Document:

exh10_5.htm

 

 

EXHIBIT 10.5

 

 

RESOURCE CAPITAL CORP.

2007 OMNIBUS EQUITY COMPENSATION PLAN

Amended and Restated as of June 23, 2011

1.    Purpose

 

The purpose of the Plan is to provide (i) employees of the Company or an Affiliate of the Company, (ii) any individual who provides services to the Company or an Affiliate of the Company, including portfolio managers and other employees of Resource Capital Manager, Inc. and Resource America, Inc., and (iii) members of the Board, with the opportunity to receive grants of Options, SARs, Stock Units, Performance Shares, Stock Awards, Dividend Equivalents and Other Stock-Based Awards.  The Company believes that the Plan will encourage the Participants to contribute materially to the growth of the Company, thereby benefiting the Company’s stockholders, and will align the economic interests of the Participants with those of the stockholders.  The Plan has been amended and restated as of June 23, 2011, subject to stockholder approval of the Plan.

 

2.    Definitions

 

Whenever used in this Plan, the following terms will have the respective meanings set forth below:

 

(a) "Administrator" means the Committee and any delegate of the Committee that is appointed in accordance with Section 3, except that the Board shall be the Administrator with respect to Grants to Non-Employee Directors.

 

(b) “Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified.

 

(c) "Board" means the Company’s Board of Directors as constituted from time to time.

 

(d) "Change of Control" means the first to occur of any of the following events:

 

(i) the Manager, or a direct or indirect wholly owned subsidiary of Resource America, ceases to be the investment manager of the Company;

 

(ii) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Company, taken as a whole, to any Person other than any one or more Qualified Affiliates;

 

(iii) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the voting capital interests of the Company, other than an acquisition by one or more Qualified Affiliates; or

 

  

  

  

 

(iv) After the date this Plan is approved by the stockholders of the Company, directors are elected such that a majority of the members of the Board shall have been members of the Board for less than two years, unless the election or nomination for election of each new director who was not a director at the beginning of such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

 

(e) “Code” means the Internal Revenue Code of 1986, as amended.

 

(f) "Company" means Resource Capital Corp., a Maryland corporation.

 

(g) “Committee” means the Compensation Committee of the Board or another committee appointed by the Board to administer the Plan.

 

(h) “Date of Grant” means the date a Grant is effective; provided, however, that no retroactive Grants will be made.

 

(i) "Dividend Equivalent" means an amount determined by multiplying the number of shares of Stock, Performance Shares or Stock Units subject to a Grant by the per-share cash dividend, or the per-share fair market value (as determined by the Administrator) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date.

 

(j) “Effective Date” of the amended and restated Plan means June 23, 2011, subject to approval by the stockholders of the Company.

 

(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(l) "Fair Market Value" of Stock is (i) if the Stock is publicly traded, then the Fair Market Value per share shall be determined as follows: (A) if the principal trading market for the Stock is a national securities exchange, the last reported sale price during regular trading hours on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or (B) if the Stock is not principally traded on such exchange or market, the mean between the last reported “bid” and “asked” prices of Stock on the relevant date, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Administrator determines, or (ii) if the Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per share shall be as determined by the Administrator.

 

(m) “Grant” means an Option, SAR, Stock Unit, Performance Share, Stock Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan.

 

(n) “Grant Instrument” means the written agreement that sets forth the terms and conditions of a Grant, including all amendments thereto.

 

(o) “Incentive Stock Option” means a stock option that is intended to meet the requirements of section 422 of the Code, as described in Section 7.

 

(p) “Manager” means Resource Capital Manager, Inc., a Delaware corporation.

 

(q) “Non-Employee Director” means a non-employee director of the Company as defined by Rule 16b-3 under the Exchange Act.

 

(r) “Nonqualified Stock Option” means a stock option that is not intended to meet the requirements of section 422 of the Code, as described in Section 7.

 

 

  

  

  

 

(s) "Option" means an Incentive Stock Option or Nonqualified Stock Option to purchase shares of Stock at an Option Price for a specified period of time.

 

(t) "Option Price" means an amount per share of Stock purchasable under an Option, as designated by the Administrator.

 

(u) “Other Stock-Based Award” means any Grant based on, measured by or payable in Stock (other than Grants described in Sections 7, 8, 9, 10, 11 and 12), as described in Section 13.

 

(v) “Parent” means a “parent corporation,” as defined in section 424(e) of the Code, of the Company.

 

(w) "Participant" means an employee of the Company or an Affiliate of the Company, a member of the Board, or an individual who provides services to the Company or an Affiliate of the Company, including a portfolio manager or other employee of the Manager or Resource America, and is selected by the Administrator to receive a Grant under the Plan.

 

(x) “Performance Shares” means an award of phantom shares, representing one or more shares of Stock, as described in Section 10.

 

(y) “Person” means any individual, corporation, partnership, joint venture, limited liability company, estate, trust, or unincorporated association, and any fiduciary acting in such capacity on behalf of any of the foregoing.

 

(z) "Plan" means this Resource Capital Corp. 2007 Omnibus Equity Compensation Plan, as in effect from time to time.

 

(aa) “Qualified Affiliate” means (i) any Person that is part of a controlled group or under common control with the Company or Resource America; (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or by any entity controlled by the Company; or (iii) any Person controlled by any executive officer (as defined by Rule 16a-1(f) of the Exchange Act) of the Company.  For purposes of this definition, “controlled by” shall mean possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

(bb) “Resource America” means Resource America, Inc., a Delaware corporation.

 

(cc) "Stock" means the common stock, par value $0.001, of the Company or such other securities of the Company as may be substituted for Stock pursuant to Sections 5(d) or 18.

 

(dd) “SAR” means an award of a stock appreciation right, as described in Section 8.

 

(ee) “Stock Award” means an award of Stock, as described in Section 11.

 

(ff) “Stock Unit” means an award of a phantom unit, representing one or more shares of Stock, as described in Section 9.

 

(gg) “Subsidiary” means any entity in which the Company has a greater than 50% ownership interest.  For purposes of Sections 7(c), (d) and (h), “Subsidiary” shall mean a “subsidiary corporation,” as defined in section 424(f) of the Code, of the Company.

 

  

  

  

 

(hh) “Successor Participant” means the personal representative or other person entitled to succeed to the rights of the Participant in accordance with Section 17.

 

3.    Administration

 

(a) The Plan shall be administered by the Administrator. The Administrator shall have the sole authority to (i) determine the Participants to whom Grants shall be made under the Plan, (ii) determine the type, size and terms of the Grants to be made to each Participant, (iii) determine the time when the Grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, (iv) amend the terms of any previously issued Grant, subject to the provisions of Section 20, (v) adopt guidelines separate from the Plan that set forth the specific terms and conditions for Grants under the Plan, and (vi) deal with any other matters arising under the Plan.

 

(b) The Administrator shall have full power and express discretionary authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion.  The Administrator’s interpretations of the Plan and all determinations made by the Administrator pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder.  All powers of the Administrator shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

 

(c) The Administrator, in its discretion, may delegate to one or more officers of the Company all or part of the Administrator’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act.  The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan and the Administrator’s prior delegation.  Any delegation by the Administrator pursuant to this Section shall be subject to such conditions and limitations as may be determined by the Administrator and shall be subject to and limited by applicable law or regulation, including without limitation the rules and regulations of the New York Stock Exchange or such other securities exchange on which the Stock is then listed.

