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Lehman Bros. Merchant Long Term Incentive Plan

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Exhibit 10.28


LEHMAN BROTHERS HOLDINGS INC.
MERCHANT BANKING LONG-TERM


INCENTIVE PLAN


SECTION 1 - DEFINITIONS


For purposes of the Plan, the capitalized terms shall have the meanings ascribed to them in Exhibit A hereof.


SECTION 2 - PURPOSE


The purpose of the Plan is to strengthen and promote the interests of the Company by providing Eligible Employees with additional incentives, under the terms and conditions below, to put forth maximum efforts for the success of the business of the MBG and to continue in the employ of the Company, thereby enhancing the Company's value for the benefit of its stockholders. The purpose of the Plan is to be achieved through the grant of various types of unfunded bonus awards. This Plan is a bonus plan not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.


SECTION 3 - ADMINISTRATION


(a) The Plan shall be administered by the Committee, which shall have the power to select those Eligible Employees who shall receive Awards, and to determine the terms of such Awards.


(b) Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry the Plan or any such Award into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive.


(c) The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware.


(d) The books and records to be maintained for the Plan's purpose shall be maintained by the officers and employees of the Company at its expense and subject to the supervision and control of the Committee. All expenses of administering the Plan shall be paid by the Company. 2
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(e) No member of the Committee or the Participation Committee and no director, officer or employee of the Company shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his or her own fraud or willful misconduct; nor shall the Company be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director, officer or employee of the Company.


SECTION 4 - DETERMINATION OF AWARDS


(a) Each Award shall entitle a Participant, subject to the terms and conditions of the Award, to an incentive payment based on the performance of Qualifying Investments made during the calendar year for which the Award is made. The aggregate amount of such Qualifying Investments attributable to Awards for that year, as determined in the sole discretion of the Committee, shall comprise the Aggregate Award Fund for that year.


(b) After the end of each calendar year during the existence of this Plan, the Committee shall, in its sole discretion:


(i) identify from among the Eligible Employees those individuals who shall participate in the Plan for such calendar year;


(ii) subject to paragraphs (c) and (d) below, determine the size of the Aggregate Award Fund for such calendar year and allocate it among all Participants for such calendar year by making Awards to such Participants;


(iii) determine the portion of each Participant's bonus for such calendar year that will be required to be deferred and allocated for participation in the Plan (the Deferred Compensation portion of the Award); and


(iv) designate, for each Participant, the Leveraged Amount of such Participant's Award.


(c) In the event that the aggregate amount of Awards in any calendar year would exceed the Aggregate Award Fund for such year, Participants who are members of the MBG shall first be granted Awards until their aggregate Deferred Compensation and Leveraged Amounts have been satisfied in full, and the remaining portion of the Aggregate Award Fund, if any, shall be allocated pro rata to the other Participants on the basis of their respective Awards. In the event that the aggregate amount of Awards for Participants who are members of the MBG for any calendar year would exceed the Aggregate Award Fund for such year, Awards shall be allocated pro rata to such Participants on the basis of their respective Awards, up to the amount of such Aggregate Award Fund. 3
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(d) At any time (and from time to time), the Committee may, in its sole discretion (i) reissue any portion of an Award that has been forfeited or otherwise negatively adjusted pursuant to Section 5, and (ii) grant additional Awards to Eligible Employees in respect of any calendar year. In each case, the Committee shall determine, in its sole discretion (A) the purchase price of the Award (which may reflect any appreciation in the value of the Qualifying Investments represented by the Award as determined by the Committee), (B) the Deferred Compensation portion of the Award and the manner in which it is to be funded and (C) the Leveraged Amount of the Award.


SECTION 5 - VESTING OF AWARDS


(a) Each Participant's Award shall, subject to the remainder of this Section 5, vest in accordance with a vesting schedule prescribed by the Committee at the time the Award is granted. Unless otherwise prescribed by the Committee, upon a Participant's termination of employment with the Company prior to any vesting date, the portion of his or her Award that is then unvested shall be forfeited or otherwise negatively adjusted as set forth in such Participant's Award Agreement. The portion of a Participant's Award that is forfeited or otherwise negatively adjusted pursuant to this Section 5 shall be deemed to remain outstanding, but solely for the Company's benefit.


(b) The Committee may at any time and from time to time accelerate the vesting of a Participant's Award.


(c) Upon an actual or potential Change in Control, the CMC may determine that any or all Participants' Awards shall automatically become vested either immediately or upon the occurrence of such events as the CMC shall determine; provided that this Section 5(c) shall not have the effect of restoring to a Participant prior forfeitures or negative adjustments made pursuant to Section 5(a).


