Document:

Senior Executive Annual Bonus Plan

 Exhibit 10.16 
  
 INTERNATIONAL SECURITIES EXCHANGE, INC. 
  
 SENIOR EXECUTIVE ANNUAL BONUS PLAN 
  
 1. Purpose 
  

This annual incentive plan (the “Plan”) is applicable to those employees of International Securities Exchange, Inc. (the “Company”)
and its subsidiaries who are executive officers of the Company (“Covered Employees”), including members of the Board of Directors who are such employees. 
  
 The Plan is designed to reward, through additional cash compensation, Covered Employees for their significant contribution
toward improved profitability and growth of the Company. 
  
 2. Eligibility 
  
 All
Covered Employees shall be eligible to be selected to participate in this Plan. The Committee shall select the Covered Employees who shall participate in this Plan in any year no later than 90 days after the commencement of the fiscal year of the
Company (or no later than such earlier or later date as may be the applicable deadline (the “Determination Date”) for the establishment of performance goals permitting the compensation payable to such Covered Employee for such year
hereunder to qualify as “qualified performance-based compensation” under Treasury Regulation 1.162-27(e). 
  
 A Covered Employee participating in this Plan shall not participate in any other annual incentive plan established by the Company. 
  
 3. Administration 
  
 The Plan shall be administered by the Compensation Committee of the Board of
Directors (the “Board”), or by another committee appointed by the Board (the Compensation Committee of the Board or such other committee, the “Committee”). The Committee shall be comprised exclusively of members of the Board who
are “outside directors” within the meaning of Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulation 1.162-27(e)(3). The Committee shall have the authority, subject to the
provisions herein, (a) to select employees to participate in the Plan; (b) to establish and administer the performance goals and the award opportunities applicable to each participant and certify whether the goals have been attained; (c) to construe
and interpret the Plan and any agreement or instrument entered into under the Plan; (d) to establish, amend, and waive rules and regulations for the Plan’s administration; and (e) to make all other determinations which may be necessary or
advisable for the administration of the Plan. Any determination by the Committee pursuant to the Plan shall be final, binding and conclusive on all employees and participants and anyone claiming under or through any of them. 
  
 4. Establishment Of Performance Goals And Award
Opportunities 
  
 No later than the Determination Date for
each year, the Committee shall establish, in writing, the method for computing the amount of compensation which will be payable under the Plan to each participant in the Plan for such year if the performance goals established by the Committee for
such year are attained in whole or in part and if the participant’s employment by the Company or a subsidiary continues without interruption during that year. Such method shall be stated in terms of an objective formula or standard that
precludes discretion to increase the amount of the award that would otherwise be due upon attainment of the goals and may be different for each participant. No provision of this Plan shall preclude the Committee from exercising negative discretion
with respect to any award hereunder, within the meaning of Treasury Regulation 1.162-27(e)(2)(iii)(A). 
  
 No later than the Determination Date for each year, the Committee shall establish in writing the performance goals for such year, which shall be based on
any of the following performance 

  

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criteria, either alone or in any combination, on either a consolidated or business unit or divisional level, and which shall include or exclude discontinued
operations, acquisition expenses and restructuring expenses; as the Committee may determine: level of trading volume, sales, earnings per share, income before cumulative effect of accounting changes, net income, return on assets, return on equity,
return on capital employed, total stockholder return, market valuation, cash flow, completion of acquisitions, business expansion and product diversification. The foregoing criteria shall have any reasonable definitions that the Committee may
specify, which may include or exclude any or all of the following items, as the Committee may specify: extraordinary, unusual or non-recurring items; effects of accounting changes; effects of currency fluctuations; effects of financing activities
(e.g., effect on earnings per share of issuing convertible debt securities); expenses for restructuring, productivity initiatives or new business initiatives; non-operating items; acquisition expenses; and effects of divestitures. Any such
performance criterion or combination of such criteria may apply to the participant’s award opportunity in its entirety or to any designated portion or portions of the award opportunity, as the Committee may specify. 
  
 5. Maximum Award 
  
 The maximum amount of compensation that may be paid under the Plan to any
participant for any year is $5,000,000. 
  
