Document:

Exhibit
10.12

CONAGRA FOODS, INC.

AMENDED
AND RESTATED

VOLUNTARY DEFERRED
COMPENSATION PLAN

The
ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan
(the “Plan”) is adopted effective January 1, 2005.  The Plan is established and maintained by
ConAgra Foods, Inc. for the purpose of permitting certain key employees of the
Company and of corporations which are related to the Company to defer the
receipt of a portion of their income and/or participate in any appreciation in
the value of Company Stock.  Accordingly,
ConAgra Foods, Inc. hereby adopts the Plan pursuant to the terms and provisions
set forth below:

ARTICLE I

DEFINITIONS

1.1           Account.  The term “Account” means the bookkeeping
account established by the Company to which Compensation Deferral
Contributions, and earnings and losses thereon, are credited.

1.2           Beneficiary.  The term “Beneficiary” means one or more
persons or other entities designated by the Participant to receive the benefits
payable by reason of the Participant’s death as provided under this Plan.  The designation shall be in writing on a form
approved by the Committee, signed by the Participant and delivered to the
Committee to be valid.  If the
Participant makes no valid designation, or if the designated primary and
secondary Beneficiaries fail to survive the Participant or otherwise fail to
elect to receive such benefits, Participant’s Beneficiary shall then be the
first of the following persons who survives the Participant:  (i) the Participant’s spouse (that is, the
person to whom the Participant is legally married at the time of the
Participant’s death), (ii) the Participant’s surviving issue, per stirpes, or
(iii) the personal representative(s) of the Participant’s estate, to be
administered and distributed as part of such estate.  The Participant may change his designated
Beneficiary by delivering a new written designation of beneficiary form to the
Committee on a form approved by the Committee.

1.3           Board.  The term “Board” means the Company’s Board of
Directors.

1.4           Change of Control Event.  The
term “Change of Control Event” means a Change in Ownership of the Company, a
Change in Effective Control of the Company, or a Change in the Ownership of a
Substantial Portion of the Company’s Assets. 
For purpose of this Plan:

(i)                                     Change in Ownership of the Company.  A “Change in Ownership of the Company” occurs
on the date that any one person or entity, or more than one person or entity
acting as a Group acquires ownership of stock of the Company that, together
with stock held by such person, entity or Group, constitutes more than fifty
percent (50%) of the total fair market value of the Company or of the total
voting power of the stock of the Company; provided, however, if any one person
or entity, or more than one person or entity acting as a Group, is considered
to own more than fifty percent (50%) of the total fair market value or total
voting power of the stock of the Company, the acquisition of additional stock
by the same person, entity or Group is not considered to cause a Change in
Ownership of the Company (or a Change in Effective Control of the Company).

(ii)                                  Change in Effective Control of the Company.  A “Change in Effective Control of the Company”
occurs on the date that either:

(a)                               Any
one person or entity, or more than one person or entity acting as a Group,
acquires or has acquired during the twelve (12) month period ending on the date
of the most recent

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Exhibit 10.12

acquisition by such person,
entity or Group ownership of stock of the Company possessing thirty-five
percent (35%) or more of the total voting power of the stock of the Company; or

 

(b)                               A
majority of the members of the relevant corporation’s board of directors is
replaced during any twelve (12) month period by directors whose appointment or
election is not endorsed by a majority of the members of the relevant
corporation’s board of directors prior to the date of the appointment or
election.

(iii)                               Change in the Ownership of a Substantial Portion
of the Company’s Assets. 
A “Change in the Ownership of a Substantial Portion of the Company’s
Assets” occurs on the date that any one person or entity, or more than one
person or entity acting as a Group, acquires or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such
person, entity or Group assets from the Company that have a total gross fair
market value equal to or more than forty percent (40%) of the total gross fair
market value of all of the assets of the Company immediately prior to such
acquisition or acquisitions.  For
purposes of this Section, the term “gross fair market value” means the value of
the assets of the Company, or the value of the assets being disposed of,
determined without regard to any liabilities associated with such assets.  However, a Change in the Ownership of a
Substantial Portion of the Company’s Assets does not occur if the assets are
transferred to one of the following (as determined immediately after the asset
transfer):

(a)                               A
shareholder of the Company in exchange for or with respect to such shareholder’s
stock;

(b)                               An
entity, fifty percent (50%) or more of the total value or voting power of which
is owned, directly or indirectly, by the Company;

(c)                                A
person, or more than one person acting as a Group, that owns, directly or
indirectly, fifty percent (50%) or more of the total value or voting power of
all the outstanding stock of the Company; or

(d)                               An
entity, at least fifty percent (50%) of the total value or voting power of
which is owned, directly or indirectly, by a person described in paragraph (c).

For purposes of this Section, the term “Group”
shall have the meaning within Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 and shall include the owners of a corporation that enter
into a merger, consolidation, purchase or acquisition of stock, or similar
business transaction with the Company, but shall not include persons or
entities who would otherwise be considered a Group solely because such persons
or entities purchase or own stock of the Company at the same time or as a
result of the same public offering.  The
attribution rules of Code Section 318(a) shall apply in determining stock
ownership.

1.5           Code.  The term “Code” means the Internal Revenue
Code of 1986, as amended from time to time.

1.6           Committee.  The term “Committee” means a special
committee appointed by the Chief Executive Officer of the Company (“CEO”) to
administer the Plan.  The initial members
of the Committee shall be the Chairman of the Board, the Vice Chairman of the
Board and the Company’s Senior Vice President of Human Resources.  The CEO may appoint and remove members of the
Committee by providing advance written notice to the individual of such
appointment or removal.

1.7           Company.  The term “Company” means ConAgra Foods, Inc.,
a Delaware corporation, or, to the extent provided in Section 10.5 below, any
successor corporation or other entity resulting from a merger or consolidated
into or with the Company or a transfer or sale of substantially all of the
assets of the Company.

1.8           Compensation Deferral
Agreement.  The term “Compensation
Deferral Agreement” means the written compensation deferral agreement entered
into by a Participant with the Company pursuant to this Plan.

1.9           Disability.  A Participant has a “Disability” or shall be
considered “Disabled” if the Participant is, by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than
twelve (12) months, receiving income 

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Exhibit
10.12

replacement benefits for a period of not less
than three (3) months under the Company’s long-term disability plan.

1.10         Early Retirement.  The term “Early Retirement” means termination
of employment with the Employer by a Participant who has at least ten (10)
years of service with the Employer and who is at least age fifty-five (55).

1.11         Effective Date.  The original Plan was effective December 5,
1996.  This amendment and restatement is
effective January 1, 2005.

1.12         Employer.  The term “Employer” means the Company and any
Related Company that the Company has authorized to participate in the Plan as
to its employees.

1.13         ERISA.  The Employee Retirement Income Security Act
of 1974, as amended from time to time.

1.14         Normal Retirement.  The term “Normal Retirement” means
termination of employment with the Employer by a Participant who is at least
age sixty-five (65).

1.15         Participant.  The term “Participant” means any eligible
employee covered by the Plan in accordance with the provisions of Article II.

1.16         Plan.  The term “Plan” means the ConAgra Foods, Inc.
Amended and Restated Voluntary Deferred Compensation Plans as set forth herein,
and as may be amended from time to time.

1.17         Plan Year.  The term “Plan Year” means the calendar year.

1.18         Related Company.  The term “Related Company” means: (i) any
corporation that is a member of a controlled group of corporations (as defined
in Code Section 414(b) that includes the Company); (ii) any trade or business
(whether or not incorporated) that is under common control (as defined in Code
section 414(c)) with the Company; (iii) any member of an affiliated service
group (as defined in Code Section 414(m)) that includes the Company; and (iv)
any other entity required to be aggregated with the Company pursuant to final
or temporary regulations under Code Section 414(o).

