Exhibit 10.1

RED HAT, INC.

Red Hat, Inc. 2004 Long-Term Incentive Plan, as amended

Performance Share Unit Agreement

Cover Sheet

This Agreement evidences the grant by Red Hat, Inc., a Delaware corporation (the
“Company”), on the date set forth below (the “Grant Date”) to the person named
below (the “Participant”) of a Performance Share Unit Award (the “Award”) of the
target number of performance share units listed below (“Target Performance Share
Units”) up to the maximum number of performance share units listed below
(“Maximum Performance Share Units”) for the Performance Period listed below (the
“Performance Period”). Each unit ultimately earned (a “Performance Share Unit”)
represents the right to receive one share of the Company’s common stock, $.0001
par value per share (“Common Stock”), or the value of such Share. This Award is
subject to the terms and conditions specified in the Red Hat, Inc. 2004
Long-Term Incentive Plan, as amended, (the “Plan”) and in this Agreement,
consisting of this Cover Sheet, the attached Exhibit A and Appendix A thereto.

 

  Participant Name:     Grant Date:     Performance Period:   3 years, beginning
on the first day of the current fiscal year   Number of Target    
Performance Share Units:     Number of Maximum     Performance Share Units:  
200% of Target Performance Share Units

 

    RED HAT, INC.   1801 Varsity Drive   Raleigh, North Carolina 27606   By:   

 

 

  Name:    <PARTICIPANT NAME>   Title:   

By accepting this Award, the Participant hereby (i) acknowledges that a copy of
the Plan and a copy of the Plan prospectus have been delivered to the
Participant and additional copies thereof are available upon request from the
Company’s Equity Compensation Department and can also be accessed
electronically, (ii) acknowledges receipt of a copy of this Cover Sheet, and
Exhibit A and Appendix A thereto (collectively, the “Agreement”) and accepts the
Award subject to all the terms and conditions of the Plan and the Agreement;
(iii) represents that the Participant has read

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and understands the Plan, the Plan prospectus and the Agreement, and
(iv) acknowledges that there are tax consequences related to the Award and that
the Participant should consult a tax advisor to determine his or her actual tax
consequences. The Participant must accept this Award electronically, within
thirty (30) days following notification of the grant, pursuant to the online
acceptance procedure established by the Company; otherwise, the Company may, in
its sole discretion, rescind the Award in its entirety.

 

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EXHIBIT A

RED HAT, INC.

Red Hat, Inc. 2004 Long-Term Incentive Plan, as amended

Performance Share Unit Agreement

Terms and Conditions

1. Grant of Performance Share Units.

The Award is granted pursuant to and is subject to and governed by the Plan and
the terms of this Agreement. Unless otherwise defined in this Agreement,
capitalized terms used herein shall have the same meaning as in the Plan. The
shares of Common Stock that are issuable after the Performance Share Units have
been earned are referred to in this Agreement as “Shares”. The Performance Share
Units shall be granted to the Participant without payment of consideration
(other than continuing services).

The overall Performance Period consists of three separate performance segments
corresponding to the three fiscal years of the Company that end with the end of
the Performance Period. The Performance Share Units earned during the segments
ending February 28, 2009 and February 28, 2010 are intended to qualify as
performance based compensation for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”)
and this Agreement shall be administered and construed by the Committee in
accordance with such intention.

2. Range of Earned Performance Share Units.

Depending on the Company’s financial performance as provided in Section 3, the
Participant may earn up to the Number of Maximum Performance Share Units
(between zero and 200% of the Target Performance Share Units). The number of
Performance Share Units earned will be determined based on a comparison of the
Company’s performance during each of its fiscal years ending during the
Performance Period with respect to the performance goals set forth in Section 3
to the performance of the peer group companies (the “Peer Group”) designated in
Section 3 during that Performance Period with respect to the same performance
goals, all as further described herein.

