PULSE ELECTRONICS CORPORATION ANNUAL AND LONG-TERM INCENTIVE PLAN Effective January 3, 2011

The purpose of the Pulse Electronics Corporation Annual and Long-Term Incentive Plan (the “Plan”) is to provide designated employees of the Company with the opportunity to receive a mix of annual incentive awards in the form of cash and long-term incentive awards in the form of Restricted Stock or Options.  In both cases, the Company believes that the Plan will enhance the incentive for Participants to contribute materially to the growth and profitability of the Company, thereby benefiting the Company and its shareholders.

The Board has adopted the Plan, effective with respect to Awards granted on or after January 3, 2011.

1.           Definitions.  For purposes of this Plan, the terms and phrases set forth below shall have the meanings so indicated.

(a)           “Annual Incentive Award” shall mean, with respect to a fiscal year of the Company and any Participant, the cash award earned by such Participant pursuant to Section 3 below.

(b)           “Award” shall mean an Annual Incentive Award or a Long-Term Incentive Award.

(c)           “Board” shall mean the Board of Directors of Pulse Electronics Corporation, or of any successor thereto.

(d)           “Business Unit Net Operating Profit” shall mean, with respect to a fiscal year of the Company, the net operating profit of a discrete business unit, generally as calculated on a non-GAAP basis and before annual incentive awards (including Annual Incentive Awards payable under this Plan and any annual cash incentives payable to the Chief Executive officer), but in any event as described and calculated by the Committee.

(e)           “Business Unit Net Operating Profit Goal” shall mean, with respect to a fiscal year of the Company, the Business Unit Net Operating Profit amount designated by the Committee for purposes of this Plan.

(f)           “Business Unit Participant” shall mean, with respect to a fiscal year of the Company, a United States-based employee of the Company identified by the Committee as employed in connection with a discrete business unit and identified as eligible to participate in the Plan by the Committee.

(g)           “Business Unit Revenue” shall mean, with respect to a fiscal year of the Company, the revenue earned by a discrete business unit as described and calculated by the Committee.

(h)           “Business Unit Revenue Goal” shall mean, with respect to a fiscal year of the Company, the Business Unit Revenue amount designated by the Committee for purposes of this Plan.

(i)           “Cause, with respect to any Participant, shall have the meaning set forth in any unexpired employment or severance agreement between the Participant and the Company and, in the absence of any such agreement, shall mean (i) the continued and willful failure of the Participant to follow the lawful orders of his or her direct superior, (ii) violation by the Participant of a material published rule or regulation of the Company or a provision of the Company’s Statement of Principles or Code of Business Conduct (in effect from time to time), or (iii) conviction of a crime which renders the Participant unable to perform his or her duties effectively; provided that in the case of (i) or (ii) above, the Company shall give the Participant written not ice of the action or omission which the Company believes to constitute Cause and the Participant shall have 30 calendar days to cure such action or omission.  Determination of Cause by the Committee shall be final and binding on all parties.

(k)           “Code” means the Internal Revenue Code of 1986, as amended, and Treasury Regulations promulgated thereunder.

(l)           “Committee” means a committee of two or more members of the Board who are “outside directors” as defined under Section 162(m) of the Code and “non-employee directors” as defined under Rule 16b-3 of the Exchange Act, and who meet such other criteria as may be prescribed by applicable stock exchange rules.

(m)           “Company” means Pulse Electronics Corporation, formerly known as “Technitrol, Inc.,” and its direct and indirect subsidiaries.

(n)           “Consolidated Net Operating Profit” shall mean, with respect to a fiscal year of the Company, the net operating profit of the Company as calculated on a non-GAAP basis and before annual incentive awards (including Annual Incentive Awards payable under this Plan and any annual cash incentives payable to the Chief Executive Officer), but in any event as described and calculated by the Committee.

(o)           “Consolidated Net Operating Profit Goal” shall mean, with respect to a fiscal year of the Company, the Consolidated Net Operating Profit amount designated by the Committee for purposes of this Plan.

(p)           “Consolidated Revenue” shall mean, with respect to a fiscal year of the Company, the revenue earned by the Company as described and calculated by the Committee.

(q)           “Consolidated Revenue Goal” shall mean, with respect to a fiscal year of the Company, the Consolidated Revenue amount designated by the Committee for purposes of this Plan.

(r)            “Corporate Participant” shall mean, with respect to a fiscal year of the Company, a United States-based employee who is identified by the Committee as having a position and responsibilities that are not specific to a discrete business unit of the Company and is identified as eligible to participate in the Plan by the Committee.

(s)           “Earnings Per Share” shall mean the earnings per share of the common stock of Pulse Electronics Corporation as described and calculated by the Committee.

(t)           “Earnings Per Share Goal” shall mean, with respect to a fiscal year of the Company, the goal measured with respect to Earnings Per Share designated by the Committee for purposes of this Plan.

(u)           “Effective Date” shall mean January 3, 2011.

(v)           “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and U. S. Department of Labor Regulations promulgated thereunder.

