Document:

exv10w2

 

 

    PHILADELPHIA
    INSURANCE COMPANIES

 

    NONQUALIFIED
    EMPLOYEE STOCK PURCHASE PLAN

 

    (AMENDED
    AND RESTATED, EFFECTIVE AS OF JANUARY 1, 2007, WITH

    PERFORMANCE-BASED COMPENSATION PROVISIONS)

 

    1. Purpose.

 

    (a) The purpose of the Philadelphia Insurance Companies
    Nonqualified Employee Stock Purchase Plan, as herein restated
    (the “Plan”), is to assist Philadelphia Consolidated
    Holding Corp., a Pennsylvania corporation (the
    “Company”), and its Subsidiaries in recruiting and
    retaining the employment of employees by offering them a greater
    stake in the Company’s success and a closer identity with
    it, and to aid in obtaining the services of individuals whose
    employment would be helpful to the Company and would contribute
    to its success by providing employees a continuing opportunity
    to purchase Shares (as hereinafter defined) from the Company
    through periodic offerings. The Plan is also intended to provide
    that no Eligible Employees who are Covered Employees shall be
    entitled to make purchases hereunder unless and until certain
    performance-based compensation requirements have been satisfied,
    and shall then only be permitted to make purchases within the
    limits imposed on purchases by such Covered Employees, all as
    set forth in the Plan.

 

    (b) The Plan is not intended to comply with the provisions
    of Section 423 of the Code (as hereinafter defined).

 

    (c) No purchases shall be permitted under the Plan unless
    and until the Plan has been approved by the Company’s
    shareholders.

 

    2. Definitions. For purposes of the Plan:

 

    (a) “Agent” means the person or persons
    appointed by the Board in accordance with Section 3(d).

 

    (b) “Board” means the Board of Directors
    of the Company.

 

    (c) “Code” means the Internal Revenue Code
    of 1986, as amended, or any successor thereto, and regulations
    promulgated thereunder.

 

    (d) “Committee” means the committee
    described in Section 3.

 

    (e) “Covered Employee” means an Eligible
    Employee who is a “covered employee” as that term is
    defined in Code Section 162(m); provided, however, that for
    purposes of Section 23 of the Plan, the Committee shall
    identify those Eligible Employees who are to be treated as
    Covered Employees with respect to each performance period
    established pursuant to Section 23 on or before the date
    the performance target or targets for such performance period
    shall have been established. Any Eligible Employee who is a
    “covered employee” for purposes of Code
    Section 162(m), but who is not so designated as a Covered
    Employee for a particular performance period shall be entitled
    to participate in the Plan on the same terms as any other
    Eligible Employee.

 

    (f) “Disability” means a condition such
    that an Eligible Employee retires from employment with the
    Company or its Subsidiaries and qualifies for disability
    benefits on account of “total disability” under the
    applicable provisions of the Company’s long term disability
    plan then in effect, or, if no such plan is then in effect,
    “Disability” means a condition such that an Eligible
    Employee is unable to engage in any substantial gainful activity
    by reason of any medically determinable physical or mental
    impairment which can be expected to result in death or which has
    lasted or can be expected to last for a continuous period of not
    less than 12 months.

 

    (g) “Eligible Employee” means an employee
    of the Company or a Subsidiary who is described in
    Section 4.

    

    1

 

 

    (h) “Employer” means the Company or a
    Subsidiary for whom an Eligible Employee is performing services
    at the time the Eligible Employee becomes a Participant.

 

    (i) “Fair Market Value” on any date means
    the closing price for Shares as reported on the NASDAQ National
    Market, or as reported on such other stock exchange, wherever
    the Shares may be listed, on such date as reported in the Wall
    Street Journal, or if there is no closing price reported, then
    Fair Market Value of a Share shall mean the average between the
    closing bid and asked prices for Shares on such date as
    reported. If there are no sales reports or bid or asked
    quotations, as the case may be, for a given date, the closest
    preceding date on which there were sales reports or bid or asked
    quotations shall be used. If the Committee determines, in its
    discretion, that such valuation does not accurately reflect the
    value of the Shares, or if Shares are not publicly traded, the
    Fair Market Value of a Share shall be determined by the
    Committee.

 

    (j) “Investment Account” means the account
    established for a Participant pursuant to Section 8(b) to
    hold Shares acquired for a Participant pursuant to the Plan.

 

    (k) “NASDAQ” means the National
    Association of Security Dealers, Inc. Automated Quotations
    System.

 

    (l) “Offering Period” means each one month
    period designated at the discretion of the Committee as an
    Offering Period.

 

    (m) “Participant” means an Eligible
    Employee who makes an election to participate in the Plan in
    accordance with Section 5, as well as any former employee
    to the extent such former employee has any Shares held for his
    or her benefit in an Investment Account.

 

    (n) “Plan Year” means the 12 month
    period commencing each September 1 and ending on the
    subsequent August 31.

 

    (o) “Purchase Date” means the last
    business day of each Offering Period.

 

    (p) “Purchase Price” means the lesser of
    85% of the Fair Market Value of a Share on (i) the first
    business day of the Offering Period or (ii) the Purchase
    Date.

 

    (q) “Restricted Period” means the five
    year period described in Section 6(e).

 

    (r) “Share” or “Shares” means a
    share or shares of common stock, no par value, of the Company.

 

    (s) “Subscription Agreement” means the
    agreement, in a form established by the Committee, between the
    Participant and the Employer pursuant to which the Participant
    agrees to purchase Shares pursuant to the Plan.

 

    (t) “Subsidiary” means any corporation
    that, at the time in question, is a subsidiary corporation of
    the Company, within the meaning of Section 424(f) of the
    Code (any references in the Plan to statutory or regulatory
    Sections or Rules shall be deemed to include a reference to any
    successors to such Sections or Rules).

 

    3. Administration of the Plan. The Plan shall be
    administered by the Company’s compensation committee, or by
    such other committee or committees as may be designated by the
    Board, as determined from time to time at the discretion of the
    Board. The compensation committee of the Company or any other
    committee designated to administer the Plan by the Board are all
    referred to herein as the “Committee.” Subject to the
    express provisions of the Plan, the Committee shall have full
    discretionary authority to interpret the Plan, to issue rules
    for administering the Plan, to change, alter, amend or rescind
    such rules, and to make all other determinations necessary or
    appropriate for the administration of the Plan. All
    determinations, interpretations and constructions made by the
    Committee with respect to the Plan shall be final and
    conclusive. Notwithstanding anything to the contrary in this
    Section 3, the Committee shall always consist solely of two
    or more members of the Board who qualify as both
    (i) “outside directors”, as that term is defined
    in Code

    

    2

 

    Section 162(m), and (ii) “non-employee
    directors,” as that term is used in
    Rule 16b-3
    under the Securities Exchange Act of 1934, as amended.

 

    (a) Meetings. The Committee shall hold meetings at such
    times and places as it may determine, shall keep minutes of its
    meetings, and shall adopt, amend and revoke such rules or
    procedures as it may deem proper; provided, however, that it may
    take action only upon the agreement of a majority of the whole
    Committee. Any action which the Committee shall take through a
    written instrument signed by all of its members shall be as
    effective as though it had been taken at a meeting duly called
    and held. The Committee shall report all actions taken by it to
    the Board of Directors.