3. Determination of Earned Performance Share Units

(a) Performance Goals. The performance goals are Percentage Revenue Growth and
Percentage EBIT Growth. For purposes of this Agreement:

(i) “Base Fiscal Year” for each member (“Peer”) of the Peer Group and for the
Company (each, an “Entity”) means its full fiscal year that ends immediately
before the beginning of the Performance Period;

 

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(ii) “Measuring Year” means, for each Entity, its full fiscal year that ends
with or immediately precedes the end of the respective Company fiscal year for
which performance goals are being measured within the Performance Period;

(iii) “Percentage Revenue Growth” for each Entity is determined by dividing
(A) the difference between (x) Revenue for such Entity’s Measuring Year and
(y) Revenue for such Entity’s Base Fiscal Year by (B) the amount in clause (y);

(iv) “Percentage EBIT Growth” for each Entity is determined by dividing (A) the
difference between (x) EBIT for such Entity’s Measuring Year, and (y) EBIT for
such Entity’s Base Fiscal Year, by (B) the amount in clause (y);

(v) “Revenue” means gross revenue as determined in accordance with U.S. GAAP;

(vi) “EBIT” means earnings before interest and income taxes as determined in
accordance with U.S. GAAP; and

(vii) “U.S. GAAP” means generally accepted accounting principles used in the
U.S.

The elements of each performance goal shall be as identified in the financial
statements, notes to the financial statements, management’s discussions and
analysis, or other filings of the applicable Entity with the Securities and
Exchange Commission. EBIT shall exclude unusual or non-recurring items and the
cumulative effect of changes in applicable tax and accounting rules, to the
extent consistent with Section 162(m) of the Code, except as the Committee may
otherwise determine.

(b) Peer Group. The Peer Group consists of each of Akamai Technologies,
Autodesk, BEA Systems, BMC Software, Cadence Design Systems, Citrix Systems,
Compuware, Jack Henry & Associates, McAfee, Micros Systems, Novell, Real
Networks, Sybase, Tibco Software, Verisign and Wind River Systems. If any Peer
ceases to be a public company during any Measuring Year (whether by acquisition,
merger, consolidation, liquidation or otherwise), such Member shall be treated
as if it were not a Peer for such Measuring Year and all remaining Measuring
Years in the Performance Period. If any Peer fails to file its annual audited
financial statements with the Securities and Exchange Commission by April 1
following the end of any Measuring Year, it shall be treated as if it was not a
Peer for such Measuring Year.

(c) Earned Performance Share Units.

(i) Determining Company Performance. Following the end of each Company Measuring
Year in the Performance Period, the Company’s performance with respect to each
of the Performance Goals shall be compared to that of the Peer Group. The
Company’s percentile rank with respect to each Performance Goal shall be equal
to the result of dividing (a) by (b), where (a) is the number corresponding to
the Company’s numerical rank in the group consisting of the Company and the Peer
Group and listed in descending order of Percentage Revenue Growth or Percentage
EBIT Growth, whichever

 

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is being measured for such Measuring Year (e.g., if the Company ranks seventh
with respect to the Performance Goal for a Measuring Year then the number for
this purpose would be 7), and (b) is the number equal to the number of companies
in the Peer Group for such Measuring Year plus one (e.g., if there are 16
companies in the Peer Group for a Measuring Year then the number for this
purpose would be 17). The percentile rank for each Performance Goal shall then
be averaged, taking each into account equally (resulting in the “Average
Percentile Rank”).

(ii) Maximum Performance Share Units Earned. Up to twenty percent (20%) of the
Maximum Performance Share Units may be earned in respect of the first Measuring
Year in the Performance Period; up to fifty percent (50%) of the Maximum
Performance Share Units may be earned in respect of the second Measuring Year in
the Performance Period (less amount earned in the first Measuring Year); and up
to one hundred percent (100%) of the Maximum Performance Share Units may be
earned in respect of the third Measuring Year in the Performance Period (less
amounts earned in the first and second Measuring Years).

(iii) Determining Performance Share Units Earned. The number of earned
Performance Share Units shall be calculated by multiplying (a) times (b), and
that product times (c), and that product less (d), where (a) is the payout
percentage as determined under the following table based on the Company’s
Average Percentile Rank for such Measuring Year, (b) is the maximum percentage
of the Maximum Performance Share Units that may be earned as determined pursuant
to Subparagraph 3(c)(ii) for the Measuring Year in question, (c) is the Number
of Target Performance Share Units, and (d) is the number of Performance Share
Units earned in prior Measuring Years. The number of Shares distributed will
equal the number of Performance Share Units earned under this provision.