SECTION 6 - PAYMENT WITH RESPECT TO AWARDS


(a) The Committee shall cause an account to be kept in the name of each Participant. As amounts are realized with respect to a particular calendar year's Qualifying Investments, the Committee shall determine the Participant's share of such amounts, based on the Participant's relative level of deemed participation in such investments (determined by comparing the amount of the Participant's Award (after giving effect to any forfeitures of or other negative adjustments to such Participant's Award pursuant to Section 5), to the amount of all Awards for that calendar year, including any Awards (or portions thereof) deemed to be for the benefit of the Company under Section 5(a)).


(b) The Participant's share of all amounts realized with respect to the Qualifying Investments covered by that 4
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calendar year's Award shall first be credited and paid to the Company until the Company has been credited with an amount equal, in the aggregate, to the Leveraged Amount of such Award plus the Company Return thereon and, in the case of a Participant employed in the MBG at any time during the calendar year for which the Award was made (an "MBG Participant"), with an additional amount equal, in the aggregate, to the Leveraged Amounts of the previous calendar year's Award (if any, and only if such Participant was employed in the MBG at any time during the previous calendar year), and the next succeeding calendar year's Award (if any), in each case plus the Company Return thereon. With respect to the Leveraged Amount of any particular year's Award, amounts shall first be credited to the Company Return and then to the Leveraged Amount. Thereafter, all amounts shall be credited to the Participant's account for the calendar year in which such realized Qualifying Investments were made; provided, however, that if the Participant's Award for the next succeeding calendar year has not been granted as of any date on which any amounts are to be credited to the Participant's account pursuant to this Section 6(b), the Company may, in its discretion, hold back an amount (the "Holdback Amount") equal to 20% of the total amount that would otherwise be credited to the Participant's account on such date in the absence of this proviso. Any such Holdback Amount(s) (together with any earnings thereon) shall be credited against the Leveraged Amount of the Participant's Award for the next succeeding calendar year at the time such award, if any, is granted. If the Participant is not granted an Award for such calendar year, or if the aggregate Holdback Amount(s) otherwise exceed the Participant's Leveraged Amount for such calendar year, any such excess Holdback Amount (together with any earnings thereon) shall be credited to the Participant's account. Any Holdback Amount(s) shall be credited with interest at a rate equal to the Cost of Funds Rate plus 0.50%.


(c) At any time (and from time to time) after the Participant's account with respect to an Award has been credited with an amount pursuant to Section 6(b) above, the Committee may direct that the Participant shall receive, in cash, all or a portion of his or her account; provided, however, that any such payment may be made in kind (whether in the form of marketable securities or otherwise) if and to the extent set forth in the Participant's Award Agreement.


(d) Each Participant shall have the right to designate beneficiaries who are to succeed to his or her right to receive future payments hereunder in the event of his or her death. In case of a failure of designation or the death of a designated beneficiary without a designated successor, distribution shall be made to the Participant's estate. No designation of beneficiaries shall be valid unless such designation is made in writing, signed by the Participant, dated, and filed with the Committee. Beneficiaries may be changed without the consent of any prior beneficiaries. 5
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SECTION 7 - AWARD AGREEMENTS


Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions, not inconsistent with the Plan's provisions, as determined by the Committee, which shall apply to such Award.


SECTION 8 - WITHHOLDING


The Company shall have the right to deduct from all amounts payable to any Participant any taxes required by law to be withheld therefrom.


SECTION 9 - NON-TRANSFERABILITY


No Award or account balance shall be assignable or transferable, and no right or interest of any Participant in any Award or account thereunder shall be subject to any lien, obligation or liability of the Participant, except by will, the laws of descent and distribution, or as otherwise set forth in the Award Agreement.


SECTION 10 - NO RIGHT TO EMPLOYMENT OR
CONTINUED PARTICIPATION IN PLAN


No person shall have any claim or right to the grant of an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or to be eligible for any subsequent Awards. Further, the Company expressly reserves the right at any time to terminate a Participant free from any liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.


SECTION 11 - AMENDMENT


The Board may amend, suspend or terminate the Plan or any portion hereof at any time, except that no such amendment, suspension or termination shall reduce the amounts otherwise payable to a Participant under the terms of an Award Agreement entered into hereunder prior to such amendment, suspension or termination.