 

4.    Grants

 

Grants under the Plan may consist of Options, SARs, Stock Units, Performance Shares, Stock Awards, Dividend Equivalents and Other Stock-Based Awards.  All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with the Plan as the Administrator deems appropriate and as are specified in writing by the Administrator in separate guidelines or to the individual in the Grant Instrument or an amendment to the guidelines or Grant Instrument.  The Administrator shall approve the form and provisions of each Grant Instrument.  All Grants shall be made conditional upon the Participant’s acknowledgment, in writing or by acceptance of the Grant, that all decisions and determinations of the Administrator shall be final and binding on the Participant, his or her beneficiaries, and any other person having or claiming an interest under such Grant.  Grants under a particular Section of the Plan need not be uniform as among the Participants.

 

  

  

  

 

5.    Shares of Stock Subject to the Plan

 

(a) Shares Authorized.  The total aggregate number of shares of Stock that may be issued or transferred under the Plan is 5,400,000 shares, subject to adjustment as described below.  The shares may be authorized but unissued shares of Stock or reacquired shares of Stock, including shares purchased by the Company on the open market for purposes of the Plan.  Grants paid in cash shall not count against the foregoing share limits.

 

(b) Share Counting.  For administrative purposes, when the Administrator makes a Grant payable in Stock, the Administrator shall reserve shares of Stock equal to the maximum number of shares of Stock that may be payable under the Grant.  If and to the extent Options or SARs granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised or if any Stock Awards, Stock Units, Performance Shares, Dividend Equivalents or Other Stock-Based Awards are forfeited or terminated, or otherwise are not paid in full, the shares subject to such Grants which have not been issued shall again be available for purposes of the Plan.  Shares of Stock withheld in payment of the Option Price of an Option or withheld for purposes of satisfying the Employer’s minimum tax withholding obligations with respect to Grants under the Plan shall not be available for re-issuance or transfer under the Plan.  Upon the exercise of an Option through the withholding of shares or upon the exercise of a SAR, then both for purposes of calculating the number of shares of Stock remaining available for issuance under the Plan and the number of shares of Stock remaining available for exercise under the Option or SAR, the number of such shares shall be reduced by the gross number of shares for which the Option or SAR is exercised.  To the extent that any Grants are paid in cash and not shares of Stock, such Grants shall not count against the share limits in subsection (a) above. For the avoidance of doubt, if shares of Stock are repurchased on the open market with the proceeds of the exercise price of Options, such shares may not again be made available for issuance under the Plan.

 

(c) Individual Limits.  All Grants under the Plan, other than Dividend Equivalents, shall be expressed in shares of Stock.  The maximum aggregate number of shares of Stock with respect to which all Grants, other than Dividend Equivalents, may be made under the Plan to any individual during any calendar year shall be 300,000 shares, subject to adjustment as described below.  A Participant may not accrue Dividend Equivalents during any calendar year in excess of $100,000. The individual limits described in this subsection (c) shall apply without regard to whether the Grants are to be paid in Stock or in cash.  All cash payments (other than Dividend Equivalents) shall equal the Fair Market Value of the shares of Stock to which the cash payment relates.

 

(d) Adjustments.  If there is any change in the number or kind of shares of Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares, (ii) by reason of a merger, reorganization or consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of Stock is substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary dividend or distribution, the maximum number of shares of Stock available for issuance under the Plan, the maximum number of shares of Stock for which any individual may receive pursuant to Grants in any year, the number of shares covered by outstanding Grants, the kind of shares to be issued or transferred under the Plan, and the price per share or the applicable market value of such Grants shall be equitably adjusted by the Administrator, in such manner as the Administrator deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.  In addition, in the event of a Change of Control of the Company, the provisions of Section 18 of the Plan shall apply. Any adjustments to outstanding Grants shall be consistent with section 409A or 424 of the Code, to the extent applicable. Any adjustments determined by the Administrator shall be final, binding and conclusive.

 

  

  

  

 

6.    Eligibility for Participation

 

Any employee of the Company or an Affiliate of the Company, any member of the Board and any individual who provides services to the Company or an Affiliate of the Company, including a portfolio manager or other employee of the Manager or Resource America, is eligible to participate in this Plan if the Administrator, in its sole discretion, determines that such person has contributed significantly or can be expected to contribute significantly to the profits or growth of the Company or an Affiliate of the Company.  Grants will be made only to persons who are employees, directors, consultants or advisors of the Company for purposes of Form S-8 registration under the Securities Act of 1933, as amended.  Options and SARs may be granted only to persons who perform direct services to the Company on the date of grant, as determined under section 409A of the Code.

 

7.    Options

 

(a) General Requirements.  The Administrator may grant Options to a Participant upon such terms and conditions as the Administrator deems appropriate under this Section 7.

 

(b) Number of Shares.  The Administrator shall determine the number of shares of Stock that will be subject to each Grant of Options to Participants.

 

(c) Type of Option and Price.

 

(i) The Administrator may grant Incentive Stock Options or Nonqualified Stock Options or any combination of Incentive Stock Options and Nonqualified Stock Options.  Incentive Stock Options may be granted only to employees of the Company or its Subsidiaries. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.  Nonqualified Stock Options may be granted to any Participant.

 

(ii) The Option Price shall be determined by the Administrator and may be equal to or greater than the Fair Market Value of the shares of Stock subject to the Grant on the Date of Grant; provided, however, that an Incentive Stock Option may not be granted to any person who, at the Date of Grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any Subsidiary, unless the Option Price is not less than 110% of the Fair Market Value on the Date of Grant.

 

(d) Option Term.  The Administrator shall determine the term of each Option.  The term of an Option shall not exceed ten years from the Date of Grant.  However, an Incentive Stock Option that is granted to an Employee who, at the Date of Grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or any Subsidiary, may not have a term that exceeds five years from the Date of Grant.

 

(e) Exercisability of Options.  Options shall become exercisable in accordance with such terms and conditions as may be determined by the Administrator and specified in the Grant Instrument.  The Administrator may accelerate the exercisability of any or all outstanding Options at any time for any reason.

 

 

  

  

  

 

(f) Termination of Employment or Service.  Except as provided in the Grant Instrument, an Option may only be exercised while the Participant is employed by, or providing service to, the Company, an Affiliate or another entity as designated in the Grant Instrument.  The Administrator shall specify in the Grant Instrument under what circumstances and during what time periods a Participant may exercise an Option after termination of employment or service.

 

(g) Exercise of Options.  A Participant may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company or its designated agent.  The Participant shall pay the Option Price and any withholding taxes for the Option (i) in cash or by certified check, (ii) with the approval of the Administrator, by withholding shares of Stock subject to the Option, by delivering shares of Stock owned by the Participant or by attestation (on a form prescribed by the Administrator) to ownership of shares of Stock (in each case, such shares of Stock shall have an aggregate Fair Market Value on the date of exercise equal to the Option Price), (iii) in cash, on the T+3 settlement date that occurs after the exercise date specified in the notice of exercise, provided that the Participant exercises the Option through an irrevocable agreement with a registered broker and the payment is made in accordance with procedures permitted by Regulation T of the Federal Reserve Board and such procedures do not violate applicable law, or (iv) by such other method as the Administrator may approve, to the extent permitted by applicable law.  Shares of Stock used to exercise an Option shall have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option.  Payment for the shares pursuant to the Option, and any required withholding taxes, must be received by the time specified by the Administrator depending on the type of payment being made.