 

Average Percentile Rank

   Payout Percentage  

Less than 30%

   200 %

30%

   175 %

35%

   150 %

40%

   125 %

45%

   110 %

50%

   100 %

55%

   90 %

60%

   75 %

65%

   50 %

70%

   25 %

75% or more

   0 %

For purposes of this determination, the Average Percentile Rank for each
Measuring Year shall be rounded to three decimal points. If the Average
Percentile Rank is between two stated percentages above, the Payout Percentage
will be prorated accordingly.

 

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4. Cessation of Business Relationship.

(a) Continuous Service Relationship. If the Participant’s continuous service to
the Company or one of its Affiliates as an Employee or Director (a “Business
Relationship”) ceases for any reason prior to the end of the Performance Period,
the Performance Share Units that were not earned as of the date of such
cessation of service will be forfeited, except as provided in this Section. The
Participant’s Business Relationship shall be deemed to have ceased on the last
day of active service to the Company or an Affiliate and shall not be extended
by any notice of termination period. For purposes hereof, a Business
Relationship shall not be considered as having ceased during any leave of
absence if such leave of absence has been approved in writing by the Company.
Any change in the type of Business Relationship the Participant has within or
among the Company and its Affiliates shall not result in the forfeiture of the
Performance Share Units so long as the Participant continuously maintains a
Business Relationship.

(b) Death or Disability. In the event the Participant’s Business Relationship
ceases by reason of death or Disability, the Participant (or the Participant’s
Beneficiary in the event of the Participant’s death) shall be entitled to
payment of a pro rata portion of the earned Performance Share Units for the
fiscal year in the Performance Period in which the Business Relationship ceased,
based on the number of days elapsed in such fiscal year prior to the cessation
of the Business Relationship and the Company’s Average Percentile Rank for such
fiscal year.

(c) Cessation without Good Cause. In the event the Participant’s Business
Relationship ceases by reason of the Company’s termination of the Participant
without Good Cause (as defined in Appendix A), the Participant shall be entitled
to payment of a pro rata portion of the earned Performance Share Units for the
fiscal year in the Performance Period in which the Business Relationship ceased,
based on the number of days elapsed in such fiscal year prior to the cessation
of the Business Relationship and the Company’s Average Percentile Rank for such
fiscal year.

(d) Definitions. For purposes of this Section:

(i) “Beneficiary” shall mean the last person or persons designated by the
Participant in writing prior to the Participant’s death. If no such person
survives the Participant, the Beneficiary shall be the Participant’s estate.

(ii) “Disability” shall mean that as a result of accidental bodily injury,
sickness, mental illness, substance abuse or pregnancy, the Participant is
expected for a period of twenty-four (24) months thereafter (i) to be prevented
from performing one or more of the essentials duties of the Participant’s
occupation, (ii) to have monthly earnings of less than eighty percent (80%) of
the Participant’s pre-Disability earnings, and (iii) to be under the regular
care of a physician. For purposes of this Agreement a duty is essential if it is
substantial, not incidental, is fundamental or inherent to the Participant’s
occupation and cannot be reasonably omitted or changed; to be at work for the
number of hours in the Participant’s regularly scheduled work week is also an
essential duty. The Committee may require such proof of Disability as the
Committee in its sole and absolute discretion deems appropriate and the
Committee’s determination as to whether the Participant has incurred a
Disability shall be final and binding on all parties concerned.

 

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5. Payment.

(a) Within 60 days following the Committee’s certification in writing of the
Performance Share Units earned, but in no event later than the 15th day of the
third month of the year following the later of the calendar year or the
Company’s taxable year, in each case, with respect to which the Performance
Share Units were earned, the Company shall distribute to the Participant (or to
the Participant’s Beneficiary in the event of death) the Shares represented by
Performance Share Units (or Restricted Stock as defined in Appendix A) that were
earned (or vested in the case of Restricted Stock), reduced by the number of
Shares (if any) that are withheld from the Award for the payment of Tax-Related
Items (as defined in Section 12 hereof) and upon the satisfaction of all other
applicable conditions as to the Performance Share Units; provided, however, that
the Shares may be distributed following the date contemplated in this Section to
the extent permitted under Section 409A of the Code without the payment becoming
subject to, and being treated as “nonqualified deferred compensation” within the
meaning of Section 409A of the Code (such as where the Company reasonably
anticipates that the payment will violate federal securities laws or other
applicable laws). Payment of any earned Performance Share Units (or vested
Restricted Stock) shall be made in whole Shares. Earned Performance Share Units
(or vested Restricted Stock) shall be rounded down to the nearest whole Share,
and the Company shall pay the value of any fractional Shares to the Participant
in cash on the basis of the Fair Market Value per share of Common Stock on the
date of distribution.