 

    (b) Exculpation. No member of the Committee shall be
    personally liable for monetary damages as such for any action
    taken or any failure to take any action in connection with the
    administration of the Plan unless (i) the member of the
    Committee has breached or failed to perform the duties of his
    office under Subchapter B of Chapter 17 of the Pennsylvania
    Business Corporation Law of 1988, as amended, and (ii) the
    breach or failure to perform constitutes self-dealing, willful
    misconduct or recklessness; provided, however, that the
    provisions of this Section 3(b) shall not apply to the
    responsibility or liability of a member of the Committee
    pursuant to any criminal statute or to the liability of a member
    of the Committee for the payment of taxes pursuant to local,
    state or federal law.

 

    (c) Indemnification. Service on the Committee shall
    constitute, for purposes of rights to indemnification from the
    Company, service as a member of the Board of Directors of the
    Company. Each member of the Committee shall be entitled, without
    further act on his part, to indemnity from the Company and
    limitation of liability to the fullest extent provided by
    applicable law and by the Company’s Articles of
    Incorporation
    and/or
    bylaws in connection with or arising out of any action, suit or
    proceeding with respect to the administration of the Plan in
    which he or she may be involved by reason of his or her being or
    having been a member of the Committee, whether or not he or she
    continues to be such member of the Committee at the time of the
    action, suit or proceeding.

 

    (d) Agent. The Committee may engage an agent (the
    “Agent”) to purchase Shares on each Purchase Date and
    to perform custodial and recordkeeping functions for the Plan,
    such as holding record title to the Participants’ Share
    certificates, maintaining an individual Investment Account for
    each such Participant and providing periodic status reports to
    such Participants.

 

    (e) Delegation. The Committee shall have full discretionary
    authority to delegate ministerial functions to management of the
    Company.

 

    4. Eligibility. All employees of the Company, and its
    Subsidiaries, shall be eligible to participate in the Plan as of
    the first day of an Offering Period, provided each of such
    employees:

 

    (a) is customarily employed for more than 20 hours per
    week; and

 

    (b) is customarily employed more than five months per
    calendar year.

 

    5. Election to Participate.

 

    (a) Initial Subscription Agreements. Each Eligible Employee
    may become a Participant by filing with the Committee a
    Subscription Agreement specifying the number of Shares to be
    purchased during an Offering Period.

 

    (b) Subsequent Subscription Agreements. In order to
    participate in the Plan for any subsequent Offering Period, an
    Eligible Employee must file with the Committee a new
    Subscription Agreement specifying the number of Shares to be
    purchased during such Offering Period.

 

    (c) The time and manner for filing any Subscription
    Agreement required under this Section 5 to participate in
    the Plan, and rules regarding when a Subscription Agreement,
    once filed, may be revoked, shall be established by the
    Committee.

    

    3

 

 

    6. Conditions and Terms of Purchases of Shares.

 

    (a) The number of Shares that are to be purchased under a
    Subscription Agreement shall not exceed the limitations
    established pursuant to Section 7.

 

    (b) Except as otherwise provided in the Plan, any Eligible
    Employee purchasing Shares under the Plan shall, at the time of
    such purchase, sign a note to the order of the Company in such
    form as the Committee may approve, for the Purchase Price of
    such Shares. The terms of the note shall provide for payment of
    the Purchase Price by means of equal, regular payroll deductions
    over a period of 108 months (without interest, except as
    specified below), commencing as of the first day of the month
    following the end of the Offering Period; provided however that,
    in the event the Eligible Employee terminates his or her
    employment with the Company or a Subsidiary at any time prior to
    the payment in full of the Purchase Price, the entire remaining
    amount payable under such note shall become payable in full
    within 30 days of the date of such termination of
    employment. In the event such remaining amount is not paid in
    full within 30 days of such termination of employment, the
    remaining amount payable shall accrue interest at the lesser of
    three (3) percentage points over the prime rate as quoted
    in the Money Rates section of the Wall Street Journal or any
    successor thereto (of, if such Prime Rate is not so quoted, the
    prime rate shall be that of any such bank as shall be selected
    by the Committee), or the highest rate permitted by law. A
    Participant may pay the outstanding balance due under his or her
    note with respect to the Purchase Price of Shares under the Plan
    at any time. If, at any time, an Eligible Employee’s
    compensation drops below the amount required to make any
    payments required under the note, or under any subsequent
    extension of the note, through regular payroll deductions (as a
    result of a leave of absence or any other reason), such Eligible
    Employee shall continue to be personally obligated to make the
    monthly payments required under the note, with such payments to
    be made directly by the Eligible Employee to the Company.
    Notwithstanding the foregoing, if any applicable securities law
    or regulation prohibits the Company from loaning funds to any
    particular Eligible Employee, such Eligible Employee must pay
    the purchase price for the Shares issued to such Eligible
    Employee in full as of the time of the issuance of the Shares.

 

    (c) Until such time as the Purchase Price is paid in full,
    the Shares purchased under the Plan may not be sold, transferred
    or otherwise disposed of, and shall be pledged by the Eligible
    Employee and held by the Company as collateral securing such
    payment obligation. In the event an Eligible Employee fails to
    comply with the terms for payment of the Purchase Price set
    forth above, the Company shall have the right to repurchase that
    number of Shares as is required to satisfy the outstanding
    balance due with respect to the Purchase Price (such number of
    Shares being determined by reference to the Fair Market Value as
    of the repurchase date, with the repurchase price paid by means
    of an offset against the Eligible Employee’s obligation to
    repay the balance due relating to such amounts which are owed
    under the Note), and the Eligible Employee shall have no further
    rights with respect to such Shares.

 

    (d) In the alternative, on a termination of employment by
    an Eligible Employee who has a remaining balance payable with
    respect to any note for Shares purchased under the Plan, the
    Company shall have the right to repurchase any Shares that are
    held in an Investment Account for such Eligible Employee as
    follows: The Company shall repurchase Shares which have not been
    held beyond the Restricted Period applicable to such Shares,
    paying (i) the lesser of the Fair Market Value (determined
    as of the repurchase date) or the Purchase Price of such Shares,
    minus (ii) any unpaid balance of the note from the Eligible
    Employee to the Company issued in connection with the purchase
    of such Shares. The amount payable by the Company pursuant such
    repurchase shall be retained as an offset against amounts owed
    to the Company under the terms of the Eligible Employee’s
    note. If, after the repurchase of such Shares, any amounts are
    still owed to the Company under the terms of such note, the
    Company shall have the further right to repurchase at Fair
    Market Value (determined as of such repurchase date) Shares
    which have been held beyond the Restricted Period applicable to
    such Shares. The amounts payable by the Company pursuant to such
    repurchase of additional Shares shall also be retained by the
    Company as an offset against the Eligible Employee’s
    obligations under the note. Once the Eligible Employee’s
    payment obligation under the note has been satisfied through
    such set-offs as described above, certificates for the

    

    4

 

    Shares remaining in such Eligible Employee’s Investment
    Account, if any, shall be distributed to such Eligible Employee.