ARTICLE II

ELIGIBLE EMPLOYEES

Employees
eligible to participate in the Plan shall be those employees of the Employer
selected by, and at the sole and absolute discretion of, the Human Resources
Committee of the Board (“HR Committee”). 
Each Participant shall continue to participate in the Plan until the
earlier of the HR Committee determining the Employee shall no longer
participate or the Participant no longer being employed by an Employer.

ARTICLE III

DEFERRALS

3.1  Employee Deferrals.  Prior to the beginning of each Plan Year, a
Participant may elect to have a portion of his pay deposited in the Plan (“Compensation
Deferral Contribution”).  The minimum
deposit shall be five percent (5%) of the Participant’s base salary or
short-term incentive.  The maximum
deposit shall be fifty percent (50%) of the Participant’s normal salary and
fifty percent (50%) of the Participant’s short-term incentive.  The Participant’s election shall be made in
accordance with the rules and regulations of the Committee and in accordance
with a Compensation Deferral Agreement. 
The Compensation Deferral Contribution shall be credited to the
Participant’s Account under the Plan as soon as reasonably practicable 

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Exhibit 10.12

following the date the Participant would have otherwise been entitled
to receive cash compensation absent an election to defer under this Section
3.1.

3.2  Employer Contributions.  No Employer contributions will be made to the
Plan.

ARTICLE IV

INVESTMENTS AND PARTICIPANT ACCOUNTS

4.1  Investments.  The Committee shall select the investments
available with respect to the Participant’s interests in the Plan.  Each Participant shall select, in accordance
with the rules and procedures established by the Committee, the method of
investing the Participant’s Account. 
Transfers among investments and changes in investment elections may only
be made in accordance with the rules, procedures and limitations established by
the Committee.

4.2  ConAgra Stock.  Notwithstanding Section 4.1, shares of
Company common stock (“ConAgra Stock”) shall be an investment available for
selection by Participants.  If ConAgra
Stock is selected by a Participant, ConAgra Stock shall be acquired by the Plan
through the trust described in Section 4.4 below.  The ConAgra Stock will be provided through
the ConAgra Employee Flexible Bonus Payment Plan and the ConAgra 1995 Stock
Plan, or any subsequent Stock Plan adopted by the Company which allows for
such.  An account (“Participant’s ConAgra
Stock Account’) shall be established for the Participant for the number of
shares of ConAgra Stock purchased with respect to the Compensation Deferral
Contributions to the Participant’s Account. 
The Participant’s ConAgra Stock Account shall be credited with dividends
paid on the shares of ConAgra Stock credited to the Participant’s ConAgra Stock
Account.  Such dividends shall be
reinvested in the ConAgra Stock Account in a manner similar to Employee
Deferral Contributions.  Upon distribution
to a Participant, amounts held in a Participant’s ConAgra Stock Account shall
be paid in ConAgra Stock.  If installment
payments are made, each distribution shall include ConAgra Stock in proportion
to the ConAgra Stock held in the Participant’s Account.

4.3  Participant’s Accounts.  A separate account shall be established for
each Participant in the Plan (“Participant’s Account”).  Each Participant’s Account shall be adjusted
for Compensation Deferral Contributions and earnings and losses.  Each Participant’s Account shall be valued as
often as determined by the Committee, but at least one (1) time per Plan Year.

4.4  Funding.  Notwithstanding any other provisions of the
Plan, this Plan shall be unfunded and the Participants in this Plan shall be no
more than general, unsecured creditors of the Employer with regard to benefits
payable pursuant to this Plan.  The
Company, by action of the Committee, shall establish a trust to hold ConAgra
Stock acquired pursuant to Section 5.2 above. 
Such trust shall be subject to all the provisions of this Plan, shall be
property of the Company until distributed, and shall be subject to the Company’s
general, unsecured creditors and judgment creditors.  Such trust shall not be deemed to be
collateral security for fulfilling any obligation of the Employer to the
Participants.

ARTICLE V

DISTRIBUTIONS

5.1  Termination of Employment.  Upon termination of employment for reasons
other than death, Disability, or Early or Normal Retirement, the Participant’s
Account shall be paid in one (1) lump sum payment.  The payment shall be made as soon as
reasonably practicable following the date of the Participant’s termination of
employment.

5.2  Disability or Retirement.  Upon termination of employment because of
Disability or Early or Normal Retirement, a Participant’s Account shall be paid
over a ten (10) year period.  The first
payment shall be made as soon as reasonably practicable following the date of
the Participant’s termination of employment with annual payments over the next
nine (9) years.  A Participant’s Account
shall share in earnings and losses during the payout period.

5.3  Death.  Upon the death of the Participant before
distribution of the Participant’s entire Account (whether employed or not at
the time of death), the Participant’s Account shall be paid to the Participant’s
Beneficiary as soon as reasonably practicable following the death of the
Participant.

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Exhibit 10.12

5.4  Change of Control Event.  Upon a Change of Control Event, the
Participant’s Account shall be paid to the Participant in one (1) lump sum
payment within thirty (30) days of the Change of Control Event.

5.5  Withholding.  The Employer may withhold any federal, state
or local taxes required with respect to any distribution hereunder.  The Participant shall take whatever action
the Committee deems appropriate with respect to withholding of taxes,
including, but not limited to the Participant remitting to the Company any
taxes required to be withheld by the Company under federal, state or local law
as a result of the payment.

5.6  Distributions to Specified Employees.  Notwithstanding any provision of the Plan to
the contrary, upon a Participant’s separation from service, if a Participant is
a “Specified Employee”, no portion of his or her Account shall be distributed
before the date which is six (6) months after the date of separation from
service, or if earlier, the date of death of the Participant.  A “Specified Employee” is a key employee, as
defined under Code Section 416(i), without regard to paragraph (5) thereof (and
any successor or comparable Code sections).

ARTICLE VI

ADMINISTRATION

6.1  Plan
Administrator.  The
operation of the Plan shall be under the exclusive supervision of the
Committee.  It shall be a principal duty
of the Committee to see that the Plan is carried out in accordance with its
terms, and for the exclusive benefit of persons entitled to participate in the
Plan without discrimination.  The
Committee shall have full and exclusive power to administer and interpret the
Plan in all of its details; subject, however, to the requirements of ERISA and
all pertinent provisions of the Code. 
For this purpose, the Committee’s powers will include, but will not be
limited to, the following authority, in addition to all other powers provided
by this Plan:

(i)                                    to make and enforce such rules and
regulations as the Committee deems necessary or proper for the efficient
administration of the Plan;

(ii)                                 to interpret the Plan, the Committee’s
interpretations thereof in good faith to be final, conclusive and binding on
all persons claiming benefits under the Plan;

(iii)                              to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan and to
receive benefits provided under the Plan;

(iv)                             to approve and authorize the payment of benefits;

(v)                                to appoint such agents, counsel,
accountants and consultants as may be required to assist in administering the
Plan; and

(vi)                             to allocate
and delegate the Committee’s fiduciary responsibilities under the Plan and to
designate other person to carry out any of the Committee’s fiduciary
responsibilities under the Plan, any such allocation, delegation or designation
to be in accordance with Section 405 of ERISA.

No
Committee member shall be involved in a decision that only affects that member’s
benefit under the Plan, if any.

6.2      Claims.  A claim for benefits under the Plan shall be
made in writing by the Participant, or, if applicable the Participant’s
executor or administrator or authorized representative, (collectively, the “Claimant”)
to the Committee within sixty (60) days of the event by which the Claimant
claims he or she is entitled to receive benefits under the Plan.

6.3      Claim
Denials; Claim Appeals. 
If a claim for benefits under the Plan is denied, the Claimant shall be 

 130
 

 

Exhibit 10.12

notified,
in writing, within sixty (60) days after the claim is filed.  The notice shall be written in a manner
calculated to be understood by the Claimant and shall set forth: (i) the
specific reason(s) for the denial; (ii) specific references to the pertinent
Plan provisions on which the denial is based; (iii) a description of any
additional material or information necessary for the Claimant to perfect the
claim and an explanation as to why such information is necessary; and (iv) an
explanation of the Plan’s appeal procedure.