 

(h) Limits on Incentive Stock Options.  Each Incentive Stock Option shall provide that if the aggregate Fair Market Value on the Date of Grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under the Plan or any other stock option plan of the Company or a Parent or Subsidiary, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option.

 

8.    SARs

 

(a) General Requirements.  The Administrator may grant SARs to any Participant, upon such terms and conditions as the Administrator deems appropriate under this Section 8.  Each SAR shall represent the right of the Participant to receive, upon settlement of the SAR, shares of Stock or cash equal to the amount by which the Fair Market Value of a share of Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described below in Section 8(c).

 

(b) Terms of SARs.  The Administrator shall determine the terms and conditions of SARs and may grant SARs separately from or in tandem with any Option (for all or a portion of the applicable Option).  Tandem SARs may be granted either at the time the Option is granted or any time thereafter while the Option remains outstanding; provided, however, that in the case of an Incentive Stock Option, SARs may be granted only at the time of the grant of the Incentive Stock Option.  The Administrator will determine the number of SARs to be granted, the base amount, the vesting and other restrictions applicable to SARs and the period during which SARs will remain exercisable.  The term of SARs shall not exceed ten years from the Date of Grant.

 

(c) Base Amount.  The Administrator shall establish the base amount of the SAR at the time the SAR is granted.  The base amount shall not be less than the Fair Market Value of the shares of Stock subject to the Grant on the Date of Grant.

 

  

  

  

 

(d) Payment With Respect to SARs.  The Administrator shall determine whether the appreciation in an SAR shall be paid in the form of cash, in Stock, or in a combination of the two, in such proportion as the Administrator deems appropriate.  For purposes of calculating the number of shares of Stock to be received, Stock shall be valued at its Fair Market Value on the date of exercise of the SAR.  If shares of Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share.

 

(e) Requirement of Employment or Service.  The Administrator shall determine in the Grant Instrument under what circumstances a Participant may retain SARs after termination of the Participant’s employment or service, and the circumstances under which SARs may be forfeited.

 

9.    Stock Units

 

(a) General Requirements.  The Administrator may grant Stock Units to a Participant, upon such terms and conditions as the Administrator deems appropriate under this Section 9.  Each Stock Unit shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock.  All Stock Units shall be credited to accounts on the Company’s records for purposes of the Plan.

 

(b) Terms of Stock Units.  The Administrator may grant Stock Units that are payable if specified performance goals or other conditions are met, or under other circumstances.  Stock Units may be paid at the end of a specified period, or payment may be deferred to a date authorized by the Administrator.  The Administrator shall determine the number of Stock Units to be granted and the requirements applicable to such Stock Units.

 

(c) Payment With Respect to Stock Units.  Payment with respect to Stock Units shall be made in cash, in Stock, or in a combination of the two, as determined by the Administrator.  The Grant Instrument shall specify the maximum number of shares that shall be paid under the Stock Units.

 

 

  

  

  

 

(d) Requirement of Employment or Service.  The Administrator shall determine in the Grant Instrument under what circumstances a Participant may retain Stock Units after termination of the Participant’s employment or service, and the circumstances under which Stock Units may be forfeited.

 

10.     Performance Shares

 

(a) General Requirements.  The Administrator may grant Performance Shares to a Participant, upon such terms and conditions as the Administrator deems appropriate under this Section 10.  Each Performance Share shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock, if specified performance goals are met.  All Performance Shares shall be credited to accounts on the Company’s records for purposes of the Plan.

 

(b) Terms of Performance Shares.  The Administrator shall establish the performance goals and other conditions for payment of Performance Shares.  Performance Shares may be paid at the end of a specified performance or other period, or payment may be deferred to a date authorized by the Administrator.  The Administrator shall determine the number of Performance Shares to be granted and the requirements applicable to such Performance Shares.

 

(c) Payment With Respect to Performance Shares.  Payment with respect to Performance Shares shall be made in cash, in Stock, or in a combination of the two, as determined by the Administrator.  The Administrator may establish in the Grant Instrument a target amount to be paid under a Performance Share based on achievement of the performance goals.

 

(d) Requirement of Employment or Service.  The Administrator shall determine in the Grant Instrument under what circumstances a Participant may retain Performance Shares after termination of the Participant’s employment or service, and the circumstances under which Performance Shares may be forfeited.

 

11.    Stock Awards

 

(a) General Requirements.  The Administrator may issue or transfer shares of Stock to a Participant under a Stock Award, upon such terms and conditions as the Administrator deems appropriate under this Section 11.  Shares of Stock issued or transferred pursuant to Stock Awards may be issued or transferred for cash consideration or for no cash consideration, and subject to restrictions or no restrictions, as determined by the Administrator.  The Administrator may establish conditions under which restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Administrator deems appropriate, including restrictions based upon the achievement of specific performance goals.

 

(b) Number of Shares.  The Administrator shall determine the number of shares of Stock to be issued or transferred pursuant to a Stock Award and any restrictions applicable to such shares.

 

(c) Requirement of Employment or Service.  The Administrator shall determine in the Grant Instrument under what circumstances a Participant may retain Stock Awards after termination of the Participant’s employment or service, and the circumstances under which Stock Awards may be forfeited.

 

(d) Restrictions on Transfer.  While Stock Awards are subject to restrictions, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except upon death as described in Section 17.  Each certificate, or electronic book entry equivalent, for a share of a Stock Award shall contain a legend giving appropriate notice of the restrictions in the Grant.  The Participant shall be entitled to have the legend removed when all restrictions on such shares have lapsed.  The Administrator may retain possession of any stock certificates for Stock Awards until all restrictions on such shares have lapsed.

 

(e) Right to Vote and to Receive Dividends.  The Administrator shall determine to what extent, and under what conditions, the Participant shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares during the restriction period.  The Administrator may determine that a Participant’s entitlement to dividends or other distributions with respect to a Stock Award shall be subject to achievement of performance goals or other conditions.

 

12.    Dividend Equivalents

 

(a) General Requirements.  When the Administrator makes a Grant under the Plan, other than an Option or SAR, the Administrator may grant Dividend Equivalents in connection with such Grants, under such terms and conditions as the Administrator deems appropriate under this Section 12.  Dividend Equivalents may be paid to Participants currently or may be deferred, as determined by the Administrator.  All Dividend Equivalents that are not paid currently shall be credited to accounts on the Company’s records for purposes of the Plan.  Dividend Equivalents may be accrued as a cash obligation, or may be converted to Stock Units for the Participant, as determined by the Administrator.  Unless otherwise specified in the Grant Instrument, deferred Dividend Equivalents will not accrue interest.  The Administrator may provide that Dividend Equivalents shall be payable based on the achievement of specific performance goals.  Dividend Equivalents may accrue on unearned performance awards but shall not be payable unless and until such performance metrics are met.