 6.
Attainment Of Performance Goals Required 
  
 Awards shall
be paid under this Plan for any year solely on account of the attainment of the performance goals established by the Committee with respect to such year. Awards shall also be contingent upon the participant remaining employed by the Company or a
subsidiary of the Company during such year. In the event of termination of employment by reason of death, disability or retirement (each as determined by the Committee) during the Plan year, an award shall be payable under this Plan to the
participant or the participant’s estate for such year, which shall be paid at the same time as the award the participant would have received for such year had no termination of employment occurred, and which shall be equal to the amount of such
award multiplied by a fraction the numerator of which is the number of full or partial calendar months elapsed in such year prior to termination of employment and the denominator of which is the number twelve. A participant whose employment
terminates prior to the end of a Plan year for any reason not excepted above shall not be entitled to any award under the Plan for that year. 
  
 7. Shareholder Approval And Committee Certification Contingencies; Payment Of Awards 
  
 Payment of any awards under this Plan shall be contingent upon the
affirmative vote of the shareholders of at least a majority of the votes cast (including abstentions) approving the Plan. Unless and until such shareholder approval is obtained, no award shall be paid pursuant to this Plan. Subject to the provisions
of Paragraph 6 above relating to death, disability and retirement, payment of any award under this Plan shall also be contingent upon the Compensation Committee’s certifying in writing that the performance goals and any other material terms
applicable to such award were in fact satisfied, in accordance with applicable treasury regulations under Code Section 162(m). Unless and until the Committee so certifies, such award shall not be paid. Unless the Committee provides otherwise, (a)
earned awards shall be paid promptly following such certification, and (b) such payment shall be made in cash (subject to any payroll tax withholding the Company may determine applies). 
  
 To the extent necessary for purposes of Code Section 162(m), this Plan shall be resubmitted to shareholders for their
reapproval with respect to awards payable for the taxable years of the Company commencing on and after 5th
anniversary of initial shareholder approval. 
  
 8. Amendment, Termination And Term Of Plan 
  
 The Board of Directors may amend, modify or terminate this Plan at any time. The Plan will remain in effect until terminated by the Board. 
  

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 9. Interpretation And Construction 
  
 Any provision of this Plan to the contrary notwithstanding, (a) awards under
this Plan are intended to qualify as “qualified performance-based compensation” under Treasury Regulation 1.162-27(e) and (b) any provision of the Plan that would prevent an award under the Plan from so qualifying shall be administered,
interpreted and construed to carry out such intention and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded. No provision of the Plan, nor the selection of any eligible employee to
participate in the Plan, shall constitute an employment agreement or affect the duration of any participant’s employment, which shall remain “employment at will” unless an employment agreement between the Company and the participant
provides otherwise. Both the participant and the Company shall remain free to terminate employment at any time to the same extent as if the Plan had not been adopted. 
  
 10. Governing Law 
  
 The terms of this Plan shall be governed by the laws of the State of Delaware, without reference to the conflicts of laws
principles thereof. 
  

 3Allocation Agreement

 Exhibit 10.01 
  
 ALLOCATION AGREEMENT 
  
 THIS ALLOCATION AGREEMENT dated as of August 26, 2004 (the “Agreement”) is made and entered into by and among Joseph F. Pinkerton,
III (“Pinkerton”), an individual residing in Austin, Texas, Active Power, Inc., a Delaware corporation (“Active Power”) and the successor to Magnetic Bearing Technologies, Inc., and Pinkerton Generator, Inc., a
Michigan corporation controlled by Pinkerton (“PGI”) 
  
 WITNESSETH: 
  
 WHEREAS, Pinkerton, PGI and
Active Power are the defendants (the “Defendants”) in a lawsuit pending in the Circuit Court for the County of Wayne, in Michigan State Court, Case No. 02-210028 CZ, and captioned Magnex Corp., et al. v. Pinkerton, et al.
(the “Lawsuit”); 
  
 WHEREAS, to avoid the
uncertainties and the expense of further litigation, the Defendants have agreed to settle the Lawsuit through cash payments to the plaintiffs in the Lawsuit (the “Plaintiffs”) in an aggregate amount of $6,220,000 (the
“Settlement Payment”) in exchange for a complete release and waiver of all claims relating to the lawsuit (the “Settlement”); and 
  
 WHEREAS, the parties hereto have agreed to allocate the Settlement Payment amount such that Active Power has agreed
to pay $5,000,000 and Pinkerton has agreed to pay $1,220,000 and to enter into certain other agreements related to the settlement of the Lawsuit. 
  