(b) The Company shall not be obligated to issue Shares to the Participant upon
the earning of any Performance Share Units (or vesting of any Restricted Stock
or otherwise) unless the issuance and delivery of such Shares shall comply with
all relevant provisions of law and other legal requirements including, without
limitation, any applicable federal, state or foreign securities laws, any
applicable Tax-Related Items and the requirements of any stock exchange upon
which Shares may be listed.

(c) Anything in the foregoing to the contrary notwithstanding, Performance Share
Units granted under this Agreement may be suspended, delayed or otherwise
deferred for any of the reasons contemplated in Sections 4 and 5 only to the
extent such suspension, delay or deferral is permitted under U.S. Treas. Reg.
§§1.409A-2(b)(7), 1.409A-1(b)(4)(ii) or successor provisions, or as otherwise
permitted under Section 409A of the Code.

6. Option of Company to Deliver Cash. Notwithstanding any of the other
provisions of this Agreement, at the time when any Performance Share Units (or
Restricted Stock) are payable pursuant to Sections 5 or 11, the Company may
elect, in the sole discretion of the Committee, to deliver to the Participant in
lieu of the Shares represented by Performance Share Units (or Restricted Stock)
that are then payable an equivalent amount of cash (determined by reference to
the closing price of the Shares on the principal exchange on which the Shares
trade on the applicable payment date or if such date is not a trading date, on
the next preceding trading date). Such payments shall be made no later than the
deadline set forth in Section 5(a) hereof. If the Company elects to deliver cash
to the Participant, the Company is authorized to retain such amount as is
sufficient to satisfy the withholding of Tax-Related Items (as defined in
Section 12 hereof).

 

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7. Restrictions on Transfer.

(a) The Participant shall not sell, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any Performance Share Units (or Restricted
Stock), either voluntarily or by operation of law. Any attempt to dispose of any
Performance Share Units (or Restricted Stock) in contravention of the above
restriction shall be null and void and without effect.

(b) The Company shall not be required (i) to transfer on its books any of the
Performance Share Units (or Restricted Stock) which have been transferred in
violation of any of the provisions set forth herein or (ii) to treat as the
owner of such Performance Share Units (or Restricted Stock) any transferee to
whom such Performance Share Units have been transferred in violation of any of
the provisions contained herein.

8. No Obligation to Continue Business Relationship. Neither the Plan, this
Agreement, nor the grant of the Performance Share Units imposes any obligation
on the Company or its Affiliates to have or continue a Business Relationship
with the Participant.

9. No Rights as Stockholder. The Performance Share Units represent an unfunded,
unsecured promise by the Company to deliver Shares or the value thereof in
accordance with the terms of this Agreement. The Participant shall have no
rights as a shareholder with respect to the Shares underlying the Performance
Share Units. The Participant shall have no right to vote or receive dividends
with respect to any Shares underlying the Performance Share Units unless and
until such Shares are distributed to the Participant or converted into
Restricted Stock as provided in Appendix A.

10. Adjustments for Capital Changes. The Plan contains provisions covering the
treatment of Performance Share Units (and Restricted Stock) in a number of
contingencies such as stock splits and mergers. Provisions in the Plan for such
adjustments are hereby made applicable hereunder and are incorporated herein by
reference.

11. Change in Control. Provisions regarding a Change in Control are set forth in
Appendix A.

12. Withholding Taxes.

(a) Regardless of any action the Company and/or the Affiliate employing the
Participant (the “Employer”) take with respect to any or all income tax
(including U.S. federal, state and local tax and/or non-U.S. tax), social
insurance, payroll tax or other tax-related items (“Tax-Related Items”), the
Participant hereby acknowledges that the ultimate liability for all Tax-Related
Items legally due by the Participant with respect to the Participant’s Award of
Performance Share Units, earning of the Performance Share Units, or the issuance
of Shares (or payment of cash) in settlement of earned Performance Share Units
is and remains the Participant’s responsibility and that the Company and/or the
Employer (i) make no representations or undertakings regarding the treatment of
any Tax-Related Items in connection with any aspect of the Performance Share
Units, including the award of the Performance Share Units, the earning of the
Performance Share Units (or vesting of Restricted Stock), the issuance of Shares
(or payment of cash) in settlement of the Performance Share Units, the
subsequent sale of Shares acquired at earning and the receipt of any dividends
and or Dividend Equivalents; and (ii) do not commit to structure the terms of
the Award or any aspect of the Performance Share Units to reduce or eliminate
the Participant’s liability for Tax-Related Items.

