Document:

First Amendment to Loan Agreement

 EXHIBIT 10.01 
  
 FIRST AMENDMENT TO 
  
 LOAN AGREEMENT 
  
 This FIRST AMENDMENT TO LOAN AGREEMENT (this
“Amendment”) is dated and effective as of the 22nd day of June, 2005 by and among Avatech Solutions Subsidiary, Inc., as “Borrower”, and Dassault Systemes Corp., as “Lender”. 
  
 EXPLANATORY STATEMENT 
  
 A. Borrower and Lender entered into a Loan Agreement dated as of July 22,
2003 (the “Loan Agreement”), whereby Lender agreed to lend to Borrower up to $1.5 million (the “Loans”). 
  
 B. As of the date hereof, the principal amount of $1,455,882 is outstanding under the Loans. 
  
 C. Borrower and Lender now desire to modify the Loan Agreement as set forth herein. 
  
 NOW, THEREFORE, in
consideration of the premises and the mutual covenants set forth herein, the parties agree as follows, 
  
 1. The definition of Repayment Date in Section 1.1 of the Loan Agreement is hereby amended, restated, and replaced with the following: 
  
 “Repayment Date” means July 1, 2007. 
  
 2. The Loan Agreement is hereby amended by deleting in their entirety the
following definitions set forth in Section 1.1 of the Loan Agreement: 
  
 “Merger Transaction” 
  
 “MOU” 
  
 “Permitted Credit
Facility” 
  
 3. Section 2.3 of the Loan Agreement is
hereby amended, restated, and replaced by the following: 
  

	 	(a)	The Borrower unconditionally promises to repay (subject to Article 7) one-half of the outstanding principal under the Loans as of the date hereof (the “Amortized
Principal”) in eight (8) equal quarterly installments of the Amortized Principal, plus accrued interest on the Amortized Principal through the date of each such payment. The first such installment of Amortized Principal, together with

  

 - 1 - 

 accrued but unpaid interest on the Loans through July 1, 2005, shall be due and payable on the first
Business Day of July, 2005 and each subsequent installment of Amortized Principal, together with accrued but unpaid interest on the Loans through the date of such payment, after that date shall be due and payable on the first Business Day of each
subsequent Financial Quarter until the Repayment Date. The Borrower unconditionally promises to repay (subject to Article 7) all remaining outstanding principal, together with all accrued and unpaid interest and any other amounts due hereunder, on
the Repayment Date. 
  

	 	(b)	In addition to the payments set forth in (a) above, if, after June 22, 2005, the Parent or the Borrower shall sell shares of capital stock or other equity, debt, or convertible
securities, in one or more transactions, and the aggregate net proceeds to the issuer therefrom exceed U.S. $3 million, the Borrower shall pay the amount of such excess promptly upon receipt, up to the total amount of principal, interest and other
amounts due under the Loans, to the Lender as a prepayment on any outstanding principal amount of the Loans, accrued and unpaid interest and any other amounts due thereunder on the remaining unpaid Loans. 

  
 4. Each of Sections 6.1(b), 6.1(c), 6.1(d), 6.1(e), 6.1(f), 6.1(g), 6.1(h),
6.1(j), 6.1(k), 6.1(l), 6.2, and 6.3 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 
  
 Omitted. 
  
 Section 6.4 of the Loan Agreement is hereby amended by adding the following new Section 6.4(e): 
  
 (e) Sale of Assets. Borrower covenants, represents, warrants, and
agrees that it shall not sell, exchange, transfer, lease, release or abandon or otherwise dispose of, or permit any of its Subsidiaries to dispose of, any assets or properties to any Person in a way that would have a materially adverse effect on
Lender’s security interest in the assets of the Borrower. This Section 6.4(e) shall constitute a representation and warranty as such terms are used in Section 7.1(b) of the Loan Agreement. 
  
 5. Each of Sections 7.1(c) and 7.1(i) of the Loan Agreement is hereby deleted
in its entirety and each is hereby replaced with the following: 
  
 Omitted. 
  
