EXHIBIT 10.1**STONERIDGE, INC.****ANNUAL INCENTIVE PLAN****Section 1. Purpose**     The purpose of the Stoneridge, Inc. (the “Company”) Annual Incentive Plan (the “Plan”) is toprovide an opportunity to the Company’s (and the Company’s Subsidiaries’) officers and other keyemployees selected by the Committee (defined below) to earn annual incentive or bonus awards inorder to motivate those persons to put forth maximum efforts toward the growth, profitability andsuccess of the Company and its Subsidiaries (defined below) and to encourage such individuals toremain in the employ of the Company or a Subsidiary. Awards for participating employees under thePlan shall depend upon corporate and individual performance measures as determined by the Committee(defined below) for the Performance Year (defined below).**Section 2. Definitions**     In this Plan document, unless the context clearly indicates otherwise, words in the masculinegender shall be deemed to include a reference to the female gender, any term used in the singularalso shall refer to the plural, and the following terms, when capitalized, shall have the meaningset forth in this Section 2:     (a) “Award” means a potential cash benefit payable or cash benefit paid to a personin accordance with the terms and conditions of the Plan.     (b) “Beneficiary” means the person or persons designated in writing by the Granteeas his or her beneficiary in respect of an Award; or, in the absence of an effective designation,or if the designated person or persons predecease the Grantee, the Grantee’s Beneficiary shall bethe person or persons who acquire by bequest or inheritance the Grantee’s rights in respect of anAward. In order to be effective, a Grantee’s designation of a Beneficiary must be on file with theCompany before the Grantee’s death. Any such designation may be revoked and a new designationsubstituted therefor at any time before the Grantee’s death.     (c) “Board of Directors” or “Board” means the Board of Directors of the Company.     (d) “Code” means the Internal Revenue Code of 1986, as amended from time to time.     (e) “Committee” means the Compensation Committee appointed by the Board for thepurpose of administering the Plan. The Committee shall consist of three members of the Board ofDirectors each of whom shall qualify, at the time of appointment and thereafter, as an “outsidedirector” within the meaning of Section 162(m) of the Code (or a successor provision of similarimport), as in effect from time to time.     (f) “Company” means Stoneridge, Inc.     (g) “Covered Executive” means an individual who is determined by the Committee to bereasonably likely to be a “covered employee” under Section 162(m) of the Code as of the end of theCompany’s taxable year for which an Award to the individual will be deductible and whose Awardwould exceed the deductibility limits under Section 162(m) if such Award is not Performance-BasedCompensation.     (h) “Disability” or “Disabled” means having a total and permanent disability asdefined in Section 22(e)(3) of the Code.
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     (i) “Grantee” means an officer or key employee of the Company or a Subsidiary towhom an Award has been granted under the Plan.     (j) “Performance Objective” means the goal or goals identified by the Committee thatwill result in an Award if the target for the Performance Year is satisfied.     (k) “Performance Year” means the then current fiscal year of the Company.     (l) “Performance-Based Compensation” means compensation that is intended to qualifyas “performance-based compensation” under Section 162(m) of the Code and the regulationsthereunder.     (m) “Retirement” means voluntary resignation from the employ of the Company afterreaching the age of 64 or as otherwise preapproved by the Committee.     (n) “Subsidiary” means a corporation, association, partnership, limited liabilitycompany, joint venture, business trust, organization, or business of which the Company directly orindirectly through one or more intermediaries owns at least fifty percent (50%) of the outstandingcapital stock (or other shares of beneficial interest) entitled to vote generally in the electionof directors or other managers of the entity.**Section 3. Administration**     (a) The Plan shall be administered by the Committee. The Committee shall have allthe powers vested in it by the terms of the Plan, such powers to include authority (within thelimitations described herein) to select the persons to be granted Awards under the Plan, todetermine the time when Awards will be granted, to determine whether performance objectives andother conditions for earning Awards have been met, to determine whether Awards will be paid at theend of the Performance Year, and to determine whether an Award or payment of an Award should bereduced or eliminated. The Committee is authorized, subject to the remaining provisions of thePlan, to establish such rules and regulations as it deems necessary for the proper administrationof the Plan and to make such determinations and interpretations and to take such action inconnection withthe Plan and any Awards granted hereunder as it deems necessary or advisable. Alldeterminations and interpretations made by the Committee shall be binding and conclusive on allpersons participating in the Plan and their legal representatives.     (b) The Committee may not delegate to any individual the authority to makedeterminations concerning that individual’s own Awards, or the Awards of any Covered Executive orany executive officer (as defined pursuant to the Securities Exchange Act of 1934). Except asprovided in the preceding sentence, as to the selection of and grant of Awards to Grantees who arenot Covered Executives or executive officers of the Company, the Committee may delegate itsresponsibilities to members of the Company’s management in a manner consistent with applicable lawand provided that such participant’s compensation is not subject to the limitations of Section162(m) of the Code. References herein to the Committee shall include any delegate described underthis paragraph, except where the context or the regulations under Code Section 162(m) otherwiserequire.     (c) The Committee, or any person to whom it has delegated duties as describedherein, may employ one or more persons to render advice with respect to any responsibility theCommittee or such person may have under the Plan (including such legal or other counsel,consultants, and agents as it may deem desirable for the administration of the Plan) and may relyupon any opinion or computation received from any such counsel, consultant, or agent. Expensesincurred in the engagement of such counsel, consultant, or agent shall be paid by the Company.