 

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(b) Prior to the relevant tax withholding event, as applicable, the Participant
shall pay or make adequate arrangements satisfactory to the Company and/or the
Employer to satisfy all withholding obligations of the Company and/or the
Employer with respect to Tax-Related Items. In this regard, the Participant
hereby authorizes the Company and/or the Employer, in their sole discretion and
without any notice to or authorization by the Participant, to withhold from the
Shares being distributed under this Award upon the determination of earned
Performance Share Units that number of whole Shares the fair market value of
which (determined by reference to the closing price of the Common Stock on the
principal exchange on which the Common Stock trades on the date the withholding
obligation arises, or if such date is not a trading date, on the next preceding
trading date) is equal to the aggregate withholding obligation as determined by
the Company and/or Employer with respect to such Award, provided that the
Company only withholds the number of Shares necessary to satisfy the minimum
withholding obligation amount. If the Company satisfies the withholding
obligation for Tax-Related Items by withholding a number of Shares being
distributed under the Award as described above, the Participant hereby
acknowledges that the Participant is deemed to have been issued the full number
of Shares subject to the Award of Performance Share Units (or the Restricted
Stock), notwithstanding that a number of the Shares is held back solely for the
purpose of paying the Tax-Related Items due as a result of the Award, earning
and/or settlement of the Performance Share Units (or vesting of Restricted
Stock). In the event the Tax-Related Items withholding obligation would result
in a fractional number of Shares to be withheld by the Company, such number of
Shares to be withheld shall be rounded up to the next nearest number of whole
Shares. If, solely due to rounding of Shares, the value of the number of Shares
retained by the Company pursuant to this provision is more than the amount
required to be withheld, then the Company may pay such excess amount to the
relevant tax authority as additional withholding with respect to the
Participant.

(c) Alternatively, or in addition, the Company may (a) only to the extent and in
the manner permitted by all applicable securities laws, including making any
necessary securities registration or taking any other necessary actions,
instruct the broker whom it has selected for this purpose to sell on the
Participant’s behalf, the Shares to be issued upon the earning or settlement, as
applicable, of the Participant’s Performance Share Units (or vesting of
Restricted Stock) to meet the withholding obligation for Tax-Related Items,
and/or (b) withhold all applicable Tax-Related Items legally payable by
Participant from Participant’s wages or other cash compensation paid to
Participant by the Company and/or the Employer.

(d) Finally, the Participant hereby acknowledges that the Participant is
required to pay to the Employer any amount of Tax-Related Items that the
Employer may be required to withhold as a result of the Participant’s Award of
Performance Share Units, earning of the Performance Share Units (or vesting of
Restricted Stock), or the issuance of Shares (of payment of cash) in settlement
of earned Performance Share Units (or vested Restricted Stock) that cannot be
satisfied by the means previously described. The Participant hereby acknowledges
that the Company may refuse to deliver the Shares in settlement of the earned
Performance Share Units (or vested Restricted Stock) to the Participant if the
Participant fails to comply with the Participant’s obligations in connection
with the Tax-Related Items as described in this Section.

 

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The Participant shall have no further rights with respect to any Shares that are
retained by the Company pursuant to this provision, and under no circumstances
will the Company be required to issue any fractional Shares.

(e) The Participant has reviewed and understands the tax withholding and payment
obligations as set forth in this Agreement and understands that the Company is
not providing any tax advice and that the Participant should consult with
Participant’s own tax advisors on the U.S. federal, state, foreign and local tax
and non-U.S. tax consequences of this investment and the transactions
contemplated by this Agreement.