 

  

  

  

(b) Payment with Respect to Dividend Equivalents.  Dividend Equivalents may be payable in cash or shares of Stock or in a combination of the two, as determined by the Administrator.

 

13.    Other Stock-Based Awards

 

The Administrator may grant other awards that are cash-based or based on, measured by or payable in Stock to Participants, on such terms and conditions as the Administrator deems appropriate under this Section 13.  Other Stock-Based Awards may be granted subject to achievement of performance goals or other conditions and may be payable in Stock or cash, or in a combination of the two, as determined by the Administrator in the Grant Instrument.

 

14.    Qualified Performance-Based Compensation

 

(a) Designation as Qualified Performance-Based Compensation.  The Administrator may determine that Stock Units, Performance Shares, Stock Awards, Dividend Equivalents or Other Stock-Based Awards granted to an Employee shall be considered “qualified performance-based compensation” under section 162(m) of the Code.  The provisions of this Section 14 shall apply to any such Grants that are to be considered “qualified performance-based compensation” under section 162(m) of the Code.  To the extent that Grants of Stock Units, Performance Shares, Stock Awards, Dividend Equivalents or Other Stock-Based Awards designated as “qualified performance-based compensation” under section 162(m) of the Code are made, no such Grant may be made as an alternative to another Grant that is not designated as “qualified performance based compensation” but instead must be separate and apart from all other Grants made.

 

(b) Performance Goals.  When Stock Units, Performance Shares, Stock Awards, Dividend Equivalents or Other Stock-Based Awards that are to be considered “qualified performance-based compensation” are granted, the Administrator shall establish in writing (i) the objective performance goals that must be met, (ii) the period during which performance will be measured, (iii) the maximum amounts that may be paid if the performance goals are met, and (iv) any other conditions that the Administrator deems appropriate and consistent with the Plan and the requirements of section 162(m) of the Code for “qualified performance-based compensation.”  The performance goals shall satisfy the requirements for “qualified performance-based compensation,” including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the performance goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met.  The Administrator shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals, but the Administrator may reduce the amount of compensation that is payable upon achievement of the designated performance goals.

 

(c) Criteria Used for Objective Performance Goals.  The Administrator shall use objectively determinable performance goals based on one or more of the following criteria:  Stock price, earnings per share of Stock, net earnings, operating earnings, return on assets, stockholder return, return on equity, growth in assets, unit volume, sales, market share, or strategic business criteria consisting of one or more objectives based on meeting specific revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures.  The performance goals may relate to the Participant’s business unit or the performance of the Company, a Subsidiary, or the Company and its Subsidiaries as a whole, or any combination of the foregoing.  Performance goals need not be uniform as among Participants.

 

(d) Timing of Establishment of Goals.  The Administrator shall establish the performance goals in writing either before the beginning of the performance period or during a period ending no later than the earlier of (i) 90 days after the beginning of the performance period or (ii) the date on which 25% of the performance period has been completed, or such other date as may be required or permitted under applicable regulations under section 162(m) of the Code.

 

  

  

  

 

(e) Certification of Results.  The Administrator shall certify and announce the results for the performance period to all Participants after the Company announces the Company’s financial results for the performance period.  The Administrator shall determine the amount, if any, to be paid pursuant to each Grant based on the achievement of the performance goals and the terms of each Grant Instrument.

 

(f) Death, Disability or Other Circumstances.  The Administrator may provide in the Grant Instrument that Grants shall be payable, in whole or in part, in the event of the Participant’s death or disability, a Change of Control or under other circumstances consistent with the Treasury regulations and rulings under section 162(m) of the Code.

 

15.    Deferrals

 

The Administrator may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares of Stock that would otherwise be due to the Participant in connection with any Grant. The Administrator shall establish rules and procedures for such deferrals. Any deferrals under the Plan shall be intended to comply with the requirements of section 409A of the Code, and any corresponding regulations and guidance.

 

16.    Withholding of Taxes

 

(a) Required Withholding.  All Grants under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Employer may require that the Participant or other person receiving or exercising Grants pay to the Employer the amount of any federal, state or local taxes that the Employer is required to withhold with respect to such Grants, or the Employer may deduct from other wages paid by the Employer the amount of any withholding taxes due with respect to such Grants.

 

(b) Election to Withhold Shares.  If the Administrator so permits, a Participant may elect to satisfy the Employer’s tax withholding obligation with respect to Grants paid in Stock by having shares withheld, at the time such Grants become taxable, up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities. In addition, with respect to any required tax withholding amount that exceeds the minimum applicable withholding tax rate, the Administrator may permit a Participant to satisfy such tax withholding obligation with respect to such excess amount by providing that the Participant may elect to deliver to the Company shares of Stock owned by the Participant that have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company. The elections described in this subsection (b) must be in a form and manner prescribed by the Administrator and may be subject to the prior approval of the Administrator.

 

17.    Transferability of Grants

 

(a) In General.  Except as provided in this Section 17, only the Participant may exercise rights under a Grant during the Participant’s lifetime.  A Participant may not transfer those rights except by will or by the laws of descent and distribution, or, with respect to Grants other than Incentive Stock Options, if permitted in any specific case by the Administrator, pursuant to a domestic relations order.  When a Participant dies, the Successor Participant may exercise such rights in accordance with the terms of the Plan.  A Successor Participant must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Participant’s will or under the applicable laws of descent and distribution.

 

  

  

  

 

(b) Transfer of Nonqualified Stock Options.  Notwithstanding the foregoing, the Administrator may provide in a Grant Instrument that a Participant may transfer Nonqualified Stock Options to family members of the Participant, one or more trusts in which family members of the Participant have more than 50% of the beneficial interest, foundations in which family members of the Participant (or the Participant) control the management of assets, or any other entity in which family members of the Participant (or the Participant) own more than 50% of the voting interests, consistent with applicable securities laws, according to such terms as the Administrator may determine; provided that the Participant receives no consideration for the transfer of a Nonqualified Stock Option and the transferred Nonqualified Stock Option shall continue to be subject to the same terms and conditions as were applicable to the Nonqualified Stock Option immediately before the transfer.

 

18.    Consequences of a Change of Control

 

(a) Assumption of Grants.  Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Administrator determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation (or a parent or subsidiary of the surviving corporation), and other outstanding Grants shall be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).

 

(b) Other Alternatives.  Notwithstanding the foregoing, in the event of a Change of Control, the Administrator may take any of the following actions with respect to any or all outstanding Grants: the Administrator may (i) determine that outstanding Options and SARs shall accelerate and become exercisable, in whole or in part, upon the Change of Control or upon such other event as the Administrator determines, (ii) determine that the restrictions and conditions on outstanding Stock Awards shall lapse, in whole or in part, upon the Change of Control or upon such other event as the Administrator determines, (iii) determine that Participants holding Stock Units, Performance Shares, Dividend Equivalents, and Other Stock-Based Awards shall receive a payment in settlement of such Stock Units, Performance Shares, Dividend Equivalents, and Other Stock-Based Awards in an amount determined by the Administrator, (iv) require that Participants surrender their outstanding Options and SARs in exchange for a payment by the Company, in cash or Stock, as determined by the Administrator, in an amount equal to the amount by which the then Fair Market Value of the shares of Stock subject to the Participant’s unexercised Options and SARs exceeds the Option Price of the Options or the base amount of SARs, as applicable, or (v) after giving Participants an opportunity to exercise their outstanding Options and SARs, terminate any or all unexercised Options and SARs at such time as the Administrator deems appropriate.  Such surrender, termination or settlement shall take place as of the date of the Change of Control or such other date as the Administrator may specify.  The Administrator shall have no obligation to take any of the foregoing actions, and, in the absence of any such actions, outstanding Grants shall continue in effect according to their terms (subject to any assumption pursuant to subsection (a)).