Within
sixty (60) says after receipt of the above material, the Claimant shall have a
reasonable opportunity to appeal the claim denial to the Committee for a full
and fair review.  The Claimant may: (i)
request a review upon written notice to the Committee; (ii) review pertinent
documents; and (iii) submit issues and comments in writing.

A
decision by the Committee shall be made not later than sixty (60) days after
receipt of a request for review, unless special circumstances require an
extension of time for processing, in which event a decision should be rendered
as soon as possible, but in no event later than one hundred twenty (120) days
after such receipt.  The decision of the
Committee shall be written and shall include specific reasons for the decision,
written in a manner calculated to be understood by the Claimant, with specific
references to the pertinent Plan provision on which the decision is based.

ARTICLE VII

AMENDMENT OR TERMINATION

7.1  Amendment or Termination.  The Company reserves the right to amend or
terminate the Plan at its sole and absolute discretion.  Any such amendment or termination shall be
made pursuant to a resolution of the HR Committee and shall be effective as of
the date of such resolution unless the resolution specifies a different
effective date.

7.2  Effect of Amendment or Termination.  No amendment or
termination of the Plan shall directly or indirectly reduce the balance of any
Account held hereunder as of the effective date of such amendment or termination.  Upon termination of the Plan, distribution of
amounts credited to the Account shall be made to the Participant or his or her
Beneficiary in the manner and at the time described in Article V of the Plan.  The Participant’s Account will continue to
share in earnings and losses until complete distribution of the sums credited
to the Account.

ARTICLE VIII

PRE-JANUARY 1, 2005 DEFERRALS

For
amounts deferred under the Plan prior to January 1, 2005, together with the
earnings thereon (collectively the “Grandfathered Amounts”), the following
provisions of this Article VIII shall apply. 
If a provision of this Article VIII does not otherwise provide, then the
remaining provisions of the Plan shall govern the Grandfathered Amounts.

8.1      Definition
of Change of Control.  The
term “Change of Control” means:

(i)                                    The
acquisition (other than from the Company) by any person, entity or “group”,
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the “Exchange Act”), (excluding, for this purpose, the Company or
its subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of the
Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of either the then
outstanding shares of common stock or the combined voting power of the Company’s
then outstanding securities entitled to vote generally in the election of
directors;

(ii)                                 Individuals
who, as of the date hereof, constitute the Board (as of the date hereof the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be, for purposes of the Plan, considered as though such
person were a member of the Incumbent Board; or

 131
 

 

Exhibit 10.12

(iii)                              Consummation
of a reorganization, merger, consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than fifty percent (50%) of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company’s then outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or substantially all of the
assets of the Company.

8.2      Definition
of Disability.  The term “Disability”
means total and permanent disability as determined pursuant to the Company’s
long-term disability plan.

8.3      Distribution
upon Disability or Retirement. 
Upon termination of employment because of Disability or Early or Normal
Retirement, a Participant’s Account shall be paid over a ten (10) year
period.  The first payment shall be made
as soon as reasonably practicable following the date of the Participant’s
termination of employment with annual payments over the next nine (9)
years.  A Participant’s Account shall
share in earnings and losses during the payout period.  Notwithstanding the preceding, a Participant
who is receiving his or her distribution in installments, or who expects to
receive his or her distribution in installments, may request that the Committee
distribute the Grandfathered Amounts in the Participant’s Account in one (1)
lump sum payment.  The Participant shall
provide the Committee information regarding the reasons for requesting a lump
sum distribution, supporting facts and documents and any other information
requested by the Committee.  The
Committee, in its sole and absolute discretion, may grant the lump sum
distribution if the facts and circumstances warrant such a distribution.  Examples of when the Committee should
determine that a lump sum distribution is warranted are financial hardships
beyond the reasonable control of the Participant.

8.4      Distribution
Upon Change of Control. 
Upon a Change of Control, the Grandfathered Amounts in the Participant’s
Account shall be paid to the Participant in one (1) lump sum payment within
thirty (30) days of the Change of Control.

8.5      Distribution
Upon Elective Withdrawal By Participant.  A Participant may elect to withdraw all of
the Grandfathered Amounts held in his or her Account.  In the event of such elective withdrawal of
Grandfathered Amounts, the Participant shall receive a distribution of ninety
percent (90%) of the Grandfathered Amounts in the Participant’s Account and
forfeit the remaining ten percent (10%).

8.6      Distribution
Upon Termination by Corporate Successor.  The Plan shall not be automatically
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other
entity, but the Plan shall be continued after such sale, merger or consolidated
only if and to the extent that the transferee, purchaser or successor entity
agrees to continue the Plan.  In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate and the Grandfathered Amounts in the
Participant’s Account shall be distributed to the Participant in one (1) lump
sum payment within thirty (30) days of such termination.

8.7      Distributions
to Specified Employees. 
Distributions of Grandfathered Amounts may be distributed, as permitted
by the Plan, to Specified Employees (as defined in Section 5.6) prior to the
date which is six (6) months after the date of separation from service, or if
earlier, the date of death of the Participant.

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Exhibit 10.12

ARTICLE IX

409A COMPLIANCE

The Plan has been amended and restated as of January 1, 2005 for
purposes of complying with the provisions of Code Section 409A.  With respect to amounts other than
Grandfathered Amounts, the Plan shall be interpreted to comply with Code
Section 409A and not to cause income inclusion of a Participant’s Account (and
any related penalty and interest) until such amount or amounts are actually
distributed to such Participant.  If the
Company determines that any benefit hereunder cannot be provided without
causing income inclusion, penalties or interest to a Participant prior to
actual distribution or distributions of his or her Account, the Company agrees
to amend the Plan as necessary to comply with Code Section 409A.

ARTICLE X

GENERAL PROVISIONS

10.1                No Guarantee of Benefits.  Nothing contained in the Plan shall
constitute a guarantee by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder.

10.2                No Enlargement of Employee Rights.  No Participant shall have any right to
receive a distribution of contributions made under the Plan except in
accordance with the terms of the Plan. 
Establishment of the Plan shall not be construed to give any Participant
the right to be retained in the service of the Employer.

10.3                Spendthrift Provision.  No interest of any person or entity in, or right
to receive a distribution under, the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to
receive a distribution be taken, either voluntarily or involuntarily for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings, other than by will or the laws of
descent.

10.4                Incapacity of Recipient.  If any person entitled to a distribution
under the Plan is deemed by the Company to be incapable of personally receiving
or giving a valid receipt for such payment, then, unless and until claim
therefore shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment or any
part thereof to be made to any other person or institution then contributing
toward or providing for the care and maintenance of such person.  Any such payment shall be a payment of the
account of such person and a complete discharge of any liability of the Company
and the Plan therefore.

10.5                Corporate Successors.  The Plan shall not be automatically
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other
entity, but the Plan shall be continued after such sale, merger or consolidated
only if and to the extent that the transferee, purchaser or successor entity
agrees to continue the Plan.  In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate and the termination provision of Section
8.2 shall apply.

10.6                Governing Law.  The Plan shall be construed and administered
under the laws of the State of Nebraska to the extent federal law is not
applicable.

10.7                Offsets.  When any payment becomes due hereunder, the
Company, without notice, demand, or any other action, may withhold payment and
use the funds to offset any amounts owed by the Participant to the Company or
any of its affiliates.

 133Exhibit 10.1

MAGELLAN HEALTH SERVICES, INC.

2006 MANAGEMENT INCENTIVE PLAN

TABLE OF CONTENTS

	
  1.

  	
   

  	
  Purpose

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Administration

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Committee

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Authority

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Delegation and Advisers

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
   

  	
  Limitation of Liability and Indemnification

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Participants

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Type of Awards

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Common Stock Available Under the Plan

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Basic Limitations

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Additional Shares

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Business Acquisition Grants

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Stock Options

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Generally

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Exercise Price

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Payment of Exercise Price

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
   

  	
  Exercise Period

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
   

  	
  Limitations on Incentive Stock Options

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
   

  	
  Additional Limitations on Incentive Stock Options
  for Ten Percent Shareholders

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Stock Appreciation Rights

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Generally

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Exercise Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Restricted Stock Awards

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Generally

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Payment of the Purchase Price

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Additional Terms

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
   

  	
  Rights as a Shareholder

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 i
 

 

 

	
  9.