 

    (e) Any Shares purchased pursuant to the Plan shall be
    restricted for a period of five years, measured from the first
    day of the relevant Offering Period (the “Restricted
    Period”). Any attempt to sell, transfer, make subject to
    any lien, or otherwise dispose of such Shares prior to the end
    of the Restricted Period (except a transfer on death pursuant to
    the provisions of Section 13(a)) shall be null and void,
    and the Company shall have the right to repurchase from such
    Eligible Employee such Shares by payment to the Eligible
    Employee of an amount equal to (i) the lesser of the Fair
    Market Value (determined as of the repurchase date) or the
    Purchase Price of such Shares minus (ii) any unpaid balance
    of the note from the Eligible Employee to the Company issued in
    connection with the purchase of such Shares. All certificates
    for Shares shall be legended so as to indicate the restrictions
    on sales of such Shares under the Plan.

 

    (f) Notwithstanding anything to the contrary herein, as a
    condition to participate in the Plan, each Eligible Employee
    agrees not to, and shall be prohibited from, filing an election
    under Section 83(b) of the Code to include in gross income
    attributable to participation in the Plan. This
    Section 6(f) shall not be applicable to any Eligible
    Employee who is an “officer” as defined in
    Rule 16a-1(f)
    promulgated under the Securities Exchange Act of 1934, as
    amended.

 

    7. Limit on Purchase of Shares. The Committee may set such
    limitations on the number of Shares available for purchase
    during any one Offering Period as it determines to be
    appropriate from time to time, at its sole discretion.

 

    8. Method of Purchase and Investment Accounts.

 

    (a) Exercise of Option for Shares. Except as otherwise
    provided in the Plan, each Participant having elected to
    participate in the Plan pursuant to a properly filed
    Subscription Agreement consistent with the provisions of
    Section 5 shall be deemed, without any further action, to
    have exercised on the Purchase Date applicable to such
    Subscription Agreement, the right to purchase the number of
    Shares specified in the Subscription Agreement consistent with
    the terms for such purchase set forth in the Plan.

 

    (b) All Shares so purchased shall, until both the
    Restricted Period applicable to such Shares has passed and the
    Participant’s payment obligation for such Shares is
    satisfied, be held in a separate Investment Account established
    for each Participant. All Shares held in such Investment
    Accounts shall be security with respect to the
    Participant’s payment obligation for such Shares under the
    terms of such Participant’s Subscription Agreement until
    payment in full of such obligation.

 

    (c) Dividends or Other Distributions on Shares Held in
    Investment Accounts. All cash dividends or other distributions
    paid with respect to Shares at any time the Participant has an
    unpaid payment obligation for such Shares shall be retained by
    the Company and treated as additional amounts paid with respect
    to such payment obligation. Cash dividends or other
    distributions paid with respect to Shares after the payment
    obligation for such Shares has been satisfied shall be paid to
    the Participant.

 

    (d) Adjustment of Shares on Application of Share Limits. If
    the total number of Shares that would be purchased pursuant to
    properly filed Subscription Agreements for a particular Offering
    Period exceeds the number of Shares then available for purchase
    under the Plan, either as to that Offering Period, or by reason
    of the limitation on the aggregate number of Shares available
    under the Plan, then the number of available Shares shall be
    allocated among the Participants filing Subscription Agreements
    for such Offering Period pro-rata on the basis of the number of
    Shares set forth in each such Subscription Agreement. The
    payment obligation for each such Subscription Agreement shall be
    deemed modified to take into account the purchase of a number of
    Shares that is less than the number specified in the
    Subscription Agreement.

 

    9. Shares Subject to Plan. The aggregate maximum
    number of Shares that may be issued pursuant to the Plan is six
    million (6,000,000), subject to adjustment as provided in
    Section 17 of the Plan. The Shares delivered pursuant to
    the Plan may, at the option of the Company, be Shares purchased
    specifically for

    

    5

 

    purposes of the Plan, shares otherwise held in treasury or
    Shares originally issued by the Company for such purpose.

 

    10. Distribution of Certificates. Each Participant shall
    receive a certificate or certificates for those Shares held in
    an Investment Account for the benefit of such Participant as
    soon as practicable following the end of the Restricted Period
    applicable to such Shares, provided the payment obligation with
    respect to such Shares has been fully satisfied.

 

    11. Registration of Certificates. Each certificate
    withdrawn by a Participant may be registered only in the name of
    the Participant, or, if the Participant so indicated on the
    Participant’s Subscription Agreement, in the
    Participant’s name jointly with a member of the
    Participant’s family, with right of survivorship. A
    Participant who is a resident of a jurisdiction which does not
    recognize such a joint tenancy may have certificates registered
    in the Participant’s name as tenant in common or as
    community property with a member of the Participant’s
    family without right of survivorship.

 

    12. Voting. All Shares held in an Investment Account shall
    be voted as directed by the record owner thereof.

 

    13. Retirement, Death or Other Termination of Employment.

 

    (a) In the event of a Participant’s termination on
    account of retirement at any time after reaching the age of 50,
    death or Disability, the Participant, or in the event of the
    Participant’s death, the Participant’s beneficiary, if
    one has been designated, or the Participant’s estate, as
    the case may be, shall be entitled to the Shares held in the
    Participant’s Investment Account provided the
    Participant’s payment obligation with respect to such
    Shares is satisfied. The Restricted Period shall cease to be
    applicable to the Shares of a Participant whose termination of
    employment is described in this Section 13(a). The
    Participant, or the Participant’s beneficiary or estate, as
    the case may be, shall be issued a certificate or certificates
    for such Shares as soon as practicable after the payment
    obligation is satisfied. Whether a Participant’s
    termination of employment is by reason of “retirement”
    shall be determined at the discretion of the Committee.

 

    (b) In the event of a Participant’s termination of
    employment for any reason other than a termination of employment
    described in Section 13(a), the Participant shall be
    entitled to the Shares which have been held beyond the
    Restricted Period applicable to such Shares, provided the
    Participant’s payment obligation with respect to such
    Shares is satisfied. With respect to those Shares for which the
    Restricted Period has not passed, the Company shall have the
    right, but not the obligation, to repurchase any such Shares for
    (i) the lesser of Fair Market Value (determined as of the
    repurchase date) or the Purchase Price of such Shares minus
    (ii) any unpaid balance of the note from the Eligible
    Employee to the Company issued in connection with the purchase
    of such Shares. If the Company does not so elect to repurchase
    such Shares, the Participant shall be entitled to such Shares
    provided the Participant’s payment obligation with respect
    to such Shares is satisfied. The Participant shall be issued a
    certificate or certificates for any Shares to which the
    Participant is entitled as soon as practicable after the payment
    obligation is satisfied.

