing for Establishing Performance Award Terms.
Achievement of performance goals in respect of such Performance Awards shall be
measured over a performance period of up to ten years, as specified by the
Administrator. Performance goals, amounts payable upon achievement of such
goals, and other material terms of Performance Awards shall be established by
the Administrator (i) while the performance outcome for that performance period
is substantially uncertain and (ii) no more than 90 days after the commencement
of the performance period to which the performance goal relates or, if less, the
number of days which is equal to 25 percent of the relevant performance period.

(iv) Performance Award Pool. The Administrator may establish a Performance Award
pool, which shall be an unfunded pool, for purposes of measuring performance of
the Company in connection with Performance Awards. The amount of such
Performance Award pool shall be based upon the achievement of a performance goal
or goals based on one or more of the business criteria set forth in
Section 11(a)(ii) hereof during the given performance period, as specified by
the Administrator in accordance with Section 11(a)(iii) hereof. The
Administrator may specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria. In such case, Performance
Awards may be granted as rights to payment of a specified portion of the Award
pool, and such grants shall be subject to the requirements of
Section 11(a)(iii).

 

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(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Shares, other Awards, in the discretion of
the Administrator. The Administrator may, in its discretion, reduce the amount
of a settlement otherwise to be made in connection with such Performance Awards,
but may not exercise discretion to increase any such amount payable to a Covered
Employee in respect of a Performance Award subject to this Section 11. The
Administrator shall specify the circumstances in which such Performance Awards
shall be paid or forfeited in the event of termination of employment by the
Grantee prior to the end of a performance period or settlement of Performance
Awards.

(vi) Impact Of Extraordinary Items Or Changes In Accounting. To the extent
applicable, the determination of achievement of performance goals for
Performance Awards shall be made in accordance with U.S. generally accepted
accounting principles (“GAAP”) and a manner consistent with the methods used in
the Company’s audited financial statements, and, unless the Committee decides
otherwise within the period described in Section 11(a)(ii), without regard to
(i) extraordinary items as determined by the Company’s independent public
accountants in accordance with GAAP, (ii) changes in accounting methods, or
(iii) non-recurring acquisition expenses and restructuring charges.
Notwithstanding the foregoing, in calculating operating earnings or operating
income (including on a per share basis), the Administrator may, within the
period described in Section 11(a)(ii), provide that such calculation shall be
made on the same basis as reflected in a release of the Company’s earnings for a
previously completed period as specified by the Administrator.

(b) Written Determinations. Determinations by the Administrator as to the
establishment of performance goals, the amount potentially payable in respect of
Performance Awards, the achievement of performance goals relating to Performance
Awards, and the amount of any final Performance Award shall be recorded in
writing. Specifically, the Administrator shall certify in writing, in a manner
conforming to applicable regulations under Code Section 162(m), prior to
settlement of each Performance Award, that the performance goals and other
material terms of the Performance Award upon which settlement of the Performance
Award was conditioned have been satisfied. The Administrator may not delegate
any responsibility relating to such Performance Awards, and the Board shall not
perform such functions at any time that the Compensation Committee is composed
solely of Qualified Members.

(c) Status of Section 11(a) Awards under Code Section 162(m). It is the intent
of the Company that Performance Awards under Section 11(a) constitute
“performance-based compensation” within the meaning of Code Section 162(m) and
regulations thereunder. Accordingly, the terms of Sections 11(a), 11(b) and
11(c), including the definitions of Covered Employee and other terms used
therein, shall be interpreted in a manner consistent with Code Section 162(m)
and regulations thereunder. The foregoing notwithstanding, because the
Administrator cannot determine with certainty whether a given Grantee will be a
Covered Employee with respect to a fiscal year that has not yet been completed,
the term “Covered Employee” as used herein shall mean only a person designated
by the Administrator, at the time of grant of a Performance Award, as likely to
be a Covered Employee with respect to a specified fiscal year. If any provision
of the Plan as in effect on the date of adoption of any agreements relating to
Performance Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.

Section 12. General Provisions

(a) Each Award shall be evidenced by a Grant Certificate. The terms and
provisions of such certificates may vary among Grantees and among different
Awards granted to the same Grantee.

(b) The grant of an Award in any year shall not give the Grantee any right to
similar grants in future years, any right to continue such Grantee’s employment
relationship with the Company or its subsidiaries (for the applicable vesting
period or otherwise), or, until Shares are issued pursuant to the exercise of an
Option or maturity of a Share Unit, any rights as a shareholder of the Company.
All Grantees shall remain subject to discharge to the same extent as if the Plan
were not in effect. For purposes of the Plan, a sale of any subsidiary of the
Company that employs a Grantee shall be treated as the termination of such
Grantee’s employment unless such Grantee remains employed by the Company or
another subsidiary of the Company.

 

 

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(c) No Grantee, and no beneficiary or other persons claiming under or through
the Grantee, shall have any right, title or interest by reason of any award
under the Plan to any particular assets of the Company or subsidiaries of the
Company, or any Shares allocated or reserved for the purposes of the Plan or
subject to any award except as set forth herein. The Company shall not be
required to establish any fund or make any other segregation of assets to assure
satisfaction of the Company’s obligations under the Plan.

(d) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan or of any amendment to shareholders for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other compensatory arrangements as it may deem desirable, including
the granting of awards otherwise than under the Plan, and such arrangements may
be either applicable generally or only in specific cases.

Section 13. Effective Date; Amendment or Termination

The Plan shall be effective upon its adoption by the Board of Directors of the
Company. The Administrator may, at any time, alter, amend, suspend, discontinue
or terminate the Plan; provided, however, that no such action shall adversely
affect the rights of Grantees with respect to Awards previously granted
hereunder. The Administrator shall also have the authority to establish separate
sub-plans under the Plan with respect to Grantees resident in a particular
jurisdiction (the terms of which shall not be inconsistent with those of the
Plan) if necessary or desirable to comply with the applicable laws of such
jurisdiction.

Unless earlier terminated by the Administrator, the Plan shall terminate on the
day before the tenth anniversary of the later of the date the Company’s
shareholders originally approved the Plan or the date of any subsequent
shareholder approval of the Plan. Upon any such termination of the Plan, no new
authorizations of grants of Awards may be made, but then-outstanding Awards
shall remain outstanding in accordance with their terms, and the Administrator
otherwise shall retain its full powers under the Plan with respect to such
Awards.

 

 

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