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**Section 4. Eligibility**     The Committee may grant Awards under the Plan to such of the Company’s (and the Company’sSubsidiaries’) officers and key employees as it shall select for participation pursuant to Section3 above.**Section 5. Awards; Limitations on Awards**     (a) Each Award granted under the Plan shall represent an amount payable in cash bythe Company to the Grantee upon achievement of one or more of a combination of PerformanceObjectives in a Performance Year, subject to all other terms and conditions of the Plan and to suchother terms and conditions as may be specified by the Committee. The grant of Awards under the Planshall be evidenced by Award letters in a form approved by the Committee from time to time whichshall contain the terms and conditions, as determined by the Committee, of a Grantee’s Award;provided, however, that in the event of any conflict between the provisions of the Plan and anyAward letters, the provisions of the Plan shall prevail. An Award shall be determined bymultiplying the Grantee’s target percentage of base salary with respect to a Performance Year byapplicable factors and percentages based on the achievement of Performance Objectives, subject tothe discretion of the Committee provided in Section 6 hereof.     (b) The maximum amount of an Award granted to any one Grantee in respect of aPerformance Year shall not exceed $2.0 million. This maximum amount limitation shall be measured atthe time of settlement of an Award under Section 7.     (c) Annual Performance Objectives shall be based on the performance of the Company,one or more of its Subsidiaries or affiliates, one or more of its units or divisions and/or theindividual for the Performance Year. The Committee shall use one or more of the following businesscriteria to establish Performance Objectives for Grantees: increase in net sales; pretax incomebefore allocation of corporate overhead and bonus; operating profit; net working capital; earningsper share; net income; attainment of division, group or corporate financial goals; return onshareholders’ equity; return on assets; attainment of strategic and operational initiatives;attainment of one or more specific and measurable individual strategic goals; appreciation in ormaintenance of the price of the Company’s common shares; increase in market share; gross profits;earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization;comparisons with various stock market indices; or reductions in costs. The Performance Objectivefor any Grantee shall be sufficiently specific that a third party having knowledge of the relevantfacts could determine whether the objective is met; and the outcome under the Performance Objectiveshall be substantially uncertain when the Committee establishes the objective.**Section 6. Grant of Awards**     (a) The Committee shall grant Awards to any Grantees who are Covered Executives notlater than 90 days after the commencement of the Performance Year. If a Covered Executive isinitially employed by the Company or a Subsidiary after the beginning of a Performance Year, theCommittee may grant an Award to that Covered Executive with respect to a period of servicefollowing the Covered Executive’s date of hire, provided that no more than twenty-five percent(25%) of the relevant service period has elapsed when the Committee grants the Award and thePerformance Objective otherwise satisfies the requirements applicable to the Covered Executive. TheCommittee shall select Grantees other than Covered Executives for participation in the Plan andshall grant Awards to such Grantees at such times as the Committee may determine. In granting anAward, the Committee shall establish the terms of the Award, including the Performance Objectiveand the maximum amount that will be paid (subject to the limit in Section 5) if the PerformanceObjective is achieved. The Committee may establish different payment levels under an Award based ondifferent levels of achievement under the Performance Objective.     (b) After the end of each Performance Year, the Committee shall determine the amountpayable to each Grantee in settlement of the Grantee’s Award for the Performance Year. TheCommittee, in its discretion, may reduce the maximum payment established when the Award wasgranted, or may determine to make no payment under the Award. The Committee, in its discretion,may increase the amount payable under the Award (but not to an amount greater than the limit inSection 5) to a Grantee who is not a Covered Executive. The Committee shall certify in writing, ina manner conforming to applicable regulations under Section 162(m) of the Code, prior to thesettlement of each Award granted to a Covered Executive, that the