 6. Section 8.5 of the Loan Agreement is
hereby amended to reflect that the addresses to which notices, directions, or communications to the Borrower and the Lender shall be sent, pursuant to and until such addresses are changed in accordance with the provisions of Section 8.5 of the Loan
Agreement, are: 
  

 - 2 - 

 If to Borrower, to: 
  
 10715 Red Run Blvd. 
 Suite 101 
 Owings Mills, MD 21117 
 Attn: Donald R. Walsh 
  
 If to Lender, to the same address as set forth in the Loan Agreement, but to the attention of Thibault de
Tersant 
  
 7. This Amendment shall be governed by and interpreted
and enforced in accordance with the laws of the State of Delaware, without regard to the principals of conflicts of laws thereof. 
  
 8. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. Delivery of an executed signature page to this Agreement by any party by facsimile transmission shall be as effective as delivery of a manually executed copy of this Agreement by such party.

  
 9. Except as herein provided, the Loan Agreement is and shall
remain in full force and effect, and has not been otherwise modified or amended. Capitalized terms not defined herein shall have the meaning ascribed to them by the Loan Agreement. Each of the parties acknowledges that, to the best of its knowledge,
there are no outstanding Events of Default under the Loan Agreement that have not been cured or waived. 
  
 10. In consideration of the mutual agreements set forth in this Amendment, Borrower agrees to cooperate with Lender in the orderly transition of
Borrower’s Pipeline (hereinafter defined) of customers and prospective customers of Lender’s SmarTeam product line, including SmarTeam product sales, annual license renewals, and related uncontracted services, and in connection therewith,
Borrower agrees to send to all customers and prospective customers representing Borrower’s Pipeline, on or before August 1, 2005, a letter substantially in the form attached hereto as Exhibit A. For purposes of this Section 10,
“Borrower’s Pipeline” shall mean all existing customers of Borrower for Lender’s SmarTeam product line, and all prospects identified by Borrower through the date hereof. A complete list of all customers and prospective customers
representing Borrower’s Pipeline, which list shall include the name of each customer or prospective customer, the contact information, and forecast information for each such customer or prospective customer, in the form previously delivered by
Borrower to Lender from time to time, shall be delivered to Lender on or before July 1, 2005. 
  
 11. Parent shall file with the U.S. Securities and Exchange Commission a periodic report on Form 8-K reasonably satisfactory to Lender disclosing the material terms of this Amendment (and filing this Amendment as an
exhibit to such report) and the fact that Lender and Borrower have mutually agreed not to renew the SmarTeam reseller agreement between Lender and Borrower. 
  
 [Remainder of page intentionally left blank] 
  

 - 3 - 

 IN WITNESS WHEREOF the parties have
executed this Amendment as of the date appearing on the first page hereof. 
  

			
	AVATECH SOLUTIONS SUBSIDIARY, INC.
		
	By:	 	 /s/ Donald R. “Scotty” Walsh

	Name:	 	Donald R. Walsh
	Title:	 	Chief Executive Officer
	
	DASSAULT SYSTEMES CORP.
		
	By:	 	 /s/ Thibault de Tersant

	Name:	 	Thibault de Tersant
	Title:	 	Director and Secretary

  

 - 4 - 

 Exhibit A 

 

 
  
 July 1, 2005 
  
 Name 
 Address 
 Address 
 City, State, Zip 
  
 Dear SmarTeam Customer or Prospective Customer, 
  
 This letter is to notify Avatech’s current and prospective SmarTeam
customers that as of July 1, 2005, Avatech will no longer represent SmarTeam products. Avatech and SmarTeam have mutually agreed not to renew the reseller agreement because of changes in Avatech’s business plans and direction. 
  
 What does this mean for current Avatech SmarTeam customers? 
  