 

    (c) In the event the Participant, or the Participant’s
    beneficiary or estate, as the case may be, fails to satisfy the
    remaining payment obligation with respect to any Shares, such
    payment obligation shall be satisfied by the Company by means of
    the repurchase of Shares held in the Participant’s
    Investment Account consistent with the provisions for repurchase
    of Shares set forth in Section 6(d) above, provided,
    however, that in the case of a repurchase of Shares following
    the retirement, death or Disability of a Participant, all such
    repurchases shall be at Fair Market Value (determined as of the
    repurchase date).

 

    14. Rights Not Transferable. Except as permitted under
    Section 13, rights under the Plan are not transferable by a
    Participant and are exercisable during the Participant’s
    lifetime only by the Participant.

 

    15. No Right to Continued Employment. Neither the Plan nor
    any right granted under the Plan shall confer upon any
    Participant any right to continuance of employment with the
    Company or any Subsidiary, or interfere in any way with the
    right of the Company or any Subsidiary to terminate the
    employment of such Participant.

    

    6

 

 

    16. Application of Funds. All funds received or held by the
    Company under this Plan may be used for any corporate purpose.

 

    17. Adjustments in Case of Changes Affecting Shares. In the
    event of a subdivision or split of outstanding Shares, or the
    payment of a stock dividend, the Share limits set forth in
    Sections 9 and 23 shall be adjusted proportionately, and
    such other adjustments (including adjustments to the
    determination of the purchase price) shall be made as may be
    deemed equitable by the Committee.

 

    18. Amendment of the Plan. The Board of Directors of the
    Company may at any time, or from time to time, amend the Plan in
    such manner as it may deem advisable; provided, however, that
    any amendment which (i) increases the maximum number of
    shares available for purchase under the Plan, which materially
    increases the benefits accruing to employees under the Plan, or
    which expands the classes of individuals who are eligible to
    participate in the Plan or require approval of the
    Company’s shareholders under the applicable rules of NASDAQ
    or such other stock exchange in which the Shares are listed,
    shall not be effective except on the approval of the
    Company’s shareholders. Notwithstanding anything to the
    contrary herein, any amendment to Section 23 shall be
    subject to approval of the Company’s shareholders except to
    the extent that such amendment is determined will, if made
    without shareholder approval, not cause income attributable to
    participation in the Plan pursuant to Section 23 to fail to
    qualify as performance-based compensation for purposes of Code
    Section 162(m).

 

    19. Termination of the Plan. The Plan and all rights of
    Eligible Employees under any offering hereunder shall terminate
    at such time as the Board of Directors, at its discretion,
    determines to terminate the Plan. Upon termination of this Plan,
    any Shares held in Investment Accounts for Participants shall be
    carried forward into the Participant’s Investment Account
    under a successor plan, if any, or, if there is no successor
    plan, certificates for such Shares shall be forwarded to the
    Participant upon satisfaction of all payment obligations for
    such Shares and the expiration of the applicable Restricted
    Period relating to such Shares.

 

    20. Governmental Regulations.

 

    (a) Anything contained in this Plan to the contrary
    notwithstanding, the Company shall not be obligated to sell or
    deliver any Share certificates under this Plan unless and until
    the Company is satisfied that such sale or delivery complies
    with (i) all applicable requirements of the governing body
    of the principal market in which such Shares are traded,
    (ii) all applicable provisions of the Securities Act of
    1933, as amended (the “Act”), and the rules and
    regulations thereunder and (iii) all other laws or
    regulations by which the Company is bound or to which the
    Company is subject.

 

    (b) The Company (or a Subsidiary) may make such provisions
    as it may deem appropriate for the withholding of any taxes or
    payment of any taxes which it determines it may be required to
    withhold or pay in connection with any Shares. The obligation of
    the Company to deliver certificates under this Plan is
    conditioned upon the satisfaction of the provisions set forth in
    the preceding sentence.

 

    21. Section 16 Restrictions for Officers and
    Directors. Notwithstanding any other provision of the Plan, each
    officer (for purposes of Section 16 of the Securities
    Exchange Act of 1934, as amended (the “Exchange
    Act”)), and director of the Company shall be subject to
    such restrictions as are required so that transactions under the
    Plan by such officer or director shall be exempt from
    Section 16(b) of the Exchange Act.

 

    22. Repurchase of Shares. The Company shall not be required
    to repurchase from any Participant any Shares which such
    Participant acquires under the Plan.

 

    23. Special Performance-Based Compensation Provisions.
    Notwithstanding anything to the contrary set forth in the Plan,
    the provisions of this Section 23 shall be applicable to
    and shall limit the participation in the Plan by each
    Participant who is or who is determined by the Committee to be
    reasonably likely to be treated as a Covered Employee for the
    taxable year of the Company that includes any Purchase Date
    hereunder.

 

    (a) No Covered Employee shall be eligible to purchase more
    than one million (1,000,000) Shares during any one taxable year
    of the Company, subject to adjustment as set forth in
    Section 17 of the Plan.

    

    7

 

 

    (b) A Covered Employee shall only be eligible to purchase
    Shares on Purchase Dates occurring during the twelve month
    period following the end of a performance period and, then only
    if all of the following requirements are satisfied:

 

    (i) The Committee shall establish a performance period,
    consisting of a period of not more than one year;

 

    (ii) The Committee shall have established one or more
    performance targets applicable to such performance period, which
    performance targets shall be based on one or more of the
    following business criteria (which may be determined for these
    purposes either by reference to the Company as a whole or by
    reference to any one or more of its subsidiaries, operating
    divisions or other operating units and shall not necessarily
    require the Covered Employee to meet the specified performance
    targets himself or herself): stock price, market share, gross
    sales, gross revenue, net revenues, pretax income, operating
    income, cash flow, earnings per share, return on equity, return
    on invested capital or assets, cost reductions and savings,
    return on revenues or productivity, or any variation or
    combination of the preceding business criteria; and, provided
    further, that such performance target or targets shall have been
    established during the first 90 days from the beginning of
    such performance period, or during the first twenty-five percent
    (25%) of such performance period, whichever is the shorter
    period;

 

    (iii) The Committee shall have certified in writing that
    the performance target or targets applicable to such performance
    period have been met (such written certification may be in any
    form which meets the requirements of Section 162(m) of the
    Code);

 

    (iv) The Plan, as restated herein, shall have been
    appropriately disclosed to and approved by the Company’s
    shareholders in a manner consistent with the shareholder
    approval requirements applicable to the performance-based
    compensation exception to the Code Section 162(m)
    limitations on deductibility of certain compensation paid to
    Covered Employees; and

 

    (v) Any other requirements for the treatment of income
    recognized by reason of a purchase of Shares on such Purchase
    Date as “performance-based compensation,” as that term
    is defined in Code Section 162(m), are determined by the
    Committee to have been satisfied.

    

    8Exhibit 10.1 

TRANSITION AGREEMENT 

        AGREEMENT
dated the 1st day of February, 2007 between Harley-Davidson, Inc., a Wisconsin
corporation (the “Corporation”), and Saiyid T. Naqvi (the
“Executive”). Unless otherwise indicated, terms used herein and defined in
Schedule A shall have the meanings assigned to them in Schedule A. 