 

(c) Administrator.  The Administrator making the determinations under this Section 18 following a Change of Control must be comprised of the same members as those constituting the Administrator immediately before the Change of Control.  

 

  

  

  

 

19.    Requirements for Issuance of Shares

 

No shares of Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance of such Stock have been complied with to the satisfaction of the Administrator.  The Administrator shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Stock as the Administrator shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions.  Certificates representing shares of Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

 

20.    Amendment and Termination of the Plan

 

(a) Amendment.  The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without approval of the stockholders of the Company if such approval is required in order to comply with the Code, applicable laws and stock exchange requirements, or as required by Section 21(b) below.  No amendment or termination of this Plan shall, without the consent of the Participant, impair any rights or obligations under any Grant previously made to the Participant, unless such right has been reserved in the Plan or the Grant Instrument, or except as provided in Section 21(b) below.

 

(b) No Repricing Without Stockholder Approval.  Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding awards may not be amended to reduce the exercise price of outstanding Options or SARs or cancel outstanding Options or SARs in exchange for cash, other awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs without stockholder approval.

 

(c) Stockholder Approval for “Qualified Performance-Based Compensation.”  If Stock Units, Performance Shares, Stock Awards, Dividend Equivalents or Other Stock-Based Awards are granted as “qualified performance-based compensation” under Section 14 above, the Plan must be reapproved by the Company’s stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the provisions of Section 14, if additional Grants are to be made under Section 14 and if required by section 162(m) of the Code or the regulations thereunder.

 

(d) Termination of Plan.  The Plan shall terminate on the day immediately preceding the tenth anniversary of its Effective Date, which is June 23, 2021, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.  The termination of the Plan shall not impair the power and authority of the Administrator with respect to an outstanding Grant.

 

21.    Miscellaneous

 

(a) Grants in Connection with Corporate Transactions and Otherwise.  Nothing contained in this Plan shall be construed to (i) limit the right of the Administrator to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of this Plan.  Without limiting the foregoing, the Administrator may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company in substitution for a grant made by such corporation.  The terms and conditions of the substitute Grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives.  The Administrator shall prescribe the provisions of the substitute Grants.

 

  

  

  

 

(b) Compliance with Law.

 

(i) The Plan, the exercise of Options or SARs and the obligations of the Company to issue or transfer shares of Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that the Plan and applicable Grants comply with the applicable provisions of sections 162(m), 409A and 422 of the Code. To the extent that any legal requirement of section 16 of the Exchange Act or sections 162(m), 409A or 422 of the Code as set forth in the Plan ceases to be required under section 16 of the Exchange Act or sections 162(m), 409A or 422 of the Code, that Plan provision shall cease to apply. The Administrator may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Administrator may also adopt rules regarding the withholding of taxes on payments to Participants. The Administrator may, in its sole discretion, agree to limit its authority under this Section.

 

(ii) The Plan is intended to comply with the requirements of section 409A of the Code, to the extent applicable. Each Grant shall be construed and administered such that the Grant either (A) qualifies for an exemption from the requirements of section 409A of the Code or (B) satisfies the requirements of section 409A of the Code. If a Grant is subject to section 409A of the Code, (I) distributions shall only be made in a manner and upon an event permitted under section 409A of the Code, (II) payments to be made upon a termination of employment shall only be made upon a “separation from service” under section 409A of the Code, (III) unless the Grant specifies otherwise, each installment payment shall be treated as a separate payment for purposes of section 409A of the Code, and (IV) in no event shall a Participant, directly or indirectly, designate the calendar year in which a distribution is made except in accordance with section 409A of the Code.

 

(iii) Any Grant that is subject to section 409A of the Code and that is to be distributed to a Key Employee (as defined below) upon separation from service shall be administered so that any distribution with respect to such Grant shall be postponed for six months following the date of the Participant’s separation from service, if required by section 409A of the Code. If a distribution is delayed pursuant to section 409A of the Code, the distribution shall be paid within 15 days after the end of the six-month period. If the Participant dies during such six-month period, any postponed amounts shall be paid within 90 days of the Participant’s death. The determination of Key Employees, including the number and identity of persons considered Key Employees and the identification date, shall be made by the Administrator or its delegate in accordance with section 416(i) of the Code and the “specified employee” requirements of section 409A of the Code.

 

(c) Enforceability.  The Plan shall be binding upon and enforceable against the Company and its successors and assigns.

 

(d) Funding of the Plan; Limitation on Rights.  This Plan shall be unfunded.  Neither the Company nor any other Employer shall be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan.  Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company or any other Employer and any Participant or any other person.  No Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company or any other Employer.  To the extent that any person acquires a right to receive payment from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

 

 

  

  

  

 

(e) Rights of Participants.  Nothing in this Plan shall entitle any Participant or other person to any claim or right to receive a Grant under this Plan.  Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employment or service of the Employer.

 

(f) No Fractional Shares.  No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Grant.  The Administrator shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(g) Clawback Policies.  All Grants under the Plan are subject to the applicable provisions of the Company's clawback or recoupment policy approved by the Board, if any, as such policy may be in effect from time to time.

 

(h) Governing Law.  The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of Maryland, without giving effect to the conflict of laws provisions thereof.FHLB Pit ex10.10 10K 2011

FEDERAL HOME LOAN BANK OF PITTSBURGH
2012 EXECUTIVE OFFICER INCENTIVE COMPENSATION PLAN 

I.    EFFECTIVE DATE

This Executive Officer Incentive Compensation Plan (“Executive Officer Plan” or “Plan”) of the Federal Home Loan Bank of Pittsburgh is established effective as of January 1, 2012.  Incentive Awards (“Awards”) may be paid for the Plan Year (January 1 to December 31, 2012) in accordance with the provisions of this Plan.  The goals for the Plan Year and terms of the Awards shall be set forth in a separate Attachment to this Plan.  

II.    PURPOSE AND OBJECTIVES

The Plan is designed to retain and motivate executive officers and reward the:  (i) achievement of key annual goals and (ii) maintenance of satisfactory financial condition and member value over the longer term.   

III.    PLAN ADMINISTRATION

The Plan is administered by the President; the Governance, Public Policy, and Human Resources Committee of the Board of Directors (the “Committee”); and the Board of Directors (the “Board”).

		
	A.
	Responsibilities of the President

The President will provide recommendations to the Committee and the Board regarding Plan participation, Bank performance goals, Bank achievements, and Awards for the Bank's executive officers.  

B.    Responsibilities of the Committee

The Committee will review all Plan recommendations and revisions (including all performance goals and Awards) from the President and present final recommendations to the Board for its approval.  In addition, the Committee will review the performance of the President and the Bank's other executive officers and make recommendations regarding any Award payouts under the Plan.