 AGREEMENT: 
  
 NOW, THEREFORE, in consideration of the foregoing premises, the representations and warranties and mutual covenants contained herein and certain
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 
  
 Section 1. Allocation of Settlement Payment. Active Power agrees to pay the Plaintiffs $5,000,000 (the “Active Power
Payment”) and Pinkerton agrees to pay the Plaintiffs $1,220,000 (the “Pinkerton Payment”) of the Settlement Payment. To the extent the Settlement Payment is paid to the Plaintiffs in one or more installments, both Pinkerton
and Active Power hereby agree that they will each pay their pro rata portion of each such installment payment with their individual payments based on the percentage their respective portion of the Settlement Amount bears to the total Settlement
Amount. Pinkerton hereby agrees that the Pinkerton Payment is solely his obligation and that he will not seek, and hereby forever releases and discharges any claim for, any indemnification, contribution, reimbursement or any other repayment from
Active Power of the Pinkerton Payment, whether under that certain Indemnification Agreement between Pinkerton and Active Power, the indemnification or exculpation provisions of the Company’s Certificate of Incorporation or Bylaws, under the
Delaware General Corporation Law or otherwise, and further agrees to indemnify Active Power for the full amount of the Pinkerton Payment. Active Power hereby agrees that the Active Power Payment is solely its obligation and that it will not seek,
and hereby forever releases and discharges any claim for, any indemnification, contribution, reimbursement or any other 

 repayment from Pinkerton or PGI, and further agrees to indemnify Pinkerton and PGI for the full amount of the Active
Power Payment. This allocation of the Settlement Payment and the other agreements set forth herein are in full and final satisfaction of any and all obligations of Active Power to Pinkerton and PGI and Pinkerton and PGI to Active Power in connection
with the settlement of the Lawsuit. This agreement shall in no way, however, affect or in any way limit Active Power’s indemnity obligations to Pinkerton under the above-referenced provisions and laws other than to the Pinkerton Payment.

  
 Section 2. Expenses. 
  
 (a) Active Power agrees to reimburse Pinkerton and PGI for the actual and
reasonable legal fees and expenses of Hohmann, Taube & Summers, L.L.P. which they incurred from March 25, 2002 through August 15, 2004 in connection with the defense of the Lawsuit. Any and all fees and expenses incurred by or on behalf of
Pinkerton or any other entity owned or controlled by Pinkerton incurred in connection with the lawsuit styled Truss Technology, LLC v. Century Truss Company of Michigan, LLC, et al., Civil Action No. 04-71814, E.D. Mich. (the “Truss
Action”), including the investigation and preparation of the Truss Action, the creation of any entity or entities related to the Truss Action, and the acquisition of assets related to such entities or the Truss Action, are specifically
excluded. These expenses will be paid promptly by Active Power following the submission for approval of an appropriate invoice to the Special Litigation Committee of the Board of Directors of Active Power, such approval not to be unreasonably
withheld. 
  
 (b) Active Power agrees to indemnify Pinkerton with
respect to and not to seek reimbursement from Pinkerton or PGI for any legal fees which Active Power incurred in connection with the defense of the Lawsuit. 
  
 (c) Pinkerton and PGI shall be solely responsible for, and shall indemnify Active Power against, any and all expenses (including attorneys’ fees and
expenses and other costs) incurred by either of them, or on either of their behalf, (i) after August 15, 2004 in connection with the Lawsuit, (ii) incurred by any other entity owned or controlled by Pinkerton, whether or not related to the Lawsuit,
(iii) incurred on behalf of Pinkerton, but not directly related to the Lawsuit, or (iv) which are not expressly covered by subsection 2(a) above. 
  
 Section 3. Comerica Claims. Pinkerton hereby agrees and acknowledges that he has no ownership interest in the judgment collection action
against one of the Plaintiffs in the Lawsuit, Paul E. Hodges, Jr., styled Comerica Bank v. Paul E. Hodges, State of Michigan, Circuit Court for the County of Oakland (94-483246-CK) other than his interest as a stockholder of Active Power.
 
  
 Section 4. Truss and Other Matters.
Active Power hereby agrees and acknowledges that it has no ownership interest in the Truss Action, the patents underlying the Truss Action, or in any other litigation matters against any of the Plaintiffs or any of their related corporate entities,
other than the matter specifically identified in Section 3 above. 
  