        WHEREAS,
the HDI Group desires to continue to attract and retain skilled and dedicated management
employees, consistent with achieving the best possible price for its stockholders in any
transition period or change in ownership and control of the Corporation; 

        WHEREAS,
the Executive has specific duties and unique talents which are of benefit to the HDI Group
both presently and in any transition period; 

        WHEREAS,
the HDI Group and the Executive desire that the Executive be free of any conflict of
interest with regard to the performance of the Executive’s duties in evaluating any
proposed change in ownership or control; 

        NOW,
THEREFORE, it is agreed as follows  

        1.     The
HDI Group currently employs the Executive as Vice President and Chief Financial Officer,
Harley-Davidson, Inc. upon the terms and conditions currently reflected in the Executive’s
personnel file or in various minutes of the Board.  

        2.              This
Agreement shall become effective on the date hereof and shall terminate on           the
second anniversary of the occurrence of a Change of Control Event; PROVIDED,
          HOWEVER, that no benefits shall be payable or accrue pursuant to this Agreement
          prior to the occurrence of a Change of Control Event.  

        3.              During
the two year period following a Change of Control Event, so long as the
          Executive remains employed by the HDI Group he shall devote his full time,
          attention, and energies to the business of the HDI Group and shall not engage
in           any other business activity whether or not such business activity is pursued
for           gain, profit, or other pecuniary advantage; but this shall not be construed
as           preventing the Executive from (a) investing the Executive’s assets in
such           form or manner as will not materially affect the Executive’s ability
to           perform his duties and obligations to the HDI Group; or (b) continuing to
serve           as a director of any corporation of which he was a director immediately
prior to           the Change of Control Event. The Executive agrees that once a Change
of Control           Event occurs he will not voluntarily terminate his employment with
the HDI Group           until ten days after such Change of Control Event has occurred.  

        4.              The
HDI Group agrees that following a Change of Control Event no termination of           the
Executive’s employment with the HDI Group will be effective, unless it
          provides the Executive ten days prior written notice of such termination;
          PROVIDED, HOWEVER, that any Termination by the Executive shall provide the HDI
          Group Employer with ten days prior written notice. The Executive may waive the
          notice requirement for the HDI Group.  

        5.              The
Executive recognizes and acknowledges that the list of the HDI Group’s
          customers, its product plans, forecasts and financial information, as well as
          other confidential information, as it may exist from time to time, is valuable,
          special, and unique asset of the HDI Group’s business. The Executive will
          not, during or after the term of the Executive’s employment, disclose any
          such information or any part thereof to any person, firm, corporation,
          association, or other entity for any reason or purpose whatsoever. In the event
          of a breach or threatened breach by the Executive of the provisions of this
          section, the HDI Group shall be entitled to an injunction restraining the
          Executive from disclosing, in whole or in part, this information. The HDI Group
          will be free to pursue any other remedies as may in its discretion be deemed
          appropriate under the circumstances.  

        6.              Upon
the happening of a Change of Control Event, the HDI Group agrees, while the
          Executive is employed hereunder, to continue the Compensation of the Executive
          at a level, comparable in the aggregate, to that immediately preceding the
          Change of Control Event.  

        7.              (a)
(i) The Executive shall be entitled to receive upon Termination a lump-sum
          payment equal to the product of three multiplied by the sum of:  

	 	
(A)
           the Executive’s highest annual rate of salary during the five year period
          preceding the Executive’s termination of employment with the HDI Group;  

	 	
(B)
           the highest annual bonus paid to or accrued for the benefit of the Executive
          during the five year period preceding the Executive’s termination of
          employment with the HDI Group under any bonus plan, program, or arrangement of
          the HDI Group which the HDI Group Employer maintains or has adopted; and  

	 	
(C)
           the product of four times the last quarterly payment, prior to the Change of
          Control Event, paid to the Executive by the HDI Group, to the extent such
          payment was paid by the HDI Group in lieu of providing the Executive with
          various fringe benefits (the “Perquisite Payment”).  

In addition, if Executive has
attained age 55 prior to the date of Termination, the Executive shall receive an
additional amount, in lieu of any post-retirement life insurance, equal to his annual base
salary, at its then current rate. 

	 	        (ii)              In
addition, the HDI Group shall, at the time the 10 day written notice prior to
               Termination is given, cause:  

	 	
(A)               the
Executive to be fully and immediately vested in his accrued benefit and any
               minimum years of service requirement will be deemed to have been satisfied
               under: the Harley-Davidson Retirement Savings Plan for Salaried Employees,
the                Retirement Annuity Plan for Salaried Employees of Harley-Davidson, the
               Harley-Davidson Pension Benefit Restoration Plan, the Harley-Davidson
               Supplemental Executive Retirement Plan, and any other pension or
retirement plan                in which Executive was entitled to participate at the time
of the Change of                Control Event or at any time prior to Termination;  

2 

	 	
(B)               all
restricted stock awards made to the Executive to be fully and immediately
               vested;  

	 	
(C)              all
stock options granted pursuant to the Harley-Davidson, Inc. 2004 Incentive
               Stock Plan, as amended, and any successor or predecessor plan, to be fully
               vested and become immediately exercisable;  

	 	
(D)               all
performance or other awards granted to the Executive pursuant to any HDI
               long-term incentive plan to be fully and immediately vested, as if all
               performance requirements have been satisfied; and  

	 	
(E)               the
HDI Group Employer to pay to Executive an amount in respect of any bonus
               under a short-term incentive or other annual bonus plan of the HDI Group
equal                to the higher of (a) Executive’s target bonus for the year of
Termination,                or (b) the bonus Executive received in the year prior to the
Change of Control                Event, which amount shall be pro-rated by a fraction,
the numerator of which is                the number of days elapsed in the HDI Group’s
fiscal year on the date of                Termination and the denominator of which is
365.  

	 	        (iii)                The
Executive will also receive, for a period of three years from the date of
               Termination:  

	 	
(A)
               use of professional outplacement services by qualified consultants
retained at                the expense of the HDI Group Employer; and  

	 	
(B)                continued
coverage under HDI Group hospital, medical, life, disability insurance                and
other welfare benefit plans.  

	 	        (iv)
              Furthermore, unless the Perquisite Payment was substituted for the
following,                the Executive shall also receive a cash lump sum payment,
calculated so as to                equal the fair market value of three years of
benefits, for:  

	 	
(A)               automobiles
and vehicles (or allowance in respect thereof) to which he was                entitled
either prior to the Change of Control Event or prior to Termination;                and  

3 

	 	
(B)               all
amounts in respect of club, association or similar fees and dues covering
               such Executive to which he was entitled either prior to the Change of
Control                Event or prior to Termination.  

	 	        (v)               The
Executive shall also be entitled to all amounts earned or accrued through
               the date of Termination but not paid as of such date, including base
salary,                reimbursement for reasonable and necessa ry expenses incurred by
the Executive on                behalf of the HDI Group during the period ending on the
date of Termination,                vacation pay, and sick leave (collectively, “Accrued
Compensation”).  

