PITNEY BOWES INC.
KEY EMPLOYEES INCENTIVE PLAN
(As Amended and Restated: February 13, 2006)

 

1.     

Purpose.

 

 

(A)     

The Pitney Bowes Inc. Key Employees Incentive Plan (the “Plan”) is designed to provide additional cash incentives for key employees of Pitney Bowes Inc. (the “Company”) and its subsidiaries and affiliates by the making of awards of supplemental compensation. It is intended that such awards will be given in a way designed to retain or attract, and to provide additional incentive to, key employees, having regard for their individual potential, location, contributions to the Company and other appropriate considerations.

 

 

(B)

The Plan shall award short-term incentives in the form of annual cash bonuses and long-term cash-based incentives (e.g., cash incentive units).

 

2.     

Administration.

 

 

(A)

The Plan shall be administered by a committee (the “Committee”) which shall consist of members of the Board of Directors of the Company who are “outside directors” within the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder. The Committee shall be composed of not less than the minimum number of outside directors from time to time required by section 162(m). The Committee may establish rules for the administration of the Plan and may make administrative decisions regarding the Plan and awards hereunder. The Committee may delegate its functions hereunder to the extent consistent with applicable law.

 

 

(B)

Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any award, or any award agreement or certificate shall be with and in the sole discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all persons, including the Company, any affiliate, any participant, any holder or beneficiary of any award, and any employee of the Company or of any affiliate.

 

3.     

Awards.

 

 

(A)

The Committee shall determine who is a key employee of the Company and its subsidiaries and affiliates, and from time to time, the Committee may make awards to such key employees as it determines to be appropriate under the terms of the Plan.

 

 

(B)

Awards made under the Plan to Company vice-presidents and above, currently grouped in compensation Band G and above or as such similar employees may be designated in the future (“Covered Employees”), may be made in respect of each calendar year up to the aggregate amount of the “Incentive Fund” for such year. The amount of the Incentive Fund for each year shall be determined by the Committee and shall not exceed an amount equal to:

 

 

 

(i)

41/2% of the consolidated net income of the Company and its consolidated subsidiaries before provision for income taxes in the immediately preceding year, as certified by the Company’s independent public accountants, plus

 

 

 

(ii)     

an additional amount equal to any excess of the aggregate amount of the Incentive Funds for the five preceding years over the aggregate amount of awards made for such years.

 

 

(C)

All awards under the Plan shall be made on such terms and subject to such conditions as the Committee may determine, as follows:

 

 

 

(i)

The Committee shall decide who shall receive awards for the year, and shall determine the amount of each award. Awards may be made in cash, Units (as defined in subparagraph (ii)), or any combination as may, in the judgment of the Committee, be best calculated to further the purposes of the Plan. Awards will be granted subject to the section 162(m) provisions of Section 9 of the Plan, if applicable.

 

 

 

(ii)     

A “Unit” shall be an award which entitles the recipient to receive cash in an amount which depends upon the business performance of the Company or any of its divisions, subsidiaries, or affiliates during a stated period. Performance for this purpose may be measured by the performance mea-

 

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sures listed in Section 9, or any other indicator specified by the Committee. The Committee shall fix the period during which such performance is to be measured (the “Cycle”), the time at which the value of the Units is to be paid, and the form of the payment to be made in respect of the Units.

 

 

 

(iii)     

Annual awards under the Plan, other than Units described in subparagraph (ii) above, are referred to as “Annual Incentive Awards.”

 

 

(D)     

Annual Incentive Awards granted to Covered Employees shall be charged against the Incentive Fund as of the time the Annual Incentive Award is payable as determined by the Committee, notwithstanding any deferral election. Awards of Units to Covered Employees shall be deemed for such purpose to have a value which represents 50% of the estimated maximum liability of the Company to make payments with regard to such Units as determined by the Committee. Such Units will be revalued by the Committee from time to time during the Cycle referred to in Section 3(C)(ii) above, and any difference from the value originally assigned shall adjust the Incentive Fund for such year or years in an amount equal to such difference.

 

 

(E)

Annual Incentive Awards shall be paid between February 1 and March 15 of the calendar year following the year for which the Annual Incentive Awards were earned. Payments with respect to maturing Units shall be paid between February 1 and March 15 of the calendar year following the final year in the Cycle. Payments to participants who reside outside the United States shall be made in such currencies and such exchange rates as are consistent with the patterns and practices under this Plan.