 Avatech will continue to fulfill all of its current services and technical support
agreements through the end of their terms and will maintain its staff and/or sub-contractor agreements so each contract is completely satisfied. This means that Avatech will no longer be authorized to sell new software seats or annual license
agreements (ALC) as of July 1, 2005. SMARTEAM and Avatech will work together to ensure that each customer is transitioned to a new reseller in a prompt and smooth fashion. No new services or technical support agreements for SmarTeam will be entered
into by Avatech after July 1, 2005. 
  
 Current customers should contact John
Cichy, Director of Sales at 704-849-2977 with questions or concerns regarding current projects or orders. 
  
 What does this mean for prospective SmarTeam customers? 
  
 SMARTEAM and Dassault Systems will work with any prospective customer to provide an introduction to a new reseller partner who fits their business and partnering needs. SMARTEAM maintains a broad network of reseller
partners across the country that will be available immediately to assist with software and service purchases. 
  
 Prospective customers should contact Jim Ryan at 704-264-8814, or visit www.smarteam.com for more information. 
  
 Both Avatech and SMARTEAM are committed to making this a smooth transition and providing prompt answers to your questions about this change. 
  
 10715 Red Run Blvd, Suite 101 · Owings Mills MD 21117 
 410-581-8080 · 410-581-8088 FAX 
 www.avatechsolutions.comForm of  Annual Management Incentive Plan Participant's Summary

 EXHIBIT 10(n) 
  
 FORM OF 
 THE HANDLEMAN COMPANY 
 ANNUAL MANAGEMENT INCENTIVE PLAN 
 PARTICIPANT’S SUMMARY 
  
 Plan Purpose 
  
 The Annual Management Incentive Plan (MIP) is
designed to provide awards based upon the level of achievement of Handleman Company, the business unit and Strategic Scorecard Objectives. As such, it facilitates the Company’s ability to motivate, attract and retain management employees.

  
 Administration 
  
 The Compensation Committee of the Board of Directors (the Compensation Committee) has the
sole right to interpret the Plan and to prescribe, amend or rescind the rules or make any other determinations necessary for the Plan’s administration. 
  
 The Plan will be administered by the Administrative Committee, who will recommend awards to the Compensation Committee. 
  
 Approval of the provisions and payout amounts from the MIP will be the ultimate
responsibility of the Compensation Committee. 
  
 Eligibility 

 
 The positions eligible for the MIP will be determined at the beginning of each fiscal
year. The Administrative Committee will issue each participant a copy of the plan annually. 
  
 Individuals hired into an eligible position during the fiscal year, promoted into an eligible position, or promoted from one eligible position to another will follow the payment guidelines in the table below:

  

							
	     Time in new position    

	 	     less than 3 months    

	 	     3 to 6 months    

	 	     more than 6 months    

	 Newly hired or promoted
 into bonus position
	 	No bonus	 	Prorated* bonus	 	100% of bonus
				
	 Promoted from one bonus
 position to another*
	 	 Bonus calculated
 from old position
	 	 Bonus calculated from
 new position
	 	 Bonus calculated from
 new position

	*	Prorating will be: 

	 	•	 	>3 months @25% 

	 	•	 	>4 months @50% 

	 	•	 	>5 months @75% 

  
 Salaries as of June 2005 will be used in all calculations. 
  
 An employee must also receive a performance rating of good or better in order to receive an incentive award. 
  
 Performance Period 
  
 Participants will earn awards based on performance during fiscal year ending on or about April 30. 
  
 Target Incentive Awards 
  
 Target Incentive Awards (TIA) are set as a percent of the salary for each participant. The target incentive award percentages are generally based on the salary grade of each participant. 
  