13. Nature of Grant. In accepting the Performance Share Units, Participant
acknowledges that: (a) the grant of the Performance Share Units is voluntary and
occasional and does not create any contractual or other right to receive future
grants of Performance Share Units, or benefits in lieu of Performance Share
Units even if Performance Share Units have been granted repeatedly in the past;
(b) all decisions with respect to future awards of Performance Share Units, if
any, will be at the sole discretion of the Company; (c) the future value of the
underlying Shares is unknown and cannot be predicted with certainty; (d) in
consideration of the award of Performance Share Units, no claim or entitlement
to compensation or damages shall arise from termination of the Performance Share
Units or any diminution in value of the Performance Share Units or Shares
received when the Performance Share Units are earned resulting from the
Participant’s termination of employment by the Company or any Affiliate (for any
reason whatsoever and whether or not in breach of local employment laws), and
Participant irrevocably releases the Company and/or the Affiliate from any such
claim that may arise; (e) in the event of involuntary termination of
Participant’s employment (whether or not in breach of local employment laws),
Participant’s right to receive Performance Share Units and vesting under the
Plan, if any, will terminate effective as of the date that Participant is no
longer actively employed and will not be extended by any notice period mandated
under local law or contract, and the Company shall have the exclusive discretion
to determine when Participant is no longer actively employed for purposes of the
Performance Share Units; (f) the Company is not providing any tax, legal or
financial advice, nor is the Company making any recommendations regarding
Participant’s participation in the Plan, or Participant’s acquisition or sale of
the underlying Shares; and (g) Participant is hereby advised to consult with his
or her own personal tax, legal and financial advisors regarding Participant’s
participation in the Plan before taking any action related to the Plan.

14. Miscellaneous.

(a) Notices. All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return receipt
requested, if to the Participant, to the address set forth on the cover sheet or
at the most recent address shown on the records of the Company, and if to the
Company, to the Company’s principal office, attention of the Corporate
Secretary.

(b) Entire Agreement; Modification. This Agreement (including the cover sheet)
and the Plan constitutes the entire agreement between the parties relative to
the subject matter hereof, and supersedes all other communications between the
parties relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded by the Committee as it

 

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shall deem advisable, subject to any requirement for shareholder approval
imposed by applicable law or other applicable rules, including, without
limitation, the rules of the stock exchange on which the Shares are listed. If
the Committee determines that the Award terms could result in adverse tax
consequences to the Participant, the Committee may amend this Agreement without
the consent of the Participant in order to minimize or eliminate such tax
treatment.

(c) Plan Governs. This Agreement is subject to all terms and provisions of the
Plan. In the event of a conflict between one or more provisions of this
Agreement and one or more provisions of the Plan, the provisions of the Plan
will govern.

(d) Severability. The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision.

(e) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the heirs, legatees, distributees, executors and administrators of
the Participant and the successors and assigns of the Company.

(f) Participant’s Acceptance. The Participant is urged to read this Agreement
carefully and to consult with his or her own legal counsel regarding the terms
and consequences of this Agreement and the legal and binding effect of this
Agreement. By virtue of his or her acceptance of this Agreement, the Participant
is deemed to have accepted and agreed to all of the terms and conditions of this
Award and the provisions of the Plan, including as binding, conclusive and final
all decisions or interpretations of the Committee upon any questions arising
under the Plan or this Award.

(g) Section 409A. This Agreement, the Performance Share Units and payments made
pursuant to this Agreement are intended to comply with or qualify for an
exemption from the requirements of Section 409A of the Code (“Section 409A”) and
shall be construed consistently therewith and shall be interpreted in a manner
consistent with that intention. Terms defined in the Agreement shall have the
meanings given such terms under Section 409A if and to the extent required to
comply with Section 409A. Notwithstanding any other provision of this Agreement,
the Company reserves the right, to the extent the Company deems necessary or
advisable, in its sole discretion, to unilaterally amend the Plan and/or this
Agreement to ensure that all Performance Share Units are awarded in a manner
that qualifies for exemption from or complies with Section 409A, provided,
however, that the Company makes no undertaking to preclude Section 409A from
applying to this Award of Performance Share Units. Any payments described in
this Section 13(g) that are due within the “short term deferral period” as
defined in Section 409A shall not be treated as deferred compensation unless
applicable law requires otherwise. If and to the extent any portion of any
payment, compensation or other benefit provided to the Participant in connection
with his employment termination is determined to constitute “nonqualified
deferred compensation” within the meaning of Section 409A and the Participant is
a specified employee as defined in Section 409A(2)(B)(i) of the Code, as
determined by the Company in accordance with its procedures, by which
determination the Participant hereby agrees that he is bound, such portion of
the payment, compensation or other benefit shall not be paid before the day that
is six months plus one day after the date of separation from service (as
determined under Section 409A (the “New Payment Date”)), except as Section 409A
may then permit. The aggregate of any payments that otherwise would have

 

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been paid to the Participant during the period between the date of separation
from service and the New Payment Date shall be paid to the Participant in a lump
sum on such New Payment Date, and any remaining payments will be paid on their
original schedule. Notwithstanding the foregoing, the Company, its Affiliates,
Directors, Officers and Agents shall have no liability to a Participant, or any
other party, if an Award that is intended to be exempt from, or compliant with,
Section 409A is not so exempt or compliant, or for any action taken by the
Committee.