 

 

(F)

The Committee may from time to time establish procedures pursuant to which Covered Employees will be permitted or required to defer receipt of Annual Incentive Awards or Units under the Company’s Deferred Incentive Savings Plan.

 

4.     

Other Plans; No Rights.

 

 

Nothing in the Plan shall prevent a participant from being included in any other employee benefit or stock option or purchase plan of the Company or its subsidiaries or affiliates, or from receiving any compensation provided by them. Neither the Plan nor any action taken thereunder shall be understood as giving any person any right to be retained in the employ of the Company or any subsidiary or affiliate, nor shall any person (including persons participating for a prior year) be entitled as of right to be selected as a participant in the Plan for any year.

 

5.     

Plan Amendment and Termination.

 

 

The Committee may amend, suspend, or terminate the Plan in whole or in part at any time, provided, however, that if in the judgment of the Committee such amendment or other action would have a material effect on the Plan, such amendment or other action must be taken by the Board of Directors of the Company. No amendment which would materially increase the cost of the Plan shall be made effective unless approved by the shareholders of the Company. This Plan may not be amended, suspended or terminated from and after the date of a Change of Control (as hereinafter defined) or in anticipation of a Change of Control so as to reduce or otherwise adversely affect the benefits to which participants in the Plan are entitled upon a Change of Control, calculated as of the date of the amendment, suspension or termination. Any termination of the Plan shall be made in accordance with the requirements of section 409A of the Code, if applicable.

 

6.     

Change of Control.

 

 

Notwithstanding anything in the Plan to the contrary, if a Change of Control, as defined in the Company’s Senior Executive Severance Policy as in effect from time to time (the “Senior Executive Severance Policy”), occurs, the following provisions shall apply:

 

 

(A)

Annual Incentive Awards. The Committee shall calculate an Annual Incentive Award as of the date of the Change of Control for each key employee of the Company and its subsidiaries and affiliates who, as of the date of the Change of Control, had previously been notified by the Company that he or she was eligible to receive an Annual Incentive Award for the year in which the Change of Control occurs.

 

 

 

(i)

The Committee shall calculate the Annual Incentive Awards using Company and employee performance measured as of the date immediately preceding the Change of Control date. A second calculation using similar performance measures, but based on performance for the full year in which the Change of Control occurs, shall be performed at such time as the Annual Incentive Awards would otherwise have been calculated after the end of the year to which the Annual Incentive Awards relate. A key employee’s Annual Incentive Award for the year in which the Change of Control occurs shall be the greater of the amount calculated upon the Change of Control or the amount calculated after the end of the year to which the Annual Incentive Award relates, except as provided in subparagraph (iii) below.

 

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(ii)     

Annual Incentive Awards relating to the year in which the Change of Control occurs shall vest upon the Change of Control but shall not be payable until the date on which the Annual Incentive Awards would otherwise have been paid in the absence of the Change of Control, as described in Section 3(E) above, except as described in subparagraph (iii) below.

 

 

(iii)

If a key employee suffers a Termination of Employment, as defined in the Senior Executive Severance Policy, the Committee shall make the second calculation described in subparagraph (i) above as of the key employee’s termination date (or as of the last day of the preceding fiscal quarter, if the Committee so determines), based on performance through such calculation date. The terminated key employee’s Annual Incentive Award for the year shall be the greater of the amount calculated upon the Change of Control or the amount calculated as described in the preceding sentence. The Annual Incentive Award shall be paid no later than fifteen (15) days after the key employee’s termination date.

 

 

(iv)     

The following methodology shall be utilized in calculating Annual Incentive Awards with respect to services for the year in which the Change of Control occurs:

 

 

 

(a)