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Performance Objectives and othermaterial terms of the Award upon which settlement of the Award was conditioned have been satisfied.     (c) The Committee may adjust or modify Awards or terms of Awards (1) in recognitionof unusual or nonrecurring events affecting the Company or any business unit, or the financialstatements or results thereof, or in response to changes in applicable laws (including tax,disclosure, and other laws), regulations, accounting principles, or other circumstances deemedrelevant by the Committee, (2) with respect to any Grantee whose position or duties with theCompany change during a Performance Year, or (3) with respect to any person who first becomes aGrantee after the first day of the Performance Year; provided, however, that no adjustment to anAward granted to a Covered Executive shall be authorized or made if, and to the extent that, suchauthorization or the making of such adjustment would contravene the requirements applicable toPerformance-Based Compensation.**Section 7. Settlement of Awards**     (a) Except as provided in this Section 7, each Grantee shall receive payment of acash lump sum in settlement of his or her Award, in the amount determined in accordance withSection 6. Such payment shall be made on the fifteenth (15th) day of the third (3rd) monthfollowing the Performance Year. No Award to a Covered Executive for a Performance Year commencingafter December 30, 2006, shall be settled until the shareholders of the Company have approved thePlan in a manner that satisfies the requirements of Section 162(m) of the Code.     (b) Each Grantee shall have the right to defer his or her receipt of part, or all,of any payment due in settlement of an Award under and in accordance with the terms and conditionsof the Stoneridge, Inc. Employees’ Deferred Compensation Plan unless otherwise specified by theCommittee. In the event that a Grantee exercises his or her right to defer under this Section7(b), then any Award so deferred shall be subject to the terms and conditions of the Stoneridge,Inc. Employees’ Deferred Compensation Plan as of the date of such deferral election.**Section 8. Termination of Employment**     Except as otherwise provided in any written agreement between the Company and a Grantee,including but not limited to a deferral election under the Stoneridge, Inc. Deferred CompensationPlan, if a Grantee ceases to be employed by the Company after the beginning of a Performance Year,but prior to the date an Award is settled in accordance with Section 7, for any reasonother than death, Disability, or Retirement, any Award for such Performance Year shall beforfeited. If such cessation of employment results from such Grantee’s death, Disability, orRetirement, the Committee shall determine, in its sole discretion and in such manner as it may deemreasonable, subject to Section 9, the extent to which the Performance Objectives for thePerformance Year or portion thereof completed at the date of cessation of employment have beenachieved, and the amount payable in settlement of the Award based on such determinations. TheCommittee may base such determination on the performance achieved for the full year, in which caseits determination may be deferred until following the Performance Year. Such determinations shallbe set forth in a written certification, as specified in Section 6. Such Grantee or his or herBeneficiary shall be entitled to receive a lump sum cash settlement of such Award at the earliesttime such payment may be made without causing the payment to fail to be deductible by the Companyunder Section 162(m) of the Code.**Section 9. Status of Awards Under Section 162(m)**     It is the intent of the Company that Awards granted to Covered Executives for PerformanceYears commencing after December 30, 2006, shall constitute Performance-Based Compensation, if atthe time of settlement the Grantee remains aCovered Executive. Accordingly, the Plan shall be interpreted in a manner consistent with Section162(m) of the Code and the regulations thereunder. If any provision of the Plan relating to aCovered Executive or any Award letter evidencing such an Award to a Covered Executive does notcomply with, or is inconsistent with, the provisions of Section 162(m)(4)(C) of the Code or theregulations thereunder (including Treasury Regulation § 1.162-27(e) or its succession provisions)for Performance-Based Compensation, such provision shall be construed or deemed amended to theextent necessary to conform to such requirements.