  	
   

  	
  Stock Units

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Generally

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Settlement of Stock Units

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Definitions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Performance-Based Awards

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Generally

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Business Criteria

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Establishment of Performance Goals

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
   

  	
  Certification of Performance

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
   

  	
  Modification of Performance-Based Awards

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Foreign Laws

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Certain Terminations of Employment; Forfeitures

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Forfeiture of Unsettled Awards

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Effect on Settled Awards

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Timing

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
   

  	
  Determination from the Committee

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
   

  	
  Condition Precedent

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
   

  	
  Enforceability

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Adjustment Provisions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  Nontransferability

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  Other Provisions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  Fair Market Value

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
   

  	
  Withholding

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  Employment Rights

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
   

  	
  Tax Compliance

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Certain Limitations on Awards to Ensure Compliance
  with Section 409A

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Certain Terms Relating to Code Section 409A

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Unfunded Plan

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  No Fractional Shares

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
   

  	
  Duration, Amendment and Termination

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
   

  	
  Governing Law

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
   

  	
  Effective Date

  	
   

  	
   

  

 

 ii
 

 

 

Index of Defined Terms

 

	
  

  	
   

  	
  Section Where

  	
   

  
	
  Term

  	
   

  	
  Defined or First Used

  	
   

  
	
  Awards

  	
   

  	
  4

  	
   

  
	
  Code

  	
   

  	
  2(a)

  	
   

  
	
  Committee

  	
   

  	
  2(a)

  	
   

  
	
  Common Stock

  	
   

  	
  5(a)

  	
   

  
	
  Company.

  	
   

  	
  1

  	
   

  
	
  Dividend
  Equivalent Right.

  	
   

  	
  9(c)

  	
   

  
	
  Effective Date.

  	
   

  	
  23

  	
   

  
	
  Exchange Act

  	
   

  	
  2(a)

  	
   

  
	
  Fair Market
  Value

  	
   

  	
  16

  	
   

  
	
  Incentive Stock
  Option

  	
   

  	
  6(a)

  	
   

  
	
  Injurious
  Conduct

  	
   

  	
  12(a)

  	
   

  
	
  Non-Employee
  Director

  	
   

  	
  2(a)

  	
   

  
	
  Nonqualified
  Stock Option.

  	
   

  	
  6(a)

  	
   

  
	
  Parent
  Corporation

  	
   

  	
  6(e)

  	
   

  
	
  Performance-Based
  Awards

  	
   

  	
  10(a)

  	
   

  
	
  Plan

  	
   

  	
  1

  	
   

  
	
  Restricted Stock
  Award

  	
   

  	
  8

  	
   

  
	
  Stock
  Appreciation Rights

  	
   

  	
  7

  	
   

  
	
  Stock Options

  	
   

  	
  6

  	
   

  
	
  Stock Unit

  	
   

  	
  9(c)

  	
   

  
	
  Subsidiary Corporation

  	
   

  	
  6(e)

  	
   

  

 

 iii

 

 

MAGELLAN HEALTH SERVICES, INC.

2006 MANAGEMENT INCENTIVE PLAN

1.   Purpose.   The Magellan
Health Services, Inc. 2006 Management Incentive Plan (the “Plan”) is intended to provide incentives which will attract,
retain and motivate highly competent persons as officers and employees of
Magellan Health Services, Inc., a Delaware corporation (the “Company”), and its subsidiaries and affiliates, by providing
them with appropriate incentives and rewards to encourage them to enter into
and continue in the employ of the Company, to acquire a proprietary interest in
the long-term success of the Company and to reward the performance of
individuals in fulfilling their personal responsibilities for achievement of
the Company’s objectives.

2.   Administration.

(a)   Committee.   The
Plan will be administered by a committee (the “Committee”)
appointed by the Board of Directors of the Company from among its members and
shall be comprised, unless otherwise determined by the Company’s Board of
Directors, solely of not less than two (2) members who shall be (i) ”Non-Employee Directors” within the meaning of
Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and (ii) ”outside directors” within the meaning of Treasury Regulation
Section 1.162-27(e)(3) under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”). The
Board of Directors may perform any function of the Committee hereunder, in
which case references to the Committee shall be deemed to include the Board.
The foregoing notwithstanding, no action or decision of the Committee shall be
void or deemed not duly authorized solely because a member of the Committee did
not meet a qualification requirement set forth in this Section 2(a).

(b)   Authority.   The
Committee is authorized, subject to the provisions of the Plan, to make and
administer grants under the Plan (including to determine the terms and
conditions of Awards granted and to waive conditions initially established for
grants, including to accelerate vesting and to extend the exercisability of
grants, except as specifically restricted by this Plan) and to establish such
rules and regulations as it deems necessary for the proper administration
of the Plan, including to make such determinations and interpretations and to
take such action in connection with the Plan and any Awards granted hereunder
as it deems necessary or advisable to carry out its purposes. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants and their legal representatives.

(c)   Delegation
and Advisers.   The Committee may delegate to one or more of its
members (including to a designated subcommittee), to management of the Company,
to counsel for or advisors or consultants to the Committee or to one or more
other agents appointed by the Committee, such administrative duties as the
Committee may deem advisable; provided, such delegation does not adversely
effect the exemption provided by Rule 16b-3 of the Exchange Act, prevent
an Award from qualifying as a Performance-Based Award, if so intended,
complying with Section 157 of the Delaware General Corporation Law and
otherwise complying with applicable law. The Committee, or any person to whom
it has delegated duties as aforesaid, may employ one or more persons to render
advice with respect to any responsibility the Committee or such person may have
under the Plan. The Committee may employ such legal or other counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion or computation received from any such
counsel, consultant or agent. Expenses incurred by the Committee in the
engagement of such counsel, consultant or agent, shall be paid by the Company,
or the subsidiary or affiliate whose employees have benefited from the Plan, as
determined by the Committee.

 1
 

 

(d)   Limitation
of Liability and Indemnification.   No member of the Committee
and no officer or employee of the Company shall be liable for any act or failure
to act hereunder, except in circumstances involving his or her bad faith or
willful misconduct, or for any act or failure to act hereunder by any other
member or officer or employee or by any agent to whom duties in connection with
the administration of this Plan have been delegated. The Company shall
indemnify members of the Committee and any officer of the Company or any
employee of the Company, a subsidiary or an affiliate designated to act on
behalf of the Company or the Committee with regard to the Plan, and may
indemnify any counsel or advisors appointed by the Company to assist it in
carrying out its responsibilities hereunder, against any and all liabilities or
expenses to which they may be subjected by reason of any act or failure to act
in connection with the Plan to the same extent and on the same terms and
conditions as indemnity is provided to officers of the Company in accordance
with the Company’s Bylaws (except that indemnity to counsel and advisors is not
mandatory), including advancing costs and expenses incurred by them in the
defense of claims relating thereto.

3.   Participants.   Participants
will consist of such officers and employees of the Company and its subsidiaries
and affiliates as the Committee in its sole discretion determines to be
responsible for the success and future growth and profitability of the Company
and whom the Committee may designate from time to time to receive Awards under
the Plan. Designation of a participant in any year shall not require the
Committee to designate such person to receive an Award in any other year or,
once designated, to receive the same type or amount of Award as granted to the
participant in any other year. The Committee shall consider such factors as it
deems pertinent in selecting participants and in determining the type and
amount of their respective Awards.