If a rating system to determine the amount of the Annual Incentive Awards had been in effect in any of the three (3) years preceding the year in which the Change of Control occurs, whereunder (1) each participant had been assigned a rating (expressed as a number) corresponding to the evaluation of his or her individual performance with respect to a fiscal year (the “Personal Rating”), and (2) each participant had been assigned a rating (also expressed as a number) corresponding to evaluation of the performance with respect to such fiscal year for the Company and/or the division or divisions or unit or units to which such participant had been assigned during such fiscal year, each participant shall be assigned ratings for (1) his or her personal level of performance, (2) the Company’s performance and/or (3) his or her division(s)’ or unit(s)’ performance for purposes of determining his or her Annual Incentive Award equal to the respective aggregate average rating for a period which shall be composed of such of the three fiscal years (prior to the year that the Change of Control occurs) during which such rating system was in effect and such participant was eligible to receive an Annual Incentive Award. If a Change of Control occurs in the first year in which a participant is eligible to receive an Annual Incentive Award, his or her Personal Rating shall be equal to the mid-level rating then in effect, and such rating shall be used regarding his or her personal performance and the Company and/or the relevant business unit or division performance for purposes of this Section. The ratings with respect to each participant shall be applied in accordance with the appropriate bonus grid (or such similar device then in effect) for which such participant is eligible at the time of Change of Control to determine the appropriate percentages, the aggregate of which shall then be multiplied by the salary range midpoint (or the computation basis used to compute the value of an Annual Incentive Award) then in effect for each respective participant.

 

 

 

(b)

If a rating system has not been in effect in any of the three years immediately preceding the year in which the Change of Control occurs, payment of an award in respect of the year in which the Change of Control occurs shall be determined by the Committee in its sole discretion, provided, however, that each participant shall be entitled to receive and shall receive a minimum amount of no less than the amount received in respect to the past fiscal year and, in the event of a participant’s first year of participation, no less than the average award made in the preceding year to participants of the same job level.

 

 

 

(c)     

The foregoing is intended to set forth the minimum amount of Annual Incentive Award payments that shall be made in the circumstances as above provided but are not intended to limit any additional payments that the Committee may desire to make as in its discretion it deems appropriate.

 

(B)     

Units. In the event of a Change of Control, the Committee shall determine the value in cash of all Units payable under the Plan, which shall include Units maturing upon the end of each stated period then in effect (a “Cycle”) as authorized under Subsection 3(C)(ii) above. The Committee will calculate the value of Units as of the date of the Change of Control for each key employee of the Company and its subsidiaries and affiliates who, as of the date of the Change of Control, had previously been notified by the Company that he or she was eligible to receive an award of Units for a Cycle in effect as of the date of the Change of Control, in accordance with the following methodology:

 

 

 

(i)

Units shall be valued by the Committee using Company and employee performance measures customarily used to value such Units as of the date immediately preceding the Change of Control date, based on performance as of the Change of Control date. A second calculation using similar performance measures, but based on performance for the full Cycle, shall be performed at the

 

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end of the Cycle. A key employee’s Unit award for the Cycle shall be the greater of the amount calculated upon the Change of Control or the amount calculated after the end of the Cycle to which the Unit relates, except as provided in subparagraph (iii) below.

 

 

 

 

 

 

(ii)     

Units shall vest upon the Change of Control but shall not be payable until the date following the end of the Cycle on which the Units would otherwise have been paid in the absence of the Change of Control, as described in Section 3(E) above, except as described in subparagraph (iii) below.

 

 

 

(iii)

If a key employee suffers a Termination of Employment, as defined in the Senior Executive Severance Policy, the Committee shall make the second calculation described in subparagraph (i) above as of the key employee’s termination date (or as of the last day of the preceding fiscal quarter, if the Committee so determines), based on performance through such calculation date. The terminated key employee’s Unit award for the Cycle shall be the greater of the amount calculated upon the Change of Control or the amount calculated as described in the preceding sentence. The Unit award shall be paid no later than fifteen (15) days after the key employee’s termination date.

 

 

(D)     

For purposes of this Plan, a “Change of Control” shall be deemed to have occurred under the terms and conditions outlined in the Senior Executive Severance Policy.

 

 

(E)

Any right to a payment as provided in this Section shall be a contract right of the executives as herein described, enforceable against the Company, its assigns and successors. Upon and following the occurrence of a Change of Control, any decision rendered pursuant to this Section 6 may be contested by any claimant, and the Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which a claimant may reasonably incur as a result of any contest, provided the claimant substantially prevails in the outcome thereof.

 

7.     

No Assignment.