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**Section 10. Transferability**     Awards and any other benefit payable under, or interest in, this Plan are not transferable bya Grantee except upon a Grantee’s death by will or the laws of descent and distribution, and shallnot be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge,encumbrance, or charge, and any such attempted action shall be void.**Section 11. Withholding**     All payments relating to an Award, whether at settlement or resulting from any furtherdeferral or issuance of an Award under another plan of the Company in settlement of the Award,shall be net of any amounts required to be withheld pursuant to applicable federal, state and localtax withholding requirements.**Section 12. Tenure**     A Grantee’s right, if any, to continue to serve the Company as a Covered Executive, officer,employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as aGrantee or any other event under the Plan.**Section 13. No Rights to Participation or Settlement**     Nothing in the Plan shall be deemed to give any eligible employee any right to participate inthe Plan except upon determination of the Committee. Until the Committee has determined to settlean Award under Section 7, a Grantee’s selection to participate, the grant of an Award, and otherevents under the Plan shall not be construed as a commitment that any Award will be settled underthe Plan. The foregoing notwithstanding, the Committee may authorize legal commitments with respectto Awards under the terms of an employment agreement or other agreement with a Grantee, to theextent of the Committee’s authority under the Plan, including commitments that limit theCommittee’s future discretion under the Plan, but in all cases subject to Section 9.**Section 14. Unfunded Plan**     Grantees shall have no right, title, or interest whatsoever in or to any specific assets ofthe Company, or to any investments that the Company may make to aid in meeting its obligationsunder the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions,shall create or be construed to create a trust of any kind, or a fiduciary relationship between theCompany and any Grantee, Beneficiary, legal representative or any other person. To the extent thatany person acquires a right to receive payments from the Company under the Plan, such right shall be nogreater than the right of an unsecured general creditor of the Company. All payments to be madehereunder shall be paid from the general funds of the Company. The Company shall not be required toestablish any special or separate fund, or to segregate any assets, to assure payment of suchamounts. The Plan is not intended to be subject to the Employee Retirement Income Security Act of1974, as amended.**Section 15. Other Compensatory Plans and Arrangements**     Nothing in the Plan shall preclude any Grantee from participation in any other compensation orbenefit plan of the Company or its Subsidiaries. The adoption of the Plan and the grant of Awardshereunder shall not preclude the Company or any Subsidiary from paying any other compensation apartfrom the Plan, including compensation for services or in respect of performance in a PerformanceYear for which an Award has been made. If an Award to a Covered Executive may not be settled underthe terms of the Plan, however (for example, because the Covered Executive has not achieved thePerformance Objective orbecause shareholders have not approved the Plan), neither the Company nor a Subsidiary may pay anypart of the Award to the Covered Executive outside the Plan.
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**Section 16. Duration, Amendment and Termination of Plan**     No Award may be granted in respect of any Performance Year commencing after December 31, 2011(if the Company’s 2011 fiscal year does not end on December 31 then for purposes of this sentencethe actual date of the end the of Company’s 2011 fiscal year shall be substituted for December 31,2011).     The Board may amend the Plan from time to time (either retroactively or prospectively), andmay suspend or terminate the Plan at any time, provided that any such action shall be subject toshareholder approval if and to the extent required to ensure that compensation under the Plan willqualify as Performance-Based Compensation, or as otherwise may be required under applicable law.**Section 17. Governing Law**     The Plan, Awards granted hereunder, and actions taken in connection herewith shall be governedand construed in accordance with the laws of the State of Ohio (regardless of the law that mightotherwise govern under applicable Ohio principles of conflict of laws).**Section 18. Effective Date**     The Plan shall be effective as of December 31, 2006; provided, however, that Awards to theCompany’s officers granted for Performance Years commencing after December 30, 2006, shall besubject to approval of the shareholders of the Company at an annual meeting or any special meetingof shareholders of the Company before settlement of Awards granted to the Company’s officers forthe year ending December 31, 2007, so that compensation will qualify as Performance-BasedCompensation; provided, further, that the Company’s 2006 fiscal year ends on December 30, 2006 andany change to the Company’s fiscal year so that the Company’s fiscal year shall be set as thecalendar year would mean that the Plan would be effective on January 1, 2007, instead of December31, 2006. In addition, the Board may determine to submit the Plan to shareholders for reapprovalat such time, if any, as may be required in order that compensation under the Plan shall qualify asPerformance-Based Compensation.
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