C.    Responsibilities of the Board

The Board will review and approve (as it determines appropriate) recommendations from the Committee. 

IV.    ELIGIBILITY

The Bank's executive officers are eligible to participate on the terms described in this Executive Officer Plan.  Upon designation as a participant, each participant will be provided a copy of the Plan. 

		
	V.
	EXECUTIVE OFFICER PLAN AWARD OPPORTUNITY LEVELS

A summary of the Award levels is attached as Attachment A.  Each participant shall be provided with a separate document showing his/her level of participation in the Plan.  

VI.    PERFORMANCE MEASURES 

The Plan Year for the Award opportunity shall mean the annual period ending December 31, 2012 (unless otherwise specifically stated in regard to a goal(s) in the applicable goal attachment to this Executive Officer Plan for the Plan Year).  The Plan goals can be both quantitative and qualitative.  Overall performance of Bank goals, and individual and group goals (as applicable), as well as individual performance objectives as measured through the Bank's performance evaluation process, in aggregate, quantify the performance measures under the Plan that will be considered when determining overall actual performance and any Award payout amount. 

Certain positions have a greater and more direct impact than others on the achievement of Bank performance.  Those differences are recognized by varying the incentive opportunity expressed as a percentage of a participant's base salary.  For executive management, generally, the greater the control and influence a participant can exert over Bank goals, the larger a portion of their incentive Award will be based on Bank performance.  Executive officer goals may consist solely of Bank goals or they may include a combination of Bank goals and individual or group goals as determined by the Board.  

In general, goals requiring attainment of specified performance or completion of specified tasks and activities shall not be considered as having been met when the actual performance as measured by completion of the activities has not been attained.  Interpolation of Award amounts is permissible for achieved performance (measured by completion of the stated goals) at levels between threshold and target, and target and maximum.  Awards for performance results between the threshold and target levels are calculated as a percentage of the target level.  Awards for performance between the target and maximum levels are calculated as a percentage of maximum.  Additionally, the specific terms of an approved goal(s) may establish further standards for interpolation.    

		
	VII.
	AWARD DETERMINATION AND PAYMENT

No participant has a vested right to any Award under the Plan until: (i) a determination of an Award payment has been made by the Board; (ii) the participant has met all applicable requirements for such Award and for receiving payment of such an Award, including, without limitation, any continued service and performance requirements as set forth in this Plan; and (iii) all the other conditions and criteria regarding payment of such Award as set forth in this Executive Officer Plan are met. 

At the conclusion of the applicable Plan Year after considering the Bank's performance against the Bank goal(s), individual performance, and actual overall Bank performance, the President shall recommend to the Committee the Awards to be paid to the Bank's executive officers, excluding the President.   With respect to the determination of any Awards to the executive officers under this Plan the Committee and the Board shall consider, in addition to individual and overall Bank performance, Bank financial condition, operating environment, and any other factors it considers relevant, including, 

without limitation, the extent (if any) to which any extraordinary or non-recurring transaction had a material effect on whether a goal(s) was attained.   
A participant who is on formal corrective action for performance at any time during the Plan Year, or is rated as “Unsatisfactory” on their most recent performance evaluation will be ineligible to receive any payment of any Award.  A participant who is rated “Needs Improvement” will be eligible for a payment of an Award reduced by up to 75 percent of the participant's Incentive Award opportunity.  
In order for any Award payment to be made, the most recent examination by the Federal Housing Finance Agency of the participant's area(s) of responsibility must not have identified any unsafe or unsound practice or condition.  

		
	A.
	Assessment of Performance

Following December 31, 2012 the Board will evaluate performance against the incentive goals set forth on the attached Annual Goal Scorecard and determine the total amount of the Award (if any) based on that performance (such amount shall be referred to as the “Total Award”). The Total Award, if any, will be divided such that: 1) 50 percent of the Total Award shall be referred to as the “Current Incentive Award” and 2) the remaining 50 percent of the Total Award shall be referred to as the “Deferred Incentive Award.”  The following illustrates how the 2012 Current Award and Deferred Incentive Award would be paid:

	
			
	Payment
	Description
	Payment Year*

	Current Incentive Award
	50% of the Total Award
	2013

	Deferred Incentive Award installment
	Up to 33 1/3%  Deferred Incentive Award
	2014

	Deferred Incentive Award installment
	Up to 33 1/3% of the Deferred Incentive Award
	2015

	Deferred Incentive Award installment
	Up to 33 1/3% of the Deferred Incentive Award
	2016

*Payment will be made no later than March 15 in the year indicated.  

All payments are subject to the terms of this Plan, including Section B below.  In no event shall the aggregate amount of any Current Incentive Award and Deferred Incentive Award installments paid to a participant in any payment year exceed 100 percent of the participant's base salary.    

		
	B.
	Payment of Each Deferred Incentive Award Installment Contingent on the Bank Continuing to Meet Stated Criteria and Contingent on the Participant Meeting Stated Payment Criteria

1.    Maintenance of Satisfactory Bank Performance

Except as set forth in Subsection 2., it is intended that a condition to payment of each Deferred Incentive Award installment is that in the annual period preceding the designated Payment Year for such installment, the Board determines that the Bank has met at least one (1) of the Deferred Incentive Award criteria set forth in Attachment B to this Plan.  If the Board determines that the Bank has not met any of the stated criteria, 

then, such Deferred Incentive Award installment payment shall not be made.  For the avoidance of doubt, if the Bank fails to meet at least one (1) of the criteria in the year preceding a designated Payment Year for one installment of a Deferred Incentive Award and such installment payment is not made, but then, the Bank meets at least one of the criteria in the annual period before the designated Payment Year for the next installment payment, then, a subsequent Deferred Incentive Award installment payment shall be made.  The actual amount of each Deferred Incentive Award installment payment shall be determined pro-rata or on such other basis as the Board shall determine in assessing the extent to which the stated criteria set forth on Attachment B were met by the Bank during the preceding annual period.  In no case may the maximum amount of any Deferred Incentive Award installment be paid unless all of the stated criteria in Attachment B have been met in the preceding year.  This provision shall not in any manner limit the Board's authority under Articles VIII. and IX. of the Plan.  

		
	2.
	Board Discretion-Strategic Transactions

If prior to payout of all Deferred Incentive Award payments, Bank management recommends and the Board approves, a PLMBS risk reduction strategy including, without limitation, sale of some or all of the Bank's PLMBS portfolio, then, the maintenance of satisfactory Bank performance requirement stated above in Subsection 1 requiring that the Bank meet at least one (1) of the stated criteria set forth in Attachment B shall not serve as a condition that must be met prior to payout of the remaining Deferred Incentive Award payments.  In such case, the Bank does not have to meet any of the Deferred Incentive Award criteria in the annual period preceding each designated Payment Year and the Board may waive this condition separately on a year-by-year basis as to each remaining unpaid Deferred Incentive Award installment.  If the Board does not take action with respect to an installment to waive the condition in the year preceding the Payment Year(s) for such installment, then, such condition shall not be waived as to that installment.   