	 	        (vi)              All
amounts payable pursuant to this Section 7(a) of this Agreement shall be
               paid to the Executive within 10 days following the date of Termination and
all                other benefits provided pursuant this Section 7(a) shall be provided
or begun,                as the case may be, on the date of Termination.  

	 	
(b)
                      In the event the Executive’s employment shall be terminated
due to death                     within the two year period following a Change of Control
Event, for a period of                     one year following such termination (i) the
HDI Group shall be obligated to make                     payments under then existing
employee benefit programs, including, but not                     limited to, hospital,
medical, life and disability insurance; and (ii) except as                     provided
in (i) above, all payments under this Agreement shall cease, other than
                    those payments which accrued, but were not yet paid, on the date of
an event                     described in this Section 7(b). In addition, Executive shall
also be entitled to                     all Accrued Compensation within 10 days of his
date of termination.  

	 	
(c)
                     Nothing in this Agreement shall be construed to prevent the HDI
Group Employer                     or the Board from terminating the Executive’s
employment under this                     Agreement for Cause. Such termination shall
relieve the HDI Group of its                     obligation to make any other payments
under this Agreement, except those that                     may be payable under then
existing employee benefit programs. In order for the                     Executive to be
terminated for Cause, the existence of Cause must be determined                     by a
written resolution adopted by the affirmative vote of not less than
                    two-thirds of all the Continuing Directors, excluding for this
purpose the                     Executive, or in the event there are no Continuing
Directors, by a unanimous                     vote of all the Directors, at a meeting
duly called and held for that purpose                     after reasonable notice to the
Executive and opportunity for the Executive and                     his counsel to be
heard. Any such determination shall require that the                     Continuing
Directors (or the entire Board) find that in their reasonable good
                    faith judgment the conduct which was the basis for the hearing in
fact occurred                     and is sufficient to warrant a termination for Cause.  

        8.              (a)
If the Executive receives any payments under this Agreement from the HDI           Group
which are “excess parachute payments” taxed under Section 4999           of the
Code, the HDI Group Employer will pay, pursuant to subsection (b) below,           an
amount sufficient to offset such tax effects.  

	 	
(b)
                      (i) In the event that the Executive becomes entitled to payments in
connection                     with a Change of Control Event under this Agreement or
otherwise (“the                     Payments”), if any of the Payments will be
subject to the tax imposed by                     Section 4999 of the Code (the “Excise
Tax”) (or any similar tax that                     may hereafter be imposed), the
HDI Group Employer shall pay to the Executive an                     additional amount
(the “Gross-Up Payment”) such that the net amount                     retained
by the Executive, after deduction of any Excise Tax on the Payments and
                    any federal and state income or other taxes and Excise Tax upon
Gross-Up                     Payments provided for by this section, shall be equal to the
Payment.  

4 

	 	
(ii)
                     For purposes of determining whether any of the Payments will be
subject to the                     Excise Tax and the amount of such Excise Tax, (A) any
other payments or benefits                     received or to be received by the
Executive in connection with a Change of                     Control Event shall be
treated as “parachute payments” within the                     meaning of
Section 280G(b)(2) of the Code, and all “excess parachute
                    payments” within the meaning of Section 280G(b)(1) shall be
treated as                     subject to the Excise Tax, unless in the opinion of tax
counsel selected by the                     HDI Group’s independent auditors, and
acceptable to the Executive, such                     other payments or benefits (in
whole or in part) do not constitute parachute                     payments, or such “excess
parachute payments” (in whole or in part)                     represent reasonable
compensation for services actually rendered within the                     meaning of
Section 280G(b)(4) of the Code in excess of the base amount within
                    the meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to                     the Excise Tax, (B) the amount of the Payments which shall
be treated as subject                     to the Excise Tax shall be equal to the lesser
of (1) the total amount of the                     Payments or (2) the amount of excess
parachute payments within the meaning of                     Section 280G(b)(1) of the
Code (after applying clause (A), above), and (C) the                     value of any
non-cash benefits or any deferred payment or benefit shall be
                    determined by the HDI Group’s independent auditors in accordance
with the                     principles of Section 280G(b)(3) and (4) of the Code.  

	 	
(iii)
                      For purposes of determining the amount of the Gross-Up Payment, the
Executive                     shall be deemed to pay federal and state income taxes at
the highest marginal                     rate of federal and state income taxation in the
calendar year in which the                     Gross-Up Payment is to be made.  

	 	
(iv)
                      A Gross-Up Payment and Tax Adjustment Amount, if any, under
subsection (v)                     shall be paid not later than the fifth day following
the Executive’s date                     of Termination; PROVIDED, HOWEVER, that if
the amounts of such payment cannot be                     finally determined on or before
such day, the HDI Group Employer shall pay to                     the Executive on such
day an estimate, as determined in good faith by the HDI                     Group
Employer of the minimum amount of such payments and shall pay the
                    remainder of such payment (together with interest at the rate
provided under                     Section 1274(b)(2)(B) of the Code) as soon as the
amount can be determined but                     no later than the thirtieth day after
the Executive’s date of Termination.                     Notwithstanding the
foregoing, a Gross-Up Payment and a Tax Adjustment Amount,                     if any,
shall be paid prior to Termination, if necessary, and the event
                    prompting such payment shall be substituted for “Termination” in
this                     subsection (iv) for purposes of determining the date by which
payments must be                     made.  

5 

	 	
(v)
                      In addition to the Gross-Up Payments under this Section 8, the HDI
Group                     Employer shall pay to the Executive an additional amount (the
“Tax                     Adjustment Amount”) in the event any portion of the
Payments are taxed (for                     state or federal income tax purposes) at
income tax rates higher than the                     highest marginal federal and state
income tax rates otherwise applicable to the                     Executive without
considering the Payments (“Base Income Tax Rates”),                     such
that the net amount retained by the Executive, after deduction of state and
                    federal income taxes at their respective actual rates and any state
and federal                     income taxes upon the Tax Adjustment Amount provided by
this subsection (v),                     shall be equal to the Payments less state and
federal income taxes thereon                     calculated at the Base Income Tax Rates.
In the event any payments are required                     under this subsection (v),
they shall be included as “Payments” under                     subsections (a)
and (b) of this Section 8.  

	 	
(vi)
                      The Executive shall notify the HDI Group in writing of any claim by
the                     Internal Revenue Service that, if successful, would require the
payment by the                     HDI Group of a Gross-Up Payment. Such notification
shall be given as soon as                     practicable, but no later than 10 business
days after the Executive is informed                     in writing of such claim and
shall apprise the HDI Group of the nature of such                     claim and the date
on which such claim is requested to be paid. The Executive                     shall not
pay such claim prior to the expiration of the 30 day period following
                    the date on which the Executive gives such notice to the HDI Group
(or such                     shorter period ending on the date that any payment of taxes
with respect to such                     claim is due). If the HDI Group notifies the
Executive in writing prior to the                     expiration of such period that it
desires to contest such claim, the Executive                     shall:  

	 	
(A)
            give the HDI Group any information reasonably requested by the HDI Group
          relating to such claim;  

	 	
(B)               take
such action in connection with contesting such claim as the HDI Group shall
               reasonably request in writing from time to time, including, without
limitation,                accepting legal representation with respect to such claim by
an attorney                reasonably selected by the HDI Group and reasonably
satisfactory to the                Executive;  

	 	
(C)               cooperate
with the HDI Group in good faith in order to effectively contest such
               claim; and  

	 	
(D)
              permit the HDI Group to participate in any proceedings related to such
claim; 

6 

	 	
PROVIDED,
HOWEVER, that the HDI Group shall bear and pay directly all costs and
               expenses (including, but not limited to, additional interest and penalties
and                related legal, consulting or other similar fees) incurred in
connection with                such contest and shall indemnify and hold the Executive
harmless, on an                after-tax basis, for any Excise Tax or other tax
(including interest and                penalties with respect thereto) imposed as a
result of such representation and                payment of costs and expenses.  