 1 

 THE HANDLEMAN COMPANY 
 ANNUAL MANAGEMENT INCENTIVE PLAN 
 PARTICIPANT’S SUMMARY FISCAL 2005 
  
 Target Incentive Award Allocation 
  
 TIAs will be allocated and weighted as follows: 
  

										
	 Unit

	  	 Corporate
measure
 Net income(1)

	 	 	 Business Unit
measure
 Operating
 Income(2)

	 	 	 Strategic
Scorecard
Objectives
 (SSO)

	 
	 CEO and CFO
	  	100	%	 	—  	 	 	—  	 
	 Corporate Employees
	  	75	%	 	—  	 	 	25	%
	 HER Business Units
	  	25	%	 	50	%	 	25	%

	(1)	Net Income includes all companies on a consolidated basis 

	(2)	Operating income targets are set for each business unit including HUK, HER Canada and HER US 

  
 Strategic Scorecard Objectives (SSO) have replaced the personal accountabilities from the previous annual incentive plan in order to more
closely tie rewards to measures that are in line with Handleman’s strategic objectives. There are 3 measures chosen for each employee which are: 1) objective (i.e. clear measures and targets that are quantifiable), 2) driving financial
outcomes, and 3) directly impacted by the individual’s efforts. These are taken directly from the approved balanced scorecard for each area of the business. The manager, in conjunction with the employee will identify the measures that are most
applicable to each position. 
  
 Attachment A illustrates the TIA
allocation for an H.E.R. participant. 
  
 Performance/Award Schedule

  
 The following table indicates the Target Incentive, which can be earned
at threshold, target, maximum and maximum plus performance: 
  

			
	 Performance Level(1)

	 	 % of TIA Earned

	 Threshold(2)
	 	25%
	 Target
	 	100%
	 Maximum
	 	200%
	 Maximum Plus(3)
	 	250%

	(1)	Prorated awards will be earned for performance between these levels. 

	(2)	No incentive award will be earned if performance is below this level. 

	(3)	Does not apply to Strategic Scorecard Objectives 

  
 The award components are separate and distinct. Thus, it is possible to earn an award for an individual component of the plan regardless of the outcome of the other
components of the plan. 
  
 The aggregate award for the Strategic Scorecard
Objective component for the participants in an operating unit however, cannot exceed 100% of target if the group performance fails to meet its targeted performance requirements. If the overall company performance fails to meet threshold, the
aggregate Strategic Scorecard Objective award component for all participating employees will not exceed 100% even if their individual unit exceeds target. Performance that falls between threshold and target, target and maximum, as well as maximum
and maximum plus will be prorated on a linear basis. This component accounts for 25% of the total bonus payment. Strategic Scorecard Objectives will be paid on a linear basis with a maximum payout of 200%. Strategic Scorecard Objectives that are
date driven will not be prorated. 
  

 2 

 THE HANDLEMAN COMPANY 
 ANNUAL MANAGEMENT INCENTIVE PLAN 
 PARTICIPANT’S SUMMARY FISCAL 2005 
  
 At the end of the year, senior management will report on the actual performance results
versus targets and recommend payouts to the Compensation Committee. In determining the level of achievement of the designated Company and/or business unit, the Committee will have the discretion to include or exclude any extraordinary items (i.e.,
mergers, acquisitions, changes in accounting, etc.). 
  
 Award Payment

  
 The payment of annual incentive awards, if any, is made in a lump-sum as
soon as possible after the completion of each fiscal year. Incentive awards will be calculated using each participant’s actual base earnings at the time the bonus is calculated and approved by the Compensation Committee (subject to the
eligibility guidelines noted on p. 1). 
  
 When performance payouts are above
maximum, the following payment methods will be available: 
  

			
	     Cash    

	 	 Cash or Stock
 at employee’s discretion*

	Up to 200%	 	Over 200%

	*	Assuming minimum stock ownership requirements have been met as explained below. 

  
 Stock Ownership Guidelines 
  
 If an employee (Grades 9 and above) fails to comply with the stock ownership guidelines on a timely basis, any bonuses payable to the employee shall be used to purchase
Handleman Company common stock until the guidelines are satisfied (a portion of the bonuses will be paid in cash in an amount sufficient to cover the employee’s tax liability on both the stock and cash portion of the payout). 
  
 Awards Earned Upon Termination of Employment 
  
 A participant must be employed by Handleman on the date awards are paid in order to be
eligible to receive an incentive payout. However, eligibility for payouts in the event of termination during the plan year will depend on the event as follows: 
  

	•	 	Death, permanent disability or retirement of a participant during a plan year will result in a pro rata payout based on the number of full months of employment completed by the
participant prior to termination. 