If prior to the payout of all Deferred Incentive Award payments a Change in Control event occurs (as defined below) then, in such case, the Deferred Incentive Award criteria set forth on Attachment B are inapplicable and all unpaid Deferred Incentive Awards: (i) shall vest 30 days after the Finance Agency issues its written approval of such a transaction and (ii) shall be paid to the participants 30 days after the closing of the transaction.  

For purposes of this section “Change in Control” shall mean:  (i) the merger, reorganization, or consolidation of the Bank with or into another Federal Home Loan Bank or other entity, (ii) the sale or transfer of all or substantially all of the business or assets of the Bank to another Federal Home Loan Bank or other entity, (iii) the purchase by the Bank or transfer to the Bank of all or substantially all of the business or assets of another Federal Home Loan Bank, (iv) a change in the composition of the Board of Directors, as a result of one or a series of related transactions, that causes the number of directors of the Bank elected by members of the Bank located in Pennsylvania, West Virginia, and Delaware to cease to constitute a majority of the directors of the Bank that are elected by members of the Bank (excluding, for purposes of this clause (iv), non-member independent directors), or (v) the liquidation of the Bank.  Provided that the term "reorganization" contained in this definition shall not include any reorganization that is mandated by federal statute, rule, regulation, or directive, including 12 U.S.C. Section 1421, et seq., as amended, and 12 U.S.C. Section 4501 et seq., as amended, and which the Director of the Finance Agency (or successor agency) has determined should 

not be a basis for making payment under this Plan, by reason of the capital condition of 
the Bank or because of unsafe or unsound acts, practices, or condition ascertained in the course of the Agency's supervision of the Bank or because any of the conditions identified in 12 U.S.C. Section 4617(a)(3) are met with respect to the Bank (which conditions do not result solely from the mandated reorganization itself, or from action that the Agency has required the Bank to take under 12 U.S. C. Section 1431(d)).
  
		
	3.
	Termination of Employment; Pro-Rated and Deferred Incentive Award Payments; Participant Performance Condition 

Participants who terminate employment with the Bank for any reason, other than death, disability, or retirement prior to the Current Incentive Award payout date will not be eligible for such an Award.  Participants who are hired during the Plan Year or whose employment ends due to involuntary termination1 (excluding involuntary termination for cause2), death, disability, or retirement prior to the Current Incentive Award payout date may be eligible to be considered for a pro-rated Current Incentive Award.3  

Participants who terminate employment due to retirement or involuntary termination (other than for cause) after the Current Incentive Award payout date but before completion of the payment of all corresponding Deferred Incentive Award installments (as set forth above) shall receive such Deferred Incentive Award installment payments at the same time as such payments are made to Plan participants who are current Bank employees.  Participants who otherwise resign employment before the completion of the payment of all corresponding Deferred Incentive Award installments shall not receive payment of such installments.  Any participant that is terminated by the Bank for cause (as defined in this Plan) prior to receiving payment of all corresponding Deferred Incentive Award installments shall not receive payment of any remaining unpaid Deferred Incentive Award installments.  This provision shall not in any manner limit the Board's authority under Articles VIII. and IX. of the Plan.  

In the case of a participant whose employment terminates due to death or disability before completion of the payment of all corresponding Deferred Incentive Award installments, such installments shall promptly vest following the death or disability and the remaining installments shall be paid by the Bank within 90 days of the date of death or determination of disability.  

_________________________________

1 “Involuntary termination” shall be interpreted consistent with “separation from service” as defined in the IRS 409A Regulations and exclude termination for cause and shall include a “resignation for good reason” as defined by the IRS 409A Regulations. 
   
 2 For purposes of the Plan, “cause” means: (1) continued failure of the Participant to perform his or her duties with the Bank (other than any such failure resulting from disability), after a demand for performance, pursuant to a resolution of the Board, is delivered to the participant by the chair of the board, which specifically identifies the manner in which the participant has not performed his or her duties; (2) personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, or willful violation of any law, rule, or regulation (other than routine traffic violations or similar offenses); or (3) removal of the participant  by or at the direction of the Federal Housing Finance Agency pursuant to federal laws, rules, and regulations, including 12 U.S.C. §4501 et. seq. as amended or by any successor agency to the Federal Housing Finance Agency pursuant to a similar statute. 

3 “Retirement” for purposes of this Plan is defined as a participant meeting one of the following criteria: (1) 60 years of age or older with at least 5 years of service; (2)  65 years of age or older regardless of service; (3) age 55  or older with at least 10 years of service; or (4) the combination of the participant's age and years of service equals or exceeds 80; provided that, in each such case, the participant enters into a non-solicitation agreement in the form required by the Bank regarding the Bank's customer's and employees.  “Disability” shall be interpreted consistent with IRS 409A Regulations.   
  

C.    Provisions Applicable to All Awards Under the Plan

Except as expressly set forth otherwise in this Plan, payments under the Plan are intended to satisfy the “short-term deferral” exception under Section 409A of the Internal Revenue Code (“Code”).  Each payment under the Plan will be treated as a separate payment for purposes of Section 409A of the Code and corresponding IRS 409A Regulations.  Appropriate provisions shall be made for any taxes that the Bank determines are required to be withheld from any Awards under the applicable laws or other regulations of any governmental authority, whether federal, state, or local.  For the avoidance of doubt, Participants will be solely responsible for any applicable taxes (including income and excise taxes) and penalties, and any interest that accrues thereon, that they incur in connection with the receipt of any Award under the Plan.  This Plan and the payment of any Award hereunder shall be subject to the Finance Agency's authority over executive compensation pursuant to 12 U.S.C.§ 4518.  The payment of any Award shall be subject to such obligations, terms, and conditions as the Committee or the Board may specify in making the Award and, in exercising its discretion to make any Award determination hereunder, the Board may choose to consider factors such as overall Bank financial performance, operating environment, and other relevant considerations.  Acceptance of any Award shall constitute agreement by the participant to all obligations, terms, conditions, and restrictions so imposed.   

VIII.    CLAWBACK AND REDUCTION OF AWARDS
In the event of gross misconduct, gross negligence, materially inaccurate financial statements, erroneous performance metrics related to incentive goal calculation or conviction of a felony, the Board will have the authority to adjust Award amounts or reclaim Award payments.  For the avoidance of doubt, the Board may in its sole discretion, decline to adjust the terms of any outstanding Award if it determines that such adjustment would violate applicable law or result in adverse tax consequences to a participant or the Bank.  

The Board will utilize its discretion to reduce the amount of any Current Award and Deferred Award installments if it determines that:

		
	(i)
	Operational errors or omissions result in material revisions to the financial results, information submitted to the Federal Housing Finance Agency (“Finance Agency”), or data used to determine incentive award payment amounts;

		
	(ii)
	The submission of information to the Securities and Exchange Commission (“SEC”), the Office of Finance (“OF”), and/or the Finance Agency has not been provided in a timely manner; or

		
	(iii)
	The Bank fails to make sufficient progress, as determined by the Finance Agency and communicated to Bank management and/or the Board by the Finance Agency, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring executive management's attention.