	 	
(vii)
                      The HDI Group shall control all proceedings taken in connection
with such                     contest and, at its sole option, may pursue or forego any
and all administrative                     appeals, proceedings, hearings and conferences
with the taxing authority in                     respect of such claim and may, at its
sole option, either direct the Executive                     to pay the tax claimed and
sue for a refund or contest the claim in any                     permissible manner, and
the Executive agrees to prosecute such contest to a                     determination
before any administrative tribunal, in a court of initial
                    jurisdiction and in one or more appellate courts, as the HDI Group
shall                     determine; PROVIDED, HOWEVER, that if the HDI Group directs the
Executive to pay                     such claim and sue for a refund, the HDI Group shall
advance the amount of such                     payment to the Executive on an
interest-free basis, and shall indemnify and hold                     the Executive
harmless, on an after-tax basis, from any Excise Tax or other tax
                    (including interest and penalties with respect thereto) imposed with
respect to                     such advance or with respect to any imputed income with
respect to such advance;                     and PROVIDED, FURTHER, that if the Executive
is required to extend the statute                     of limitation to enable the HDI
Group to contest such claim, the Executive may                     limit this extension
solely to such contested amount. The HDI Group’s                     control of the
contest shall be limited to issues with respect to which a                     Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
                    to settle or contest, as the case may be, any other issue raised by
the Internal                     Revenue Service or any other taxing authority. In
addition, no position may be                     taken nor any final resolution be agreed
to by the HDI Group without the                     Executive’s consent if such
position or resolution could reasonably be                     expected to adversely
affect the Executive (including any other tax position of                     the
Executive unrelated to the matters covered hereby).  

	 	
(viii)
                      As a result of the uncertainty in the application of Section 4999
of the Code,                     it is possible that Gross-Up Payments and Tax Adjustment
Amounts which will not                     have been made by the HDI Group should have
been made                     (“Underpayment”), consistent with the calculation
required to be made                     hereunder. In the event that the HDI Group
exhausts its remedies and the                     Executive thereafter is required to pay
to the Internal Revenue Service an                     additional amount in respect of
any Excise Tax, the HDI Group shall determine                     the amount of the
Underpayment (including any Tax Adjustment Amount) that has                     occurred
and any such Underpayment shall promptly be paid by the HDI Group to or
                    for the benefit of the Executive.  

7 

	 	
(ix)
                      If, after the receipt by the Executive of an amount advanced by the
HDI Group                     in connection with the contest of the Excise Tax claim, the
Executive becomes                     entitled to receive any refund with respect to such
claim, the Executive shall                     promptly pay to the HDI Group the amount
of such refund (together with any                     interest paid or credited thereon
after taxes applicable thereto). If, after the                     receipt by the
Executive of an amount advanced by the HDI Group in connection                     with
an Excise Tax claim, a determination is made that the Executive shall not
                    be entitled to any refund with respect to such claim and the HDI
Group does not                     notify the Executive in writing of its intent to
contest the denial of such                     refund prior to the expiration of 30 days
after such determination, such advance                     shall be forgiven and shall
not be required to be repaid and the amount of such                     advance shall be
offset, to the extent thereof, by the amount of the Gross-Up                     Payment
and the Tax Adjustment Amount.  

        9.              The
Executive agrees that during the term of his employment under this           Agreement,
he shall not, directly or indirectly, engage or participate in any           business
activity that is directly competitive with and likely to have a           material
adverse effect on the business of the HDI Group without prior written           approval
of the Board. In the event that, while employed by the HDI Group, the           Executive
engages in practices that are directly competitive and that are likely           to have
a material adverse effect on the HDI Group and the Executive fails to           cease
such competitive practices within 30 days after written notice is received           from
the Board, Executive shall be treated for purposes of this Agreement as
          terminated for Cause as of such 30th day.  

        10.              Any
dispute or controversy arising under or in connection with this Agreement           shall
be settled exclusively by arbitration in Milwaukee, Wisconsin or, at the           option
of the Executive, in the county where the Executive resides, in           accordance with
the Rules of the American Arbitration Association then in           effect; PROVIDED,
HOWEVER, that if the Executive institutes an action relating           to this Agreement
the Executive may, at his option, bring such action in a court           of competent
jurisdiction. Judgment may be entered on the arbitrator’s           award in any
court having jurisdiction.  

        11.              The
HDI Group shall pay all costs and expenses, including attorneys’ fees           and
disbursements, of the HDI Group and, at least monthly, the Executive, in
          connection with any legal services or proceedings (including, but not limited
          to, arbitration), whether or not instituted by the HDI Group or the Executive,
          relating to the interpretation or enforcement of any provision of this
          Agreement. The HDI Group also agrees to pay prejudgment interest on any money
          judgment obtained by the Executive as a result of such proceedings, calculated
          at the reference rate or prime rate, as the case may be, of First Wisconsin
          National Bank of Milwaukee as in effect from time to time from the date that
          payment should have been made to the Executive under this Agreement.  

        12.              This
Agreement shall be binding upon, inure to the benefit of and be enforceable           by
the HDI Group and the Executive and their respective heirs, legal
          representatives, successors and assigns. If the HDI Group or any member of the
          HDI Group shall be merged into or consolidated with another entity, the
          provisions of this Agreement shall be binding upon and inure to the benefit of
          the entity surviving such merger or resulting from such consolidation. The HDI
          Group will require any successor (whether direct or indirect, by purchase,
          merger, consolidation or otherwise) to all or substantially all of the business
          or assets of the HDI Group or any member of the HDI Group, by agreement in form
          and substance satisfactory to the Executive, to expressly assume and agree to
          perform this Agreement in the same manner and to the same extent that the HDI
          Group would be required to perform it if no such succession had taken place.
The           provisions of this Section 12 shall continue to apply to each subsequent
          employer of the Executive hereunder in the event of any subsequent merger,
          consolidation or transfer of assets of such subsequent employer.  

