Vector Senior Executive Annual Bonus Plan



 






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).



 









 





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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