 Section 5. D&O Claim. At the sole discretion of the Special Litigation Committee of the Board of Directors of Active Power, Active Power may continue to pursue, and will bear 
  

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 any and all expenses incurred by it in the pursuit of, the currently pending claim (the “D&O Claim”) for
the reimbursement of attorney’s fees and Pinkerton’s losses, costs and expenses in connection with the Lawsuit, including the Pinkerton Payment, under Active Power’s Director and Officer’s Liability Insurance Policy (the
“Policy”) with Greenwich Insurance Company (“Insurance Company”). If and to the extent there is any recovery to Pinkerton under the D&O Claim, Active Power shall only be entitled to reimbursement of its expenses
(including attorneys’ fees and expenses and other costs) incurred pursuing the D&O Claim, but such right of recovery shall be superior to Pinkerton’s right to receive any other payment from such recovery. To secure this right,
Pinkerton (i) hereby assigns to Active Power a first priority interest in any future proceeds from the Policy with respect to the D&O Claim up to full amount of Active Power’s expenses in connection with pursuing the D&O Claim, and (ii)
agrees to request that Insurance Company first directly reimburse Active Power for any expenses it has incurred in connection with the pursuit of the D&O Claim. In the event that a direct payment to Active Power from the Insurance Company is not
possible, Pinkerton, upon receipt of any proceeds with respect to the D&O Claim, shall promptly (and in any event within three business days) reimburse Active Power for its expenses incurred in connection with the pursuit of the D&O Claim.
After Active Power has received reimbursement for its expenses as provided above, Pinkerton shall be entitled to the remainder of any such recovery. Pinkerton expressly acknowledges that nothing in this Agreement does or will require Active Power
to pursue the D&O Claim and that Active Power is not and shall not be liable to Pinkerton for any failure to prevail in the D&O Claim. If, however, Active Power decides not to pursue the D&O claim, then Pinkerton shall have to right to
pursue such claim individually, at his sole expense, and, in such instance, the foregoing agreements and assignments of this paragraph shall not be binding on the parties. 
  
 Section 6. Representations and Warranties. Each of Pinkerton, PGI and Active Power represent and warrant to
the other that: 
  
 (a) Authorization. The execution and
delivery of this Agreement and the performance of the obligations hereunder (i) are within his or its individual or corporate powers, as the case may be; (ii) require no action by or with respect to, or filing with, any governmental body, agency or
official; (iii) if applicable, have been duly authorized by all necessary corporate action; (iv) if applicable, do not contravene or constitute a default under any provisions of its Certificate of Incorporation, Articles of Incorporation or Bylaws,
or any law or regulation applicable to either party or of any agreement, judgment, injunction, order, decree, or other instrument binding upon either party or to which such party’s assets are subject. 
  
 (b) Enforceability. This Agreement constitutes the legal, valid, and
binding agreement of each of Pinkerton, PGI and Active Power, enforceable against such party in accordance with its terms, except as enforcement thereof may be affected by bankruptcy, insolvency, reorganization, or other similar laws affecting
enforcement of creditors’ rights generally, and general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 
  
 (c) Ownership of Interests. Each party hereto hereby represents and warrants to the other parties that it has not
assigned, pledged, or otherwise in any manner whatsoever sold or transferred, either by instrument in writing or otherwise, any right, title, interest, demand, 
  

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 cause of action, or claim that is the subject of the Agreement, and that no other person or entity of any kind has or had
any interest therein. The parties warrant that they have not entered into any agreement or other arrangement that would limit the effectiveness of the agreements or releases exchanged hereunder. 
  
 (d) Reliance; Nature of Agreement. Each party hereby represents to the
other that it is entering into this Agreement freely and voluntarily and has carefully read and fully understands this Agreement and consulted with attorneys of its own selection prior to doing so; that no representations, promises, or statements by
any agent, partner, employee, officer, director, attorney, or other representative of any other party, have been made to or relied upon in entering into this Agreement; and that each party. Each party realizes that this settlement is final and
conclusive, and it is each party’s desire that it be final and conclusive. 
  
 Section 7. Mutual Release. For and in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and with the exception of the agreements contained
herein, (i) Pinkerton and PGI, and their current and former parents, affiliates of current and former parents, owners, principals, officers, directors, shareholders, employees, agents, attorneys, predecessors, successors, divisions, subsidiaries,
affiliates, assigns, insurers, and assurers, hereby RELEASE, ACQUIT AND FOREVER DISCHARGE Active Power, and its current and former parents, affiliates of current and former parents, owners, principals, officers, directors, stockholders, employees,
agents, attorneys, predecessors, successors, divisions, subsidiaries, affiliates and assigns, and (ii) Active Power, and its current and former parents, affiliates of current and former parents, owners, principals, officers, directors, stockholders,
employees, agents, attorneys, predecessors, successors, divisions, subsidiaries, affiliates, assigns, insurers, and assurers, hereby RELEASE, ACQUIT AND FOREVER DISCHARGE Pinkerton and PGI, and their current and former parents, affiliates of current
and former parents, owners, principals, officers, directors, shareholders, employees, agents, attorneys, predecessors, successors, divisions, subsidiaries, affiliates and assigns, from all liability, actions, causes of action, damages, claims,
demands, charges, costs, and expenses, including, without limitation, attorneys’ fees, known or unknown, accrued or which may ever accrue, whether based in contract or tort, statutory or common law, of every kind and nature whatsoever in
connection with the Lawsuit and the settlement thereof. 
  