4.   Type of
Awards.   Awards under the Plan may be granted
in any one or a combination of (a) Stock Options, (b) Stock
Appreciation Rights, (c) Restricted Stock Awards and (d) Stock Units
(each as described below, and collectively, the “Awards”).
Any Award may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described in Section 10 hereof. Awards
granted under the Plan shall be evidenced by an agreement (which need not be
identical with respect to each grant or grantee) that may provide additional
terms and conditions associated with such Awards, as determined by the
Committee in its sole discretion, provided, however,
that in the event of any conflict between the provisions of the Plan and any
such agreement, the provisions of the Plan shall prevail. Nothing contained
herein shall prevent the Company from making cash bonus payments or providing
other Awards pursuant to any employment agreement, bonus plan or arrangement or
other compensation or benefit plan or program.

5.   Common Stock Available Under the Plan.

(a)   Basic
Limitations.   The aggregate number of shares of capital stock
of the Company that may be delivered in connection with Awards granted under
this Plan shall be 2,750,000 shares of Ordinary Common Stock (the “Common Stock”), which may be authorized and unissued shares
or treasury shares or may be purchased on the open market or by private
purchase, provided that the maximum number of shares of Common Stock that may
be delivered in connection with Restricted Stock Awards or Stock Units shall be
300,000. The number of shares of Common Stock that may be delivered under the
Plan shall be subject to adjustments in accordance with Section 13 hereof
and Sections 5(b) and 5(c) hereof. The maximum number of shares of
Common Stock with respect to which Awards may be granted to or measured with
respect to any individual participant under the Plan in any one calendar year
shall not exceed 2,000,000 (subject to adjustments made in accordance with
Section 13 hereof.

(b)   Additional
Shares.   Any shares of Common Stock which are:
(i) underlying a Stock Option or Stock Appreciation Right which is
cancelled or terminated without having been exercised, including due to
expiration or forfeiture, (ii) subject to Restricted Stock Awards or Stock
Units which are cancelled, terminated or forfeited, (iii) not delivered to
a participant because all or a portion of a Restricted Stock

 2
 

 

Award or Award of Stock
Units is settled in cash, or (iv) withheld in connection with a Restricted
Stock Award or Stock Units to satisfy tax withholding obligations, shall in
each case again be available for Awards under the Plan (with shares subject to
such Restricted Stock Awards or Stock Units again available for those types of
Awards). Any shares of Common Stock covered by a Stock Option or Stock
Appreciation Rights shall be deemed to be delivered upon exercise with respect
to such underlying shares even if the net number of shares delivered to the
participant is less than the number of shares underlying the Award (as would
occur, for example, upon a net exercise of options, upon a settlement of Stock
Appreciation Rights in cash or for a net number of shares, upon a
stock-for-stock exercise of Stock Options, or upon share withholding to satisfy
tax obligations upon exercise of Stock Options or Stock Appreciation Rights).
The preceding sentences of this Section shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Awards
delivered in connection with Awards, or generally available for Awards, but
shall not apply for purposes of determining the maximum number of shares of
Common Stock with respect to which Awards may be granted to any individual
participant in any calendar year under the Plan.

(c)   Business
Acquisition Grants.   In connection with the acquisition of any
business by the Company or any of its subsidiaries or affiliates, any then
outstanding options or other similar rights or other equity awards pertaining
to such business may be assumed or replaced by Awards under the Plan upon such
terms and conditions as the Committee determines in its sole discretion and, to
the extent any shares of Common Stock are to be delivered as Awards under the
Plan in replacement for any such grants, awards, options or rights of another
business, such shares shall be in addition to those available for the grant of
Awards as provided by Sections 5(a) and 5(b).

6.   Stock Options.

(a)   Generally.   Stock
Options will consist of awards from the Company that will enable the holder to
purchase a number of shares of Common Stock, at set terms. Stock Options may be
“incentive stock options” (“Incentive Stock Options”),
within the meaning of Section 422 of the Code, or Stock Options which do
not constitute Incentive Stock Options (“Nonqualified Stock Options”).
The Committee will have the authority to grant to any participant one or more
Incentive Stock Options, Nonqualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights). Each Stock
Option shall be subject to such terms and conditions, including vesting (which
may be accelerated, including upon a change of control of the Company),
consistent with the Plan as the Committee may impose or determine from time to
time, subject to the following limitations.

(b)   Exercise
Price.   Each Nonqualified Stock Option granted hereunder shall
have a per-share exercise price as the Committee may determine on the date of
grant, but not less than 100% of the Fair Market Value of a share at the date
of grant

(c)   Payment
of Exercise Price.   The option exercise price may be paid in
cash or, in the discretion of the Committee, by the delivery of shares of
Common Stock of the Company then owned by the participant, or, in the case of
Nonqualified Stock Options, by directing the Company to withhold shares
otherwise deliverable upon exercise to satisfy the exercise price. In the
discretion of the Committee, payment may also be made by delivering a properly
executed exercise notice to the Company together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the exercise price as long as such transaction does not
constitute an impermissible loan to an executive officer under
Section 13(k) of the Exchange Act (Section 402 of the
Sarbanes-Oxley Act of 2002). To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage firms.
The Committee may prescribe any other method of paying the exercise price that
it determines to be consistent with applicable law and the purpose of the Plan,
including, without limitation, in lieu of the exercise of a Stock Option by
delivery of shares of Common Stock of the Company then owned by a participant,
providing the Company with a notarized statement attesting to the number of

 3
 

 

shares owned, where upon
verification by the Company, the Company would issue to the participant only
the number of incremental shares to which the participant is entitled upon
exercise of the Stock Option.

(d)   Exercise
Period.   Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions,
including vesting, as shall be determined by the Committee; provided, however, that no Stock Option shall be exercisable
later than ten (10) years after the date it is granted. All Stock Options
shall terminate at such earlier times and upon such conditions or circumstances
as the Committee shall in its discretion set forth in such option agreement on
the date of grant.

(e)   Limitations
on Incentive Stock Options.   Incentive Stock Options may be
granted only to participants who are employees of the Company or of a “Parent Corporation” or “Subsidiary Corporation”
(as defined in Sections 424(e) and (f) of the Code, respectively) on
the date of grant. The aggregate Fair Market Value (determined as of the time
the Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a participant
during any calendar year (under all option plans of the Company and of any
Parent Corporation or Subsidiary Corporation) shall not exceed one hundred
thousand dollars ($100,000); provided, however, that if such $100,000 limit is
exceeded, the excess Incentive Stock Options shall be treated as Nonqualified
Stock Options. For purposes of the preceding sentence, Incentive Stock Options
will be taken into account in the order in which they are granted. The
per-share exercise price of an Incentive Stock Option shall not be less than
one hundred percent (100%) of the Fair Market Value of the Common Stock on the
date of grant, and no Incentive Stock Option may be exercised later than ten
(10) years after the date it is granted.

(f)   Additional
Limitations on Incentive Stock Options for Ten Percent Shareholders.   Incentive
Stock Options may not be granted to any participant who, at the time of grant,
owns stock possessing (after the application of the attribution rules of
Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary Corporation, unless the
exercise price of the option is fixed at not less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date of grant and the exercise of such option is prohibited by its terms after
the expiration of five (5) years from the date of grant of such option.