IX.    TERMINATION OR AMENDMENT

The Plan, in whole or in part, may at any time or from time to time be amended, suspended, or reinstated and may at any time be terminated by action of the Board.  The Board has the power and authority to construe, interpret, and administer the Plan.  Any decision arising out of or in connection with the construction, interpretation, or administration of the Plan will lie within the Board's absolute discretion and will be binding on all parties. No provision of this Plan shall create any right to continued employment.  

Attachments

Attachment A-Award Levels

2012 Incentive Award Opportunity Levels (expressed as a percentage of base salary)
 

	
				
	Participant Level
	 Threshold
Incentive Award Opportunity
	 Target
Incentive Award Opportunity
	 Maximum
Incentive Award Opportunity

	Level A
	40%
	70%
	100%

	Level B
	30%
	50%
	70%

	Level C
	20%
	40%
	60%

Attachment B- 

Criteria for Payment of Deferred Award Installments 

	
			
	(1)Market Value of Equity to Par Value of Capital Stock (MV/CS).

	Threshold
	Target
	Maximum

	(75% of opportunity)
	(100% of opportunity)
	(125% of opportunity)

	At least 95% of year-end 2012 level
	Maintain MV/CS at 12/31/2012 level
	At least 110% of year-end 2012 level

	(2)Retained Earnings Level.  This criterion shall be measured such that the retained earnings coverage ratio in effect at 12/31/2012 is maintained or improved at each of year-end 2013, 2014, and 2015.  The retained earnings coverage ratio is the dollar amount of the Bank's actual retained earnings at 12/31/2012 expressed as a percentage of the dollar amount of the Bank's retained earnings target.

	Threshold
	Target
	Maximum

	(75% of opportunity)
	(100% of opportunity)
	(125% of opportunity)

	Coverage ratio doesn't decrease by more than 5% from the 12/31/2012 level
	Maintain coverage ratio at 12/31/2012 level
	Increase coverage ratio at least 10% over 12/31/2012 level

	The Board will consider the following criteria and may exercise its discretion to adjust an award based on such criteria:

Remediation of Examination Findings.  Defined as the Bank making sufficient progress, as determined by the FHFA and communicated to Bank management or the Board of Directors by the FHFA, in the timely remediation of examination, monitoring, and other supervisory findings and matters requiring executive management's attention.  Refers to examination findings from the examination during the applicable deferral year for the installment.  For example, for the 2013 installment (payable in 2014), the applicable examination is the 2013 examination.

Timeliness of FHFA, SEC, and OF Filings.  Filings defined as SEC periodic filings, call report filings with FHFA, and FRS filings with OF that are timely filed and no material restatement by the Bank is required.

	Notes:  at least one of the (1) and (2) stated quantifiable criteria above must have been met in the preceding year in order for any installment payment to be made.  In no event shall the aggregate amount of any Current Incentive Award and Deferred Incentive Award installments paid to a participant in any payment year exceed 100 percent of the participant's base salary.

2012 Incentive Goal Scorecard

	
						
	 
	Goal
	Weight
	Threshold
	Target
	Max

	MVE/PVCS
	Market Value of Equity to par value of capital stock price at December 31, 2012.
	15%
	90
	98
	102

	Earnings
	Achieve adjusted earned dividend spread after assessment consistent with the 2012 Operating Plan while remaining inside Board level risk limits.
	10%
	1.36%
	1.76%
	2.04%

	 
	Increase Retained Earnings consistent with the 2012 Operating Plan ($ in millions)
	15%
	$2
	$34
	$65

	Regulatory Exam
	Address Matters Requiring Attention (MRA) defined as weaknesses in existence at December 31, 2011 to the satisfaction of the FHFA and the Board of Directors by December, 2012.
	10%
	 
	 
	Complete all MRA's

	 
	For the 2012 examination, the Bank will achieve an improvement or non-deterioration over the management of Corporate Governance, Market Risk, Credit Risk and Operational Risk.
	10%
	Improvement in one area while no deterioration in any other area assessed
	Improvement in two areas while no deterioration in any other area assessed
	Improve exam rating

	Member Outreach
	Member and potential Member Outreach in 2012.1
(Outreach is defined as in-person contact).
	15%
	165
	174
	182

	Member Product Usage
	Average number of Bank product touch points with CFI members.2
	7.5%
	Average touch points at 1.91
	Increase average touch points to 1.93
	Increase average touch points to 2.00

	Advances Usage of Creditworthy Members
	Maintain the percentage of average borrowing members among the total membership.
	7.5%
	65%
	68%
	74%

	Affordable Housing Mission Product Utilization
	Increase the number of members that submit an application, enroll in or participate in a community investment product or initiative in 2012.
	10%
	90
	95
	100

Notes:
1  Member outreach includes in-person member calls, regional member meetings, educational sessions and Webinars conducted by Executive Committee Members.
2  Product touch points include LOCs, Safekeeping, Wires on Bank4Banks, Settlement Services, MPF PFI's and Xtra PFI's.

2012 Risk Management Incentive Goal Scorecard

	
						
	 
	Goal
	Weight
	Threshold
	Target
	Max

	MVE/PVCS
	Market Value of Equity to par value of capital stock price at December 31, 2012.
	15%
	90
	98
	102

	Earnings
	Increase Retained Earnings consistent with the 2012 Operating Plan ($ in millions)
	15%
	$2
	$34
	$65

	Regulatory Exam
	Address Matters Requiring Attention (MRA) defined as weaknesses in existence at December 31, 2011 to the satisfaction of the FHFA and the Board of Directors by December, 2012.
	15%
	 
	 
	Complete all MRA's

	 
	For the 2012 examination, the Bank will achieve an improvement or non-deterioration over the management of Corporate Governance, Market Risk, Credit Risk and Operational Risk.
	10%
	Improvement in one area while no deterioration in any other area assessed
	Improvement in two areas while no deterioration in any other area assessed
	Improve exam rating

	Member Outreach
	Amount of Member and potential Member Outreach in 2012.1     
	15%
	165
	174
	182

	Risk Governance
	Ensure each of the five major management-level risk committees (RMC, ALCO, CRC, ORMC and TAPS) establish “risk” goals for 2012.

Ensure that each risk committee achieves their risk-oriented goals.2     
	15%
	Cumulative
< 70%
	Cumulative
< 80%
	Cumulative
< 90%

	Risk Assessment and Control Philosophy
	Promote the Bank's risk assessment and control philosophy through the following actions:
Work with Internal Audit to leverage management's risk assessment process more effectively into IA's procedures.

Continually improve the bottoms-up risk assessment process with enhanced documentation, governance/oversight of results, and a comprehensive review by the process/area owner.

Appropriately develop and integrate the regulatory policy guidance on Reporting of Fraudulent Financial Instruments into the Bank's overall risk assessment process.

Document the Bank's control philosophy in the Risk Governance Policy and deliver training sessions to the employee base.
	15%
	Successfully complete #1 and #23
	Successfully complete #1, #2, #33
	Successfully complete all four actions3

Notes:
1Member outreach includes in-person member calls, regional member meetings, member regulator meetings, educational sessions and Webinars conducted by Executive Committee.
2Each committee would account for 20% of the cumulative goal and the achievement % would be based on the Executive Committee's assessment.
3As determined by the CRO and recommended to the Executive Committee.
4Final results would be approved as follows:  the Governance Committee would approve the first four goals listed above and the FARM Committee would approve the last two goals.

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