8 

        13.              The
HDI Group Employer will indemnify the Executive against expenses (including
          attorney’s fees), amounts paid in settlement (whether with or without
court           approval), judgments and fines actually and reasonably incurred by him in
          connection with a threatened or actual action, suit or proceeding if he acted
in           good faith and in a manner he reasonably believed to be in, or not opposed
to,           the best interests of the HDI Group, and with respect to any criminal
action or           proceeding, if he had no reasonable cause to believe that his conduct
was           unlawful, (and the HDI Group Employer will advance expenses for the
Executive)           if he becomes a party or is threatened, pending or completed action,
suit or           proceeding, whether civil, criminal, administrative or investigation
(if not by           or in the right of the HDI Group Employer) by reason of the fact
that he is or           was a director, officer, employee or agent of the HDI Group or is
or was serving           at the request of the HDI Group as a director, officer, employee
or agent or in           any other capacity or in another corporation, or a partnership,
joint venture,           trust or other enterprise, or by reason of any action alleged to
have been taken           or not taken by him while acting in any such capacity, to the
fullest extent           permitted by the HDI Group Employer’s Articles of
Incorporation and           By-Laws.  

        14.              Any
provision of this Agreement which is held to be unenforceable or invalid in           any
respect in any jurisdiction shall be ineffective in such jurisdiction to the
          extent that it in unenforceable or invalid without affecting the remaining
          provisions hereof, which shall continue in full force and effect. The
          unenforceability or invalidity of a provision of this Agreement in one
          jurisdiction shall not invalidate or render unenforceable such provision in any
          other jurisdiction.  

        15.              This
Agreement shall be governed by and construed in accordance with the laws of           the
State of Wisconsin applicable to contracts made and to be performed therein,
          without regard to conflict of law principles.  

        16.              This
instrument contains the entire agreement of the parties, and supersedes any
          earlier agreement between them, relative to a transition period or termination
          in the event of a Change of Control Event. It may not be changed orally but
only           by an agreement in writing signed by the party against whom enforcement of
any           waiver, change, modification, extension, or discharge is sought.
Notwithstanding           anything in this Agreement to the contrary, the Corporation may
unilaterally           amend this Agreement to make changes that the Corporation
reasonably determines           are necessary or appropriate for purposes of causing this
Agreement to comply           with the requirements of Section 409A of the Internal
Revenue Code and           regulations proposed or promulgated thereunder, so long as the
Corporation makes           the same changes to corresponding agreements to which other
Corporation           executives are parties.  

9 

        "Para
(List) Flush Lv 0- TNR" FSL="Project" --> 17.              The
Executive shall not be required to mitigate damages or the amount of any
          payment to the Executive provided for under this Agreement by seeking other
          employment or otherwise, nor shall the amount of any payment provided for under
          this Agreement be reduced by any compensation earned by Executive as a result
of           employment by another employer after Termination.  

        IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written. 

		HARLEY-DAVIDSON, INC.
	

 	By:  /s/ James L. Ziemer
		        James L. Ziemer
		        President and Chief Executive Officer
	
 	ATTEST:
	

 	/s/ Gail A. Lione
		Gail A. Lione
		Vice President, General Counsel and Secretary
	
 	EXECUTIVE:
	

 	/s/ Saiyid T. Naqvi
		Saiyid T. Naqvi

10 

Schedule A 

CERTAIN DEFINITIONS  

        As
used in this Agreement, and unless the context requires a different meaning, the following
terms have the meanings indicated: 

“BASE INCOME TAX RATES”
shall have the meaning ascribed to it in Section 8(b)(v) of the Agreement. 

“BOARD” means the
Corporation’s board of directors. 

“CAUSE” means the commission
by the Executive of one or more acts for which the Executive is convicted of a felony
under United States federal, state or local criminal law, or willful and gross misconduct
on the part of the Executive that is materially and demonstrably detrimental to the HDI
Group taken as a whole. 

“CHANGE OF CONTROL EVENT”
means any one of the following: (a) Continuing Directors no longer constitute at least 2/3
of the Directors; (b) any person or group of persons (as defined in Rule 13d-5 under the
Securities Exchange Act of 1934), together with its affiliates, become the beneficial
owner, directly or indirectly, of 20% or more of the Corporation’s then outstanding
Common Stock or 20% of more of the voting power of the Corporation’s then outstanding
securities entitled generally to vote for the election of the Corporation’s
Directors; (c) the approval by the Corporation’s stockholders of the merger or
consolidation of the Corporation with any other corporation, the sale of substantially all
of the assets of the Corporation or the liquidation or dissolution, of the Corporation,
unless, in the case of a merger or consolidation, the then Continuing Directors in office
immediately prior to such merger or consolidation will constitute at least 2/3 of the
Directors of the surviving corporation of such merger or consolidation and any parent (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of such
corporation; or (d) at least 2/3 of the then Continuing Directors in office immediately
prior to any other action proposed to be taken by the Corporation’s stockholders or
by the Board determines that such proposed action, if taken, would constitute a change of
control of the Corporation and such action is taken. 

“CODE” means the Internal
Revenue Code of 1986, as amended. 

“COMPENSATION” means the
sum of all remuneration to which the Executive is entitled, including, but not limited to
salary, participation in HDI Group bonus and benefit plans, programs or arrangements and
awards under any HDI Group bonus plans, long-term incentive compensation plans, stock
option plans, restricted stock plans or any other deferred compensation plans in which the
HDI Group Employer maintained or adopted prior to the Change of Control Event or the value
to the Executive of the use of professional outplacement services by qualified consultants
and use of automobiles or vehicles, (or allowances in respect thereof), and all amounts in
respect of club, association or similar fees and dues covering such Executive. In the
event that the HDI Group cannot provide the Executive with one or more benefits which it
is obligated to provide to the Executive, pursuant to this Agreement, under its employee
benefit plans, programs or arrangements then the HDI Group shall provide the Executive
with equivalent benefits at the expense of the HDI Group Employer. 

11 

“CONTINUING DIRECTOR” means
any individual who is either (i) a member of the Board on the date hereof or (ii) a member
of the Board whose election or nomination to the Board was approved by a vote of at least
two-thirds of the Continuing Directors (other than a person whose election was as a result
of an actual or threatened proxy or other control contest). 

“CORPORATION” means
Harley-Davidson, Inc., a Wisconsin corporation. 

“EXCISE TAX” has the
meaning ascribed to it in Section 8(b)(i) of the Agreement. 

“GROSS-UP PAYMENT” has the
meaning ascribed to it in Section 8(b)(i) of the Agreement. 

“HDI GROUP” means
Harley-Davidson, Inc. and its affiliates. 

“HDI GROUP EMPLOYER” means
the member of the HDI Group that employed the Executive immediately prior to the Change of
Control Event. 

“TAX ADJUSTMENT AMOUNT” has
the meaning ascribed to it in Section 8(b)(v) of the Agreement. 

“TERMINATION” means any
termination of Executive’s employment following the occurrence of any Change of
Control Event, and shall include any voluntary termination by the Executive, any
termination in connection with retirement under any retirement plan of the HDI Group, or
any termination resulting from a disability; PROVIDED, HOWEVER, that such term shall not
include any termination of the Executive’s employment by the Corporation for Cause or
as a result of the death of the Executive. 

“UNDERPAYMENT” has the
meaning ascribed to it in Section 8(b)(viii) of the Agreement. 

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