7.   Stock Appreciation Rights.

(a)   Generally.   The
Committee may, in its discretion, grant Stock Appreciation Rights, including a
concurrent grant of Stock Appreciation Rights in tandem with any Stock Option
grant. A Stock Appreciation Right means a right to receive a payment in cash,
Common Stock or a combination thereof, as determined by the Committee, in an
amount equal to the excess of (i) the Fair Market Value, or other
specified valuation (which may not exceed Fair Market Value), of a specified
number of shares of Common Stock on the date the right is exercised over
(ii) the Fair Market Value of such shares of Common Stock on the date the
right is granted, or other specified amount (which may not be less than Fair
Market Value), all as determined by the Committee; provided,
however, that if a Stock Appreciation Right is granted in tandem
with or in substitution for a Stock Option, the designated Fair Market Value in
the award agreement shall reflect the Fair Market Value on the date such Stock
Option was granted. Each Stock Appreciation Right shall be subject to such
terms and conditions including vesting (which may be accelerated, including
upon a change of control of the Company, subject to Section 19(a)), as the
Committee shall impose or determine from time to time; provided, however, that
if a Stock Appreciation Right is granted in connection with a Stock Option, the
Stock Appreciation Right shall become exercisable and shall expire according to
the same vesting and expiration rules as the corresponding Stock Option,
unless otherwise determined by the Committee

(b)   Exercise
Period.   Stock Appreciation Rights granted under the Plan shall
be exercisable at such time or times and subject to such terms and conditions
including vesting (which may be accelerated, including upon a change of control
of the Company, subject to Section 19(a)), as shall be determined by the
Committee; provided, however, that no Stock
Appreciation Rights shall be exercisable later than ten

 4
 

 

(10) years after the date it is granted; and provided
further, that the time of exercise of any SAR intended to be a 409A
Award shall conform to applicable requirements of Code Section 409A. All
Stock Appreciation Rights shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall in its discretion set forth
in such right at the date of grant.

8.   Restricted Stock Awards.

(a)   Generally.   The
Committee may, in its discretion, grant Restricted Stock Awards consisting of
Common Stock issued or transferred to participants with or without cash or
other payment therefor in whole or in part. Each participant granted a
Restricted Stock Award shall execute and deliver to the Company an agreement
with respect to the Restricted Stock setting forth the restrictions applicable
to such Restricted Stock

(b)   Payment
of the Purchase Price.   If the Restricted Stock Award requires
payment therefor, the purchase price of any shares of Common Stock subject to a
Restricted Stock Award may be paid in any manner authorized by the Committee,
which may include any manner authorized under the Plan for the payment of the
exercise price of a Stock Option. Restricted Stock Awards may also be made
solely in consideration of services rendered to the Company or its subsidiaries
or affiliates. This may include treating services between the grant date and
the date of issuance as payment of lawful consideration equal to the par value
of the Restricted Stock Award.

(c)   Additional
Terms.   Restricted Stock Awards may be subject to such terms
and conditions including vesting (which may be accelerated, including upon a
change of control of the Company), as the Committee determines appropriate,
including, without limitation, (i) restrictions on the sale or other
disposition of such shares, and (ii) the right of the Company to reacquire
such shares for no consideration upon termination of the participant’s
employment within specified periods, the participant’s competition with the
Company, or the participant’s breach of other obligations to the Company.
Restricted Stock Awards not subject to a vesting requirements are authorized
hereunder. Restricted Stock Awards may constitute Performance-Based Awards, as
described in Section 10 hereof. The Committee may require the participant
to deliver a duly signed stock power, endorsed in blank, relating to the Common
Stock covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody or bear restrictive
legends until the restrictions thereon shall have lapsed.

(d)   Rights
as a Shareholder.   The participant shall have, with respect to
the shares of Common Stock subject to a Restricted Stock Award, all of the
rights of a holder of shares of Common Stock of the Company, including the
right to vote the shares, except as may be otherwise provided in a Restricted
Stock Award agreement as determined by the Committee. At the discretion of the
Committee, cash dividends and stock dividends with respect to the Restricted
Stock may be either currently paid to the participant or withheld by the
Company for the participant’s account, and interest may be credited on the
amount of cash dividends withheld at a rate and subject to such terms (which
may be accelerated, including upon a change of control of the Company) as
determined by the Committee. The cash dividends or stock dividends so withheld
by the Committee and attributable to any particular share of Restricted Stock
(and earnings thereon, if applicable) shall be distributed to the participant
upon the release of restrictions on such shares and, if such share is
forfeited, the participant shall have no right to such cash dividends or stock
dividends.

9.   Stock Units.

(a)   Generally.   The
Committee may, in its discretion, grant Stock Units (as defined in subsection
(c) below) to participants hereunder. Stock Units may be subject to such
terms and conditions including vesting (which may be accelerated, including
upon a change of control of the Company, subject to Section 19(a)), as the
Committee determines appropriate. Stock Units may constitute Performance-Based
Awards, as described in Section 10 hereof. A Stock Unit granted by the
Committee shall provide payment in shares of Common Stock at such time as the
award agreement shall specify. Stock Units may be 409A

 5
 

 

Awards or Non-409A
Awards, based upon their terms; the Committee may include elective deferral
features for Stock Units in its discretion. Shares of Common Stock issued
pursuant to this Section 9 may be issued with or without other payments
therefor as may be required by applicable law or such other consideration as
may be determined by the Committee. The Committee shall determine whether a
participant granted a Stock Unit shall be entitled to a Dividend Equivalent
Right (as defined in subsection (c) below).

(b)   Settlement
of Stock Units.   Shares of Common Stock representing the Stock
Units shall be distributed to the participant unless the Committee provides for
the payment of the Stock Units in cash equal to the value of the shares of
Common Stock which would otherwise be distributed to the participant or partly
in cash and partly in shares of Common Stock.

(c)   Definitions.   A
“Stock Unit” means a notional account
representing a participant’s conditional right to receive at a future date one
(1) share of Common Stock. A “Dividend Equivalent Right”
means the right to receive the amount of any dividend paid on the share of
Common Stock underlying a Stock Unit, which shall be payable in cash or in the
form of additional Stock Units, and subject to a risk of forfeiture and other
terms as specified by the Committee.

10.   Performance-Based Awards.

(a)   Generally.   Any
Awards granted under the Plan may be granted in a manner such that the Awards
qualify for the performance-based compensation exemption of
Section 162(m) of the Code (“Performance-Based Awards”).
As determined by the Committee in its sole discretion, either the granting or
vesting of such Performance-Based Awards shall be based on achievement of
performance objectives that are based on one or more of the business criteria
described below that apply to the individual participant, one or more business
units or the Company as a whole.

(b)   Business
Criteria.   The business criteria shall be as follows,
individually or in combination: (i) net earnings; (ii) earnings per
share; (iii) revenues; (iv) sales; (v) operating income;
(vi) earnings before interest and taxes (EBIT); (vii) earnings before
interest, taxes, depreciation and amortization (EBITDA); (viii) segment
profit, as defined in the company’s financial statements; (ix) working
capital targets; (x) return on equity; (xi) return on capital or return on
assets; (xii) expenses or expense ratios; (xiii) cash flow, free cash flow,
cash flow return on investment, net cash provided by operations, or economic
profit created; (xiv) market price per share; 
(xv) total return to shareholders, and (xvi) specific strategic or
operational business criteria, including market penetration, geographic
expansion, new concept development goals, new products, new projects, or new
ventures, customer satisfaction, staffing, training and development goals,
goals relating to acquisitions, divestitures, affiliates and joint ventures.
Business criteria may be measured on a consolidated basis, by department, group
or business unit, or for specified subsidiaries or affiliates of the Company.
The targeted level or levels of performance with respect to such business criteria
may be established at such levels and in such terms as the Committee may
determine, in its discretion, including in absolute terms, as a ratio, as a
goal relative to performance in prior periods, or as a goal compared to the
performance of one or more comparable companies or an index covering multiple
companies.

(c)   Establishment
of Performance Goals.   With respect to Performance-Based
Awards, the Committee shall establish in writing (i) the performance goals
applicable to a specified performance period, and such performance goals shall
state, in terms of an objective formula or standard, the method for computing
the amount of compensation payable to the participant if such performance goals
are obtained and (ii) the individual employees or class of employees to
which such performance goals apply; provided, however, that such performance
goals shall be established in writing no later than ninety
(90) days after the commencement of the applicable performance period (but in
no event after twenty-five percent (25%) of such performance period has
elapsed). Performance periods may be of any length, as specified by the
Committee.

 6
 

 

(d)   Certification
of Performance.   No Performance-Based Awards shall be payable
to or vest with respect to, as the case may be, any participant for a given
period until there has been certified in writing by or on behalf of the
Committee that the objective performance goals (and any other material terms)
applicable to such period have been satisfied.