  

	•	 	In the event of any other termination, the participant will not be eligible for an annual incentive payout. 

  
 Miscellaneous Provisions 
  
 The Compensation Committee retains the right to change any Management Incentive Plan
provisions included in this Plan. 
  
 Attachment B displays the award
calculation worksheet. 
  

 3 

 THE HANDLEMAN COMPANY 
 ANNUAL MANAGEMENT INCENTIVE PLAN 

	 MECHANICAL ILLUSTRATION FISCAL 2005 
	 Attachment A 

  
 

 
  

					
	 	 	 25% earned at Threshold performance
	 	 
			
	 	 	 100% earned at Target performance
	 	 
			
	 	 	 200% earned at Maximum performance
	 	 
		
	 	 	 250% earned at Maximum Plus performance*

	*	does not apply to Strategic Scorecard Objectives 

 Annual Management Incentive Plan 

	 Award Calculation Worksheet    FISCAL 2005 
	 Attachment B 1 of 2 

  

			
	 Name: _________________________
	  	 August 2004: _____________

		
	 Position: _______________________
	  	 Target Incentive Award Percentage: ____%

		
	 Salary Grade: ____________________
	  	 Target Incentive Award: $_________

  

																												
	 	 	 	 	 	 	 	 	 	Performance Level (1)

	 	 	 	 	 	 	 	 	 	Threshold (2)
25%

	 	Target (3)
100%

	 	Maximum
(4) 200%

	 	Maximum Plus (5)
250%

	 	Actual

	 	 	 	 	 	 	 	 	 	Goal

	 	Payout

	 	Goal

	 	Payout

	 	Goal

	 	Payout

	 	Goal

	 	Payout

	 	Performance

	 	Payout

	 Award Component

	 	TIA
Allocation

	 	Measure

	 	Weight

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Corporate	 	    %	 	Net Income	 	75	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	HER Business Unit Performance	 	    %	 	Corporate Net
Income	 	25	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Operating Income
HER Business Unit	 	50	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Scorecard Measures	 	    %	 	Scorecard
Measures	 	25	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(6)	 	 	 	 
	 	 	 	 	 	 	 	 	 	Total	 	$        	 	 	 	 	 	 	 	$        	 	 	 	$        	 	 	 	 

 Notes: 

	(1)	Pro rata awards will be earned for performance between the following levels. 

	(2)	Minimum performance necessary to earn an incentive award. 

	(3)	Represents expected or budgeted performance. 

	(4)	Represents very good performance. 

	(5)	Represents outstanding performance. Incentive award is capped at this amount 

	(6)	Max plus payouts do not apply for Strategic Scorecard Objectives portion 

 Annual Management Incentive Plan 

	 Award Calculation Worksheet Guide    FISCAL 2005 
	 Attachment B 2 of 2 

  

			
	 1 Name: _________________________
	  	 4 June 2005: $________

		
	 2 Position: ______________________
	  	 5 Target Incentive Award Percentage: ____%

		
	 3 Salary Grade: ___________________
	  	 6 Target Incentive Award: $__________

		
	 	  	 

  

																														
	 	 	 	 	 	 	 	 	 	PERFORMANCE LEVEL (1)

	  	 
	 	 	 	 	 	 	 	 	 	Threshold (2)
25%

	 	Target (3)
100%

	 	Maximum (4)
200%

	 	Maximum Plus (5)
250%

	 	Actual

	  	 
	 	 	7	 	 	 	 	 	 	Goal

	 	Payout

	 	Goal

	  	Payout

	 	Goal

	 	Payout

	 	Goal

	 	Payout

	 	Performance

	 	Payout

	  	 
	 Award Component

	 	TIA
Allocation

	 	Measure

	 	Weight

	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	Corporate	 	    %	 	Net Income	 	75	%	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	  	8
	HER Business Units	 	 	 	Corporate Net
Income	 	25	%	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	  	9
	 	 	    %	 	Operating
Income
Business Unit	 	50	%	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	Scorecard Measures	 	    %	 	Scorecard
Measures	 	25	%	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	(6)	 	 	 	 	  	10
	 	 	 	 	 	 	Total	 	 	 	 	$        	 	 	  	$        	 	 	 	$        	 	 	 	$        	 	 	 	$        	  	 

 Notes: 

	(1)	Pro rata awards will be earned for performance between the following levels. Date driven accountabilities will not be prorated. 