SECTION 12 - UNFUNDED STATUS OF PLAN


The Plan is intended to constitute an "unfunded" incentive compensation plan. With respect to any payments not yet made to a Participant by the Company, nothing herein contained shall give any Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to distribute amounts under the Plan; provided, however, that the 6
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existence of such trusts or other arrangements shall not alter the unfunded status of the Plan.


SECTION 13 - WAIVER


No failure on the part of a person to exercise, and no delay in exercising, any right or power under this Plan shall operate as a waiver of any such right or power; nor shall any single or partial exercise preclude any other or further exercise of a right or power or the exercise of any other right or power.


SECTION 14 - EFFECTIVE DATE


This Plan shall be effective as of June 27, 1996 and shall continue until terminated by the Board. 7
EXHIBIT A


(a) "Aggregate Award Fund" shall mean, for each calendar year, the total dollar amount available for allocation to Participants under the Plan for such year.


(b) "Award" shall mean an award granted pursuant to the Plan.


(c) "Award Agreement" shall mean the agreement evidencing any Award under the Plan.


(d) "Board" shall mean the Board of Directors of the Company; provided, however, that any action taken by a duly authorized committee of the Board within the scope of authority delegated to such committee by the Board shall be considered an action of the Board for this Plan's purposes.


(e) "Change in Control" shall mean the occurrence of any of the following:


(i) The commencement (within the meaning of Rule 14d-2
under the Securities Exchange Act of 1934 (the "Exchange Act")) of a
tender offer for more than 20% of the Company's outstanding shares of
capital stock having ordinary voting power in the election of directors
(the "Voting Securities").


(ii) An acquisition (other than directly from the Company)
of any Voting Securities by any "Person" (as the term person is used
for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately
after which such Person has "Beneficial Ownership" (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
combined voting power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute
an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by:


(A) an employee benefit plan (or a trust forming a
part thereof or a trustee thereof acting solely in its
capacity as trustee) maintained by:


(I) the Company; or


(II) any corporation or other Person of which a
majority of its voting power or its voting equity
securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"); 8
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(B) the Company or its Subsidiaries; or


(C) any Person who files in connection with such
acquisition a Schedule 13D which expressly disclaims any
intention to seek control of the Company and does not
expressly reserve the right to seek such control; provided,
however, that any amendment to such statement of intent which
either indicates an intention or reserves the right to seek
control shall be deemed to be an "acquisition" of the
securities of the Company reported in such filing as
beneficially owned by such Person for purposes of this
paragraph (ii).


(iii) The individuals who, as of the effective date of the
1994 initial public trading in Company shares, are members of the Board
(the "Incumbent Board"), ceasing for any reason to constitute at least
a majority of the members of the Board; provided, however, that if the
election, or nomination for election by the Company's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or


(iv) Approval by stockholders of the Company of:


(A) A merger, consolidation or reorganization
involving the Company, unless such merger, consolidation or
reorganization is a "Non-Control Transaction"; i.e., meets
each of the requirements described in (I), (II), and (III)
below:


(I) the stockholders of the Company,
immediately before such merger, consolidation or
reorganization, own, directly or indirectly
immediately following such merger, consolidation or
reorganization, at least 80% of the combined voting
power of the outstanding voting securities of the
corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization; 9
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(II) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the board of directors
of the Surviving Corporation immediately following
the consummation of such merger, consolidation or
reorganization; and


(III) no Person other than the Company, any
Subsidiary, any employee benefit plan (or any trust
forming a part thereof or a trustee thereof acting
solely in its capacity as trustee) maintained by the
Company, the Surviving Corporation, or any
subsidiary, or any Person who, immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of 20% or more of the then
outstanding Voting Securities, has Beneficial
Ownership of 20% or more of the combined voting power
of the Surviving Corporation's then outstanding
voting securities immediately following the
consummation of such merger, consolidation or
reorganization.


(B) A complete liquidation or dissolution of the
Company; or


(C) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).


Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.


(f) "CMC" shall mean the Company's Corporate Management Committee, which is comprised of executive officers of the Company and includes the Chairman and Chief Executive Officer, the President, the Chief Administrative Officer, the Chief Legal Officer and the Chief Financial Officer. 10
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(g) "Committee" shall mean the Compensation Committee of the Board, or one or more officers of the Company or its subsidiaries designated by the Compensation Committee to which it has delegated such of its rights and responsibilities hereunder as it shall determine in its sole discretion.


(h) "Company" shall mean Lehman Brothers Holdings Inc. and, except as otherwise specified in this Plan in a particular context, any successor thereto, whether by merger, consolidation, purchase of substantially all its assets or otherwise.
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