(e)   Modification
of Performance-Based Awards.   With respect to any Awards or the
cash denominated awards under Section 10(f) intended to qualify as
Performance-Based Awards, after establishment of a performance goal, the
Committee shall not revise such performance goal or increase the amount of
compensation payable thereunder (as determined in accordance with
Section 162(m) of the Code) upon the attainment of such performance
goal. Notwithstanding the preceding sentence, the Committee may reduce or
eliminate the number of shares of Common Stock or cash granted, vested or
payable upon the attainment of such performance goal.

11.   Foreign
Laws.   The Committee may grant Awards to individual
participants who are subject to the tax and other laws of nations other than
the United States, which Awards may have terms and conditions as determined by
the Committee as necessary to comply with applicable foreign laws and local
compensation customs and practices, and that may differ from those applicable
to other participants. The Committee may take any action which it deems
advisable to obtain approval of such Awards by the appropriate foreign
governmental entity; provided, however,
that no such Awards may be granted pursuant to this Section 11 and no
action may be taken which would result in a violation of the Exchange Act or
any other applicable law.

12.   Certain
Terminations of Employment; Forfeitures.

(a)   Forfeiture
of Unsettled Awards.   Unless the Committee or any agreement
relating to Awards under this Plan shall otherwise provide, a participant shall
forfeit all Awards he or she holds at the time and which have not been settled
under this Plan (other than fully vested Restricted Stock Awards and vested
Stock Units that have been deferred at the election of the participant) if:

(i)           the participant’s employment with the
Company or with any Parent Corporation or Subsidiary Corporation is terminated
for willful, deliberate, or gross misconduct in the performance of the
participant’s duties to the Company, Parent Corporation or Subsidiary
Corporation, as determined by the Committee in its good faith judgment, or any
other event which constitutes “cause” under an employment agreement to which
such participant is a party; or

(ii)          following the participant’s
termination of employment with the Company or with any Parent Corporation or
Subsidiary Corporation and for a period of one (1) year thereafter, the participant engages in any business or
enters into any employment relationship in violation of any non-competition
obligation which such participant has to the Company, a Parent Corporation or
Subsidiary Corporation or in violation of any restriction to which the
participant is subject on, directly or indirectly, soliciting the employment of
or any business from, or employing or doing business with, any of the employees
or former employees of the Company (or any Parent Corporation or Subsidiary
Corporation) or any customer or supplier to the Company (or any Parent
Corporation or Subsidiary Corporation), or any other party with which the
Company (or any Parent Corporation or Subsidiary Corporation) has a business relationship
(including any such obligation or restriction contained in any agreement
pursuant to which any Award is provided or any other agreement), and the
Committee in its sole discretion has determined the results of such violation
to have been injurious to the Company’s business interests.

The activities described
in (i) and (ii) above are hereafter referred to as “Injurious Conduct”.

(b)   Effect
on Settled Awards.   A forfeiture of Awards provided by
Section 12(a) upon the Committee determining that a participant has
engaged in Injurious Conduct during the course of his employment or during the one (1) year period
following his or her termination of employment, shall not

 7
 

 

relieve the participant
of any liability he or she may have to the Committee as a result of engaging in
the Injurious Conduct. In addition, the Committee may provide, in any Award
agreement, for a forfeiture of gains previously realized upon exercise, lapse
of restrictions or settlement of an Award (commonly referred to as a “clawback”)
in the event of Injurious Conduct by a participant during employment or a
specified period following employment.

(c)   Timing.   The
Committee shall exercise the right of forfeiture provided to the Company in
this Section 12 within ninety (90)
days after the discovery of the activities
giving rise to the Company’s right of forfeiture, which activities must have
occurred no later than twelve (12) months after the participant’s termination
of employment.

(d)   Determination
from the Committee.   A participant may make a request to the
Committee in writing for a determination regarding whether any proposed
business or activity would constitute Injurious Conduct. Such request shall
fully describe the proposed business or activity. The Committee shall respond
to the participant in writing and the Committee’s determination shall be
limited to the specific business or activity so described.

(e)   Condition
Precedent.   Unless the Committee or any agreement relating to
Awards under this Plan shall otherwise provide, all Awards shall be considered
awarded under this Plan subject to the applicability of this Section 12.

(f)   Enforceability.   The
purpose of this Section 12 is to protect the Company (and any Parent
Corporation and Subsidiary Corporations) from Injurious Conduct. To the extent
that this Section 12 is not fully enforceable as written, the
unenforceable provisions shall be modified so as to provide the Company with
the fullest protection permitted by law.

13.   Adjustment
Provisions.   Awards granted under
the Plan and any agreements evidencing such Awards, the maximum number of
shares of Common Stock deliverable under all Awards stated in
Section 5(a), the maximum number of shares of Common Stock available for
Restricted Stock Awards and Stock Units under Section 5(a), and the
maximum number of shares of Common Stock with respect to which Awards may be
granted to or measured with respect to any one person during any period stated
in Section 5(a) shall be subject to adjustment or substitution, as
determined by the Committee in its sole discretion, as to the number, price or
kind of a share of Common Stock or other consideration subject to such Awards
or as otherwise determined by the Committee to be equitable (i) in the
event of changes in the outstanding Common Stock or in the capital structure of
the Company by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges, spin-offs, dividends in kind, or other
relevant changes in capitalization, or (ii) in the event of any change in
applicable laws or any change in circumstances which results in or would result
in any substantial dilution or enlargement of the rights granted to, or
available for, participants, or which otherwise warrants equitable adjustment
because it interferes with the intended operation of the Plan. With respect to
outstanding Awards, each participant has a legal right to the equitable adjustment
provided hereunder, in order to preserve without enlarging the participant’s
rights with respect to such Awards. Any adjustment in Incentive Stock Options
under this Section 13 shall be made only to the extent not constituting a “modification”
within the meaning of Section 424(h)(3) of the Code, and any
adjustments under this Section 13 shall be made in a manner which does not
adversely affect the exemption provided pursuant to Rule 16b-3 under the
Exchange Act and which otherwise is permissible under Code Section 409A.
Further, with respect to Awards intended to qualify as “performance-based
compensation” under Section 162(m) of the Code, such adjustments or
substitutions shall be made only to the extent that the Committee determines
that such adjustments or substitutions may be made without causing the Company
to be denied a tax deduction on account of Section 162(m) of the
Code. The Company shall give each participant notice of an adjustment hereunder
and, upon notice, such adjustment shall be conclusive and binding for all
purposes.

 8
 

 

14.   Nontransferability.   Each
Award granted under the Plan to a participant (other than unrestricted Stock
Awards and vested Restricted Stock Awards) shall not be transferable otherwise
than by will or the laws of descent and distribution, and shall be exercisable,
during the participant’s lifetime, only by the participant. In the event of the
death of a participant, each Stock Option or Stock Appreciation Right
theretofore granted to him or her shall be exercisable during such period after
his or her death as the Committee shall in its discretion set forth in such
option or right at the date of grant and then only by the executor or
administrator of the estate of the deceased participant or the person or
persons to whom the deceased participant’s rights under the Stock Option or
Stock Appreciation Right shall pass by will or the laws of descent and
distribution or beneficiary designation. Notwithstanding the foregoing, at the
discretion of the Committee, an award of an Award other than an Incentive Stock
Option may permit the transferability of an Award by a participant solely to
the participant’s spouse, siblings, parents, children and grandchildren or
trusts for the benefit of such persons or partnerships, corporations, limited
liability companies or other entities owned solely by such persons, including
trusts for such persons, subject to any restriction included in the grant of
the Award.

15.   Other
Provisions.   The grant of any
Award under the Plan may also be subject to such other provisions (whether or
not applicable to the Award granted to any other participant) as the Committee
determines appropriate, including, without limitation, provisions for the
forfeiture of, or restrictions on resale or other disposition of, Common Stock
acquired under any form of Award, provisions for the acceleration of
exercisability or vesting of Awards (subject to Section 19(a)),
performance conditions other than those imposed under Section 10, or
provisions to comply with federal and state securities laws, or understandings
or conditions as to the participant’s employment in addition to those
specifically provided for under the Plan.