 

 

No award, and no right under any award shall be assignable, alienable, saleable, or transferable by a participant other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder; provided however, that if so determined by the Committee, a participant may in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the participant, and to receive any cash distributable, with respect to any award upon the death of the participant. Each award, and each right under any award, shall be issuable or payable only to the participant, or, if permissible under applicable law, to the participant’s guardian or legal representative or to a transferee receiving such award pursuant to a qualified domestic relations order referred to above. No award, and no right under any such award, may be pledged, alienated, attached, or otherwise encumbered and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company or any affiliate.

 

8.     

Effective Date.

 

 

The Plan, as amended and restated herein, shall become effective on February 13, 2006, subject to shareholder approval.

 

9.     

Section 162(m).

 

 

(A)

Notwithstanding the foregoing, the provisions of this Section 9 shall be applicable to awards made under the Plan to “162(m) Covered Employees” and such awards shall be referred to as “162(m) Covered Awards.” 162(m) Covered Employees shall consist of employees in compensation Band H and above, or as such similar employees are designated in the future. For purposes of this Section 9, “162(m) Covered Employees” includes participants in the Plan who are or are expected to be, at the time taxable income will be realized with respect to the award, “covered employees” within the meaning of section 162(m) of the Code and the Treasury regulations thereunder.

 

 

(B)

162(m) Covered Awards shall be granted subject to the achievement of one or more pre-established objective Performance Goals (as defined below), in accordance with the requirements of section 162(m) applicable to “qualified performance-based compensation” and the procedures to be established by the Committee from time to time. Notwithstanding any provision of the Plan to the contrary, the Committee shall not have discretion to waive or amend such Performance Goals or to increase the amount payable pursuant to Covered Awards after the Performance Goals have been established. The Committee may, in its sole discretion, reduce the amount which would otherwise be payable with respect to any Covered Award, provided that the Change of Control provisions of Section 6 shall override any contrary provisions of this Section 9.

 

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(C)

“Performance Goals” means one or more objective performance goals, established by the Committee at the time an award is granted, and based upon the attainment of targets for one or any combination of the following criteria: operating income, revenues, return on operating assets, earnings per share, return on stockholder equity, total stockholder return, total earnings, income from continuing operations, growth of book or market value of capital stock, stock price, free cash flow, or achievement of cost control, of the Company or such subsidiary, division or department of the Company for or within which the participant is primarily employed. Performance Goals also may be based upon attaining specified levels of Company performance based upon one or more of the criteria described above relative to prior periods or the performance of other corporations. Performance Goals shall be set by the Committee within the time period prescribed by section 162(m).

 

 

(D)

No payment shall be made pursuant to a 162(m) Covered Award unless and until the Committee shall have certified in writing that the applicable Performance Goals have been attained. Amounts paid on 162(m) Covered Awards to a particular 162(m) Covered Employee during any fiscal year of the Company shall not exceed the maximum amount of $4,000,000 for annual awards and $8,000,000 for units.

 

10.

Section 409A.

 

 

(A)

It is anticipated that payments under this Plan (except for certain Unit payments after a Change of Control) shall not be subject to section 409A of the Code as a result of the “short-term deferral” exception set forth in applicable guidance. However, if and to the extent that section 409A of the Code applies to amounts payable under the Plan, distributions may only be made under the Plan upon an event and in a manner permitted by section 409A. To the extent that any provision of the Plan would cause a conflict with any applicable requirements of section 409A, or would cause the administration of the Plan to fail to satisfy the applicable requirements of section 409A, such provision shall be deemed null and void.

 

 

(B)

Notwithstanding anything in the Plan to the contrary, if section 409A of the Code applies to the Plan and if a participant is a “specified employee,” as defined in section 409A, payment of benefits under this Plan upon termination of employment shall be postponed for six months after termination of employment if required in order to avoid adverse taxation under section 409A. If payment of benefits under the Plan is required to be postponed pursuant to section 409A, the accumulated amounts withheld on account of section 409A shall be paid in a lump sum payment within five days after the end of the required postponement period. If the participant dies during such postponement period prior to the payment of benefits, the amounts withheld on account of section 409A shall be paid to the participant’s beneficiary determined under Section 7.

 

11.

Tax Withholding. All payments under the Plan shall be subject to applicable tax withholding.

 

12.

Controlling Law. The Plan shall be construed and enforced according to the laws of the state of Connecticut, exclusive of conflict of law provisions thereof, to the extent not preempted by Federal law, which shall otherwise control.