(h) Governing Law/Choice of Venue. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to the principles of the conflicts of laws thereof. For purposes of
litigating any dispute that arises directly or indirectly from the relationship
of the parties, evidenced by this Award or the Agreement, the parties hereby
submit to and consent to the exclusive jurisdiction of the State of North
Carolina and agree that such litigation shall be conducted only in the courts of
Wake County, North Carolina, or the federal courts for the United States for the
Tenth District of North Carolina, and no other courts, where this Award is made
and/or to be performed.

(i) Administrator Authority. The Committee will have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules (including, but not limited to, the
determination of whether or not any Performance Share Units (or Restricted
Stock) have been earned (or vested in the case of Restricted Stock)). All
actions taken and all interpretations and determinations made by the Committee
in good faith will be final and binding upon Participant, the Company and all
other interested persons.

 

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APPENDIX A

Performance Share Unit Agreement

(a) Notwithstanding anything contained herein to the contrary, in the event of a
Change in Control and provided the Participant’s Business Relationship with the
Company or Affiliate has not ceased, either (i) this Agreement will be
continued, assumed, converted, or substituted for (consistent with paragraph
(c) below) immediately following a Change in Control using restricted stock (the
“Restricted Stock”) of the Company, Parent Corporation or Surviving Corporation
(the latter two terms as defined below) and subject to the vesting schedule in
paragraph (b) below or (ii) all of the Shares underlying the Performance Share
Unit award that have not previously been paid or earned shall be treated as
earned (to the Target Performance Share Unit level) and shall be paid out in a
single lump sum within 30 days following the Change in Control. The Committee
shall determine the actions under this paragraph (a).

(b) The Restricted Stock shall become vested (measuring vesting years from the
Grant Date of the Performance Share Units) in accordance with the following
schedule if the Participant’s Business Relationship continues (to the extent
that the end of the applicable year in the Performance Period has not occurred
as of the date of the Change in Control):

 

End of Year

   Vested Percentage  

1

   25 %

2

   50 %

3

   100 %

If the Participant’s employment with the Company or Affiliate is terminated by
the Company without Good Cause, by the Participant for Good Reason, or by reason
of the Participant’s death or Disability within 12 months following such Change
in Control, all of the Restricted Stock shall become fully vested on such
termination.

(c) For purposes of this Appendix A, this Agreement shall be considered to be
continued, assumed, converted or substituted for:

(i) if there is no change in the number of outstanding shares of Common Stock of
the Company and the Change in Control does not result from the consummation of a
merger, consolidation, statutory share exchange, reorganization or similar form
of corporate transaction, and there are no changes to the terms and conditions
of this Agreement that materially and adversely affect this Agreement; or

(ii) if there is a change in the number of such outstanding shares of Common
Stock of the Company and/or the Change in Control does result from the
consummation of a merger, consolidation, statutory share exchange,
reorganization or similar form of corporate transaction:

 

  A.

the Performance Share Units, Shares deliverable pursuant to the Performance
Share Units and Restricted Stock, as provided in this

 

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Appendix A, are adjusted (x) if the shares of Common Stock of the Company are
exchanged solely for the common stock of the Parent Corporation or, if there is
no Parent Corporation, the Surviving Corporation (as such terms are defined in
subparagraph C of the definition of “Change in Control” of this Appendix A) in a
manner which is not materially less favorable than the adjustments made in such
transaction to the other outstanding shares of Common Stock of the Company, or
(y) otherwise, based on the ratio on the day immediately prior to the date of
the Change in Control of the fair market value of one share of common stock of
the Parent Corporation or, if there is no Parent Corporation, the Surviving
Corporation, to the Fair Market Value of one share of Common Stock of the
Company;

 