16.   Fair
Market Value.   For purposes of this Plan and any Awards
awarded hereunder, Fair Market Value on any given date means the fair market
value of the shares of Common Stock determined by such methods or procedures as
shall be established from time to time by the Board of Directors. Unless
otherwise determined by the Board of Directors, (i) if the Common Stock is
listed on a national securities exchange or is quoted in the National Market
System of the National Association of Securities Dealers Automated Quotation
System (“NASDAQ”) on a last sale basis, the
average of the opening price and the closing price reported as having occurred
on such date, or, if there is no sale on such date, then on the last preceding
date on which such a sale was reported, or (ii) if the Common Stock is not
listed on a national securities exchange nor quoted in NASDAQ on a last sale
basis, the amount determined by the Committee (or in accordance with procedures
approved by the Committee) to be the fair market value based upon a good faith
attempt to value the Common Stock accurately.

17.   Withholding.   All
payments or distributions of Awards made pursuant to the Plan shall be net of
any amounts required to be withheld pursuant to applicable federal, state and
local tax withholding requirements. If the Company proposes or is required to
distribute Common Stock pursuant to the Plan, it may require the recipient to
remit to it or to the corporation that employs such recipient an amount
sufficient to satisfy such tax withholding requirements prior to the delivery
of any certificates for such Common Stock. In lieu thereof, the Company or the
employing corporation shall have the right to withhold the amount of such taxes
from any other sums due or to become due from such corporation to the recipient
as the Committee shall prescribe. The Committee may, in its discretion and
subject to such rules as it may adopt (including any as may be required to
satisfy applicable tax and/or non-tax regulatory requirements), require, or
permit an election by, an optionee or award or right holder to pay all or a
portion of the federal, state and local withholding taxes arising in connection
with any Award consisting of shares of Common Stock by having the Company
withhold shares of Common Stock having a Fair Market Value equal to the amount
of tax to be withheld, such tax calculated at minimum statutory withholding
rates.

 9
 

 

18.   Employment
Rights.   Neither the Plan nor any action taken hereunder
shall be construed as giving any participant the right to be retained in the
employ or service of the company or any of its subsidiaries or affiliates.

19.   Tax Compliance

(a)   Certain
Limitations on Awards to Ensure Compliance with Section 409A.   For
purposes of this Plan, references to an Award term or event (including any
authority or right of the Company or a participant) being “permitted” under
Section 409A shall mean, for a 409A Award, that the term or event will not
cause the participant to be liable for payment of interest or a tax penalty
under Section 409A and, for a Non-409A Award, that the term or event will not
cause the Award to be treated as subject to Section 409A. Other provisions of
the Plan notwithstanding, the terms of any 409A Award and any Non-409A Award,
including any authority of the Company and rights of the participant with
respect to the Award, shall be limited to those terms permitted under Section
409A, and any terms not permitted under Section 409A shall be automatically
modified and limited to the extent necessary to conform with Section 409A. For
this purpose, other provisions of the Plan notwithstanding, the Company shall
have no authority to accelerate distributions relating to 409A Awards in excess
of the authority permitted under Section 409A, any distribution subject to
Section 409A(a)(2)(A)(i) (separation from service) to a “key employee” as
defined under Section 409A(a)(2)(B)(i) shall not occur earlier than the
earliest time permitted under Section 409A(a)(2)(B)(i), any distribution
triggered by a participant’s termination of employment and intended to qualify
under Section 409A(a)(2)(A)(i) shall be made only at such time as the
participant has had a “separation from service” within the meaning of Section
409A(a)(2)(A)(i), and any authorization of payment of cash to settle a Non-409A
Award shall apply only to the extent permitted under Section 409A for such
Award.

(b)   Certain
Terms Relating to Code Section 409A.   ”409A
Awards” means Awards that constitute a deferral of compensation under Code
Section 409A and regulations thereunder. “Non-409A Awards” means Awards
other than 409A Awards (including those exempt as “short-term deferrals” under
Proposed Treasury Regulation § 1.409A-1(b)(4) and any successor
regulation). Although the Committee retains authority under the Plan to grant
Options, SARs and Restricted Stock on terms that will qualify those Awards as
409A Awards, Options, SARs, and Restricted Stock are intended to be Non-409A
Awards unless otherwise expressly specified by the Committee.

(c)   Unfunded
Plan.   Participants shall have no
right, title, or interest whatsoever in or to any investments which the Company
may make to aid it in meeting its obligations under the Plan. Nothing contained
in the Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship between
the Company and any participant, beneficiary, legal representative or any other
person. To the extent that any person acquires a right to receive payments from
the Company under the Plan (excluding Restricted Stock), such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as expressly
set forth in the Plan. The Plan is not intended to be subject to the Employee
Retirement Income Security Act of 1974, as amended.

20.   No
Fractional Shares.   No fractional shares of Common Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, or Awards, or other property shall be issued or
paid in lieu of fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

21.   Duration,
Amendment and Termination.   No Award shall be initially
granted more than ten (10) years after the
latest date upon which the Plan (including any amendment and restatement of the
Plan) has been approved by shareholders, but Awards outstanding at that time
shall remain outstanding and governed by the terms of the Plan. The Company may
amend the Plan from time to time or suspend or

 10
 

 

terminate the Plan at any
time. However, no amendment of the Plan may be made without approval of holders
of a majority of the voting power of the Common Stock (as defined in the
Company’s Amended and Restated Certificate of Incorporation as in effect
immediately after the Effective Date), voting together as a single class, if
the amendment will: (i) increase the aggregate number of shares of Common
Stock that may be delivered through Awards under the Plan; (ii) increase
the maximum number of shares or cash that may be awarded to any participant
under Section 5 hereof; (iii) change the types of business criteria
on which Performance-Based Awards are to be based under the Plan; or (iv) modify
the Plan so as to materially broaden eligibility for participation in the Plan;
provided, however, that adjustments authorized under Section 13 are not
subject to shareholder approval under this Section 21. Without the
approval of shareholders, the Committee will not amend or replace previously
granted Options or SARs in a transaction that constitutes a “repricing.”  For this purpose, a “repricing” means:
(1) amending the terms of an Option or SAR after it is granted to lower
its exercise price; (2) any other action that is treated as a repricing
under generally accepted accounting principles; and (3) canceling an
Option at a time when its strike price is equal to or greater than the fair
market value of the underlying Stock, in exchange for another Option, SAR, Restricted
Stock, or other equity, unless the cancellation and exchange occurs in
connection with a merger, acquisition, spin-off or other similar corporate
transaction. A cancellation and exchange described in clause (3) of the
preceding sentence will be considered a repricing regardless of whether the
Option, Restricted Stock or other equity is delivered simultaneously with the
cancellation, regardless of whether it is treated as a repricing under
generally accepted accounting principles, and regardless of whether it is
voluntary on the part of the Option holder. Adjustments to awards under
Section 13 will not be deemed “repricings,” however.

22.   Governing
Law.   This Plan, Awards granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).

23.   Effective
Date.   This Plan has been adopted by the Board of
Directors of the Company and shall be effective as of the date of approval by
the Company’s shareholders at the 2006 Annual Meeting of Shareholders, by the
affirmative vote of a majority of the voting power present in person or by
proxy and entitled to vote generally in the election of directors and entitled
to vote on the matter of approval of this Plan. Such shareholder approval shall
be a condition to the right of each participant to receive any Awards
hereunder. Any Awards granted under the Plan prior to such shareholder approval
shall be effective as of the date of grant (unless, with respect to any Award,
the Committee specifies otherwise at the time of grant), but no such Award may
be exercised or settled and no restrictions relating to any Award may lapse
prior to such shareholder approval and, if such shareholder approval is not
obtained as provided hereunder, any such Award shall be cancelled.

 11

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