 Section 8. No Admission of Liability. The parties hereto agree that the terms of this Agreement are contractual. The parties further agree that this Agreement shall not be construed as an admission of liability and that this
Agreement has been negotiated and executed in the spirit of compromise to uncertain and disputed claims, so that the parties may avoid the expense, uncertainties, distraction and hazards of litigation, and to continue their beneficial relationship
on behalf of Active Power and its stockholders. 
  
 Section 9.
Further Assurances. Pinkerton, PGI and Active Power covenant and agree that at any time and from time to time upon the request of the other party, they shall do, execute, acknowledge and deliver, and cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, instruments, documents, transfers and assurances as may be reasonably requested by the other party in order to effectuate the intent of this Agreement. 
  

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 Section 10. Miscellaneous. 
  
 (a) Amendments; Waivers. No amendment or other modification, forbearance or waiver or any provision of this Agreement
nor any consent to any departure here from shall under any circumstances be effective unless the same shall be in writing and signed by each of Pinkerton and Active Power, and then any such forbearance, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No failure on the part of any party hereto to exercise, and no delay in exercising, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single
or partial exercise of any right or remedy under this Agreement preclude any other or further exercise thereof of the exercise of any other right or remedy. 
  
 (b) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties at the address for each party set forth herein (or at such other address for a party as shall
be specified by like notice): 
  

					
	(i)	  	If to Active Power:
		
	 	  	            Active Power, Inc.
	 	  	            2128 W. Braker Lane, BK 12
	 	  	            Austin, Texas 78758
	 	  	            Facsimile: (512) 836-4511
	 	  	            Attention: General Counsel
		
	 	  	with a copy (which shall not constitute notice) to:
		
	 	  	            Rodney S. Bond
	 	  	            Chairman of the Special Litigation Committee
	 	  	            c/o Active Power, Inc.
	 	  	            2128 W. Braker Lane, BK 12
	 	  	            Austin, Texas 78758
	 	  	            Facsimile: (512) 836-4511

  

					
	(ii)	  	 If to Pinkerton or PGI:

		
	 	  	             Joseph F. Pinkerton, III

	 	  	             Active Power, Inc.

	 	  	             2128 W. Braker Lane, BK 12

	 	  	             Austin, Texas 78758

	 	  	             Facsimile: (512) 836-4511

  
 (c)
Severability. If any provision of this Agreement should be held to be invalid, illegal or unenforceable, the expressed intent of the parties hereto is that the remaining 
  

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 provisions of this Agreement are severable, should be constructed as if such invalid, illegal or unenforceable provision
had never been contained herein and should remain in force to the greatest possible degree. 
  
 (d) Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 
  
 (e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which, when taken together, shall constitute one and the same instrument. 
  
 (f) Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and shall supersede
and take the place of all drafts and other communications and any other instrument purporting to be an agreement of the parties hereto, with respect to the subject matter hereof. 
  
 (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of
Texas, without regard to conflicts of law principles thereof. Venue for all disputes regarding this Agreement shall be in the district court of Travis County, Texas, and the Parties submit themselves to the jurisdiction of the state courts of Travis
County, Texas for purposes of disputes regarding this Agreement. 
  
 (h) Successors and Assigns. This Agreement is intended to be binding upon and inure to the parties hereto and their respective successors, heirs and assigns; provided that no party shall assign any of his or its rights or obligations
hereunder without the prior written consent of the other parties. 
  
 [Signature Page Follows] 
  

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 IN WITNESS WHEREOF, the parties hereto have executed this Allocation Agreement on the date first set for
the above 
  

							
	JOSEPH F. PINKERTON, III	 	ACTIVE POWER, INC.
			
	 /s/ Joseph F. Pinkerton, III

	 	By:	 	 /s/ Rodney S. Bond

	 	 	Name:	 	Rodney S. Bond
	PINKERTON GENERATOR, INC.	 	Title:	 	Director
				
	By:	 	 /s/ Joseph F. Pinkerton, III

	 	 	 	 
	Name:	 	Joseph F. Pinkerton, III	 	 	 	 
	Title:	 	President	 	 	 	 

  

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