	(2)	Minimum performance necessary to earn an incentive award. 

	(3)	Represents expected or budgeted performance. 

	(4)	Represents very good performance. 

	(5)	Represents outstanding performance. Incentive award is capped at this amount. 

	(6)	Max plus payouts do not apply for Strategic Scorecard Objectives portion 

  

	1.	Your name 

	2.	Your Position 

	3.	Your Salary Grade 

	4.	Fill in your salary 

	5.	Indicates what percentage of your salary is bonus eligible. 

	6.	To determine your Bonus Award, change line 5 to a decimal and multiply it by line 4. 

	7.	TIA% for each component = line 4 X weight 

	8.	Corporate Performance Objectives. 

	9.	HER Business Units Performance Objectives 

	10.	Strategic Scorecard Measures selected from approved list 

 CORPORATE EMPLOYEES 
  
 Performance Measures Specifics 
  
 Corporate employees are those eligible employees working in Information Technology, Human Resources, Corporate Finance and select executives. 
  
 Threshold, target, maximum and maximum plus objectives have been set for each group (there is
no max plus for Strategic Scorecard Objectives). Performance measures for fiscal 2005 are: 
  

															
	 	  	 	  	 Expressed in millions

	 Percentage of TIA

	  	 Performance Measure (% of budget)

	  	Threshold

	  	Target

	  	Maximum

	  	Maximum
Plus

	 	  	CORPORATE	  	 	 	  	 	 	  	 	 	  	 	 
	(75)%	  	- Net Income (100)%	  	$	XX.0	  	$	XX.0	  	$	XX.0	  	$	XX.0
	 	  	SELECT STRATEGIC SCORECARD OBJECTIVES	  	 	 	  	 	 	  	 	 	  	 	(1)
	(25)%	  	Based on measurement achievement	  	 	 	  	 	 	  	 	 	  	 	 

	(1)	Maximum plus does not apply to Strategic Scorecard Objectives 

  
 The “threshold” level represents the minimum performance necessary to earn an incentive award. The “target” level is expected or budgeted performance,
the “maximum” level represents very good performance and the “maximum plus” level represents outstanding performance (there is no max plus rating for Strategic Scorecard Objectives). 

 HER US STAFF 
  
 Performance Measures Specifics 
  
 HER US Staff are eligible US employees in the HER business unit. 
  
 As to the performance measures they will be separate and distinct, thus an individual can receive a bonus payment in their business unit should it achieve target even if
the company in total does not achieve threshold. 
  
 Threshold, target, maximum
and maximum plus objectives have been set for each group (there is no max plus for strategic objectives). Performance measures for fiscal 2005 are: 
  

															
	 	  	 	  	 Expressed in millions

	 Percentage of TIA

	  	 Performance Measure (% of budget)

	  	Threshold

	  	Target

	  	Maximum

	  	Maximum
Plus

	 	  	CORPORATE	  	$	XX	  	 	 	  	 	 	  	 	 
	(25)%	  	- Net Income (100)%	  	$	.0	  	$	XX.0	  	$	XX.0	  	$	XX.0
	 	  	HER(1)	  	 	 	  	 	 	  	 	 	  	 	 
	(50)%	  	- Operating Income (100)%	  	$	XX.0	  	$	XX.5	  	$	XX.0	  	$	XX.0
	 	  	SELECT STRATEGIC SCORECARD OBJECTIVES	  	 	 	  	 	 	  	 	 	  	 	(2)
	(25)%	  	Based on measurement achievement	  	 	 	  	 	 	  	 	 	  	 	 

	(1)	H.E.R. includes US operating income results only 

	(2)	Maximum plus does not apply to Strategic Scorecard Objectives 

  
 The “threshold” level represents the minimum performance necessary to earn an incentive award. The “target” level is the expected or budgeted
performance, the “maximum” level represents very good performance and the “maximum plus” level represents outstanding performance (there is no max plus rating for Strategic Scorecard Objectives). 