  B. if applicable, the Performance Share Units are converted into an award
pursuant to which the common stock of the Parent Corporation or, if there is no
Parent Corporation, the Surviving Corporation (as such terms are defined in
subparagraph C of the definition of “Change in Control” of this Appendix A) are
deliverable; and

 

  C. there are no other changes to the terms and conditions of this grant that
materially and adversely affect this grant.

(d) For purposes of this Agreement, the following terms shall have the assigned
meanings:

 

  i. “Change in Control” means the occurrence of any one of the following
events:

 

  A. individuals who, on the Grant Date, constitute the Board (the “Incumbent
Directors”) cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the initial public
offering whose election or nomination for election was approved by a vote of at
least a majority of the directors then on the 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 written objection to such nomination)
shall be an Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors or as a result of any
other actual or threatened solicitation of proxies by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;

 

  B.

any “person” (as such term is defined in the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or

 

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becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35% or more of
the combined voting power of the Company’s then outstanding securities eligible
to vote for the election of the Board (the “Company Voting Securities”);
provided, however, that the event described in this paragraph (B) shall not be
deemed to be a Change in Control by virtue of any of the following
acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an
offering of such securities, (D) pursuant to a Non-Qualifying Transaction, as
defined in paragraph (C) below, or (E) by any person of Company Voting
Securities from the Company, if a majority of the Incumbent Board approves in
advance the acquisition of beneficial ownership of 35% or more of Company Voting
Securities by such person;

 

  C.

the consummation of a merger, consolidation, statutory share exchange,
reorganization or similar form of corporate transaction involving the Company or
any of its subsidiaries that requires the approval of the Company’s
stockholders, whether for such transaction or the issuance of securities in the
transaction (a “Business Combination”), unless immediately following such
Business Combination: (A) more than 40% of the total voting power of (x) the
corporation resulting from such Business Combination (the “Surviving
Corporation”), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the “Parent
Corporation”), is represented by Company Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportion as the voting power of such
Company Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit plan (or
related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly or indirectly,
of 35% or more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least half of the members of
the board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) following the

 

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consummation of the Business Combination were Incumbent Directors at the time of
the Board’s approval of the execution of the initial agreement providing for
such Business Combination (any Business Combination which satisfies all of the
criteria specified in (A), (B) and (C) above shall be deemed to be a
“Non-Qualifying Transaction”);

 

  D. the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or the consummation of a sale of all or substantially
all of the Company’s assets; or

 

  E. the occurrence of any other event that the Board determines by a duly
approved resolution constitutes a Change in Control.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any person acquires beneficial ownership of more than 35% of the
Company Voting Securities as a result of the acquisition of Company Voting
Securities by the Company which reduces the number of Company Voting Securities
outstanding; provided, that if after such acquisition by the Company such person
becomes the beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting Securities beneficially
owned by such person, a Change in Control of the Company shall then occur.

 

  ii. “Good Cause” means conduct involving one or more of the following

 

  A. the conviction of Participant, or plea of nolo contendere by the
Participant to, a felony;

 

  B. the willful misconduct by Participant resulting in material harm to the
Company;

 

  C. fraud, embezzlement, theft or dishonesty by Participant against the Company
or any Subsidiary or repeated and continued failure to perform Participant’s
duties with the Company after written notice of such failure to perform
resulting in any case in material harm to the Company; or

 

  D. the Participant’s material breach of any term of confidentiality and/or
non-competition agreements.

 

  iii. “Good Reason” means:

 

  A. a reduction by the Company or its successor of more than 10% in the
Participant’s rate of annual base salary as in effect immediately prior to such
Change in Control;

 

  B. a reduction by the Company or its successor of more than 10% of the
Participant’s individual annual target bonus opportunity;

 

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  C. a significant and substantial reduction of the Participant’s
responsibilities and authority, as compared with the Participant’s
responsibilities and authority in effect immediately preceding the Change in
Control; or a material adverse change in the Participant’s reporting
relationship as compared with the Participant’s reporting relationship in effect
immediately in effect prior to the Change in Control; or

 

  D. any requirement of the Company that the Participant be based anywhere more
than fifty (50) miles from the Participant’s primary office location at the time
of the Change in Control and in a new office location that is a greater distance
from the Participant’s principal residence at the time of the Change of Control
than the distance from the Participant’s principal residence to the
Participant’s primary office location at the time of the Change in Control.

 

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