 HANDLEMAN UK LIMITED 
  
 Performance Measures Specifics 
  
 HER UK Staff are those eligible U.K. employees working in the HER UK business unit. 
  
 As to the performance measures they will be separate and distinct, thus an individual can receive a bonus payment in their business unit
should it achieve target even if the company in total does not achieve threshold. 
  
 Threshold, target, maximum and maximum plus objectives have been set for each group (there is no max plus for strategic objectives). Performance measures for fiscal 2005 are: 
  

															
	 	  	 	  	 Expressed in millions

	 Percentage of TIA

	  	 Performance Measure (% of budget)

	  	Threshold

	  	Target

	  	Maximum

	  	Maximum
Plus

	 	  	CORPORATE	  	 	 	  	 	 	  	 	 	  	 	 
	(25)%	  	- Net Income (100)%	  	$	XX.0	  	$	XX.0	  	$	XX.0	  	$	XX.0
	 	  	HUK(1)	  	 	 	  	 	 	  	 	 	  	 	 
	(50)%	  	- Operating Income (100)%	  	£	X.XX	  	£	X.XX	  	£	X.XX	  	£	X.XX
	 	  	SELECT STRATEGIC SCORECARD OBJECTIVES	  	 	 	  	 	 	  	 	 	  	 	(2)
	(25)%	  	Based on measurement achievement	  	 	 	  	 	 	  	 	 	  	 	 

	(1)	HUK includes HUK operating income only shown in local currency 

	(2)	Maximum Plus does not apply to Strategic Scorecard Objectives 

  
 The “threshold” level represents the minimum performance necessary to earn an incentive award. The “target” level is the expected or budgeted
performance, the “maximum” level represents very good performance and the “maximum plus” level represents outstanding performance (there is no max plus rating for Strategic Scorecard Objectives). 

 CANADA 
  
 Performance Measure Specifics 
  
 HER Canada Staff are those eligible Canadian employees working in the HER Canada business unit. 
  
 The performance measures will be separate and distinct, thus an individual can receive a bonus payment in their business unit should it
achieve target even if the company in total does not achieve threshold. 
  
 Threshold, target, maximum and maximum plus objectives have been set for each group (there is no max plus for strategic objectives). Performance measures for fiscal 2005 are: 
  

											
	 	  	 	  	 Expressed in millions

	 Percentage of TIA

	  	 Performance Measure (% of budget)

	  	Threshold

	  	Target

	  	Maximum

	  	Maximum
Plus

	 	  	CORPORATE	  	 	  	 	  	 	  	 
	 (25)%
	  	- Net Income (100)%	  	$XX.X	  	$XX.X	  	$XX.X	  	$XX.X
	 	  	CANADA(1)	  	 	  	 	  	 	  	 
	 (50)%
	  	- Operating Income (100)%	  	$XX.XX	  	$XX.XX	  	$XX.XX	  	$XX.XX
	 	  	SELECT STRATEGIC SCORECARD OBJECTIVES	  	 	  	 	  	 	  	(2)
	 (25)%
	  	Based on measurement achievement	  	 	  	 	  	 	  	 

	(1)	Canada includes Canada operating income only shown in local currency 

	(2)	Maximum Plus does not apply to Strategic Scorecard Objectives 

  
 The “threshold” level represents the minimum performance necessary to earn an incentive award. The “target” level is the expected or budgeted
performance, the “maximum” level represents very good performance and the “maximum plus” level represents outstanding performance (there is no max plus rating for Strategic Scorecard Objectives).

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