(w)           “Exchange Act” shall mean the Securities and Exchange Act of 1934, as amended, and rules and regulations issued by the U. S. Securities and Exchange Commission thereunder.

(x)           “GAAP” shall mean generally accepted accounting principles in the United States.

 

 

(y)           “Goal” shall mean a Business Unit Net Operating Profit Goal, a Business Unit Revenue Goal, a Consolidated Net Operating Profit Goal, a Consolidated Revenue Goal, an Earnings Per Share Goal, or a Performance Target.

(z)           “Long-Term Incentive Award” shall mean, with respect to a fiscal year of the Company and any Participant, the Restricted Stock and Options earned by such Participant pursuant to Section 4 below.

(aa)           “Options” shall mean options to acquire common stock of the Company granted under the Stock Option Plan.

(bb)           “Participant” shall mean a Business Unit Participant or a Corporate Participant.

(cc)           “Plan” shall mean this Pulse Electronics Corporation  Annual and Long-Term Incentive Plan, as the same may be amended from time to time.

(dd)           “Restricted Stock” shall mean common stock of Pulse Electronics Corporation awarded under and subject to the terms of the Restricted Stock Plan, and subject to vesting conditions as set forth in Section 4 below.

(ee)           “Restricted Stock Plan” shall mean the Restricted Stock Plan II of Technitrol, Inc. (As Amended and Restated Effective as of March 1, 2010).

(ff)           “Section 16 Officer” shall mean an employee of the Company identified by the Board as being subject to the requirements and limitations of Section 16 of the Exchange Act with respect to the Company.

(gg)           “Stock Option Plan” shall mean the Technitrol, Inc. 2001 Stock Option Plan (As Amended and Restated Effective as of March 1, 2010).

(hh)           “Target Annual Incentive Award” shall mean, with respect to a fiscal year of the Company and a Participant, the amount determined pursuant to Section 3 below.

(ii)           “Value” shall mean, in the case of one share of Restricted Stock, the closing price of one share of common stock of the Company as reported on the stock exchange on which such stock is listed on the day of its transfer to a Participant; or, in the case of an Option awarded to a Participant, shall mean the value assigned to that Option by the Company for purposes of its financial statements prepared in accordance with GAAP.

 

2.           Administration.  The Plan shall be administered and interpreted by the Committee.  However, the Board may retain the right to ratify, approve or amend any awards as it deems appropriate.  If the Board requires ratification or approval of an award and the award is not ratified or approved by the Board, such award shall not be effective.

3.           Annual Incentive Awards.  For each fiscal year of the Company beginning on or after the Effective Date, the Committee shall make cash awards to employees in accordance with the criteria and requirements set forth below.

(a)           No Annual Incentive Awards shall be made for a fiscal year unless the Consolidated Net Operating Profit is at least –

(i)

$3,000,000 for the fiscal year ending in 2011;

(ii)

$4,000,000 for the fiscal year ending in 2012; and

(iii)

$5,000,000 for fiscal years ending in 2013 and thereafter.

 

 

(b)           No Participant shall receive an Annual Incentive Award for a fiscal year if, in the discretionary judgment of the Committee, his or her performance of services for the Company during the fiscal year is found to have been unsatisfactory.  After the determination of the level of Annual Incentive Awards for Participants pursuant to Section 3(d) and 3(e) below, the Committee may increase or decrease the amount of the Annual Incentive Award for one or more of the Chief Financial Officer, Chief Operating Officer and other Section 16 Officers by up to 20% of that Participant’s award amount, based on the Committee’s discretionary determination of the quality of the Participant’s individual performance during the fiscal year, and the Chief Executiv e Officer or his or her delegate may, in his or her discretion, increase or decrease the amount of the Annual Incentive Award for one or more Participants (other than the Chief Financial Officer, Chief Operating Officer and other Section 16 Officers) by up to 20% of each Participant’s award amount based on the Chief Executive Officer’s or his or her delegate’s assessment of the individual performance of such Participant, provided:

(i)           such adjustments cannot result in the aggregate of all Annual Incentive Awards for a fiscal year to exceed the aggregate determined prior to any adjustments; and

(ii)           no increase to a Participant’s Annual Incentive Award shall be made pursuant to this Section 3(b) if such Participant, in the judgment of the Committee, is or is likely to be a “covered employee,” within the meaning of Section 162(m)(3) of the Code, with respect to the taxable year of the Company for which the Participant’s Annual Incentive Award would otherwise be taken into account as a deduction by the Company for federal income tax purposes.

(c)           Annual Incentive Awards for a fiscal year shall be paid as soon as practicable following the close of the fiscal year, but no later than the 15th day of the third calendar month beginning thereafter.  A Participant shall forfeit his or her Annual Incentive Award for a fiscal year if he or she is not employed through the end of the fiscal year, or if he or she is terminated for Cause before payment of the Annual Incentive Award.

(d)           Corporate Participants.  The Target Annual Incentive Award for a Corporate Participant shall be the percentage of his or her base salary as of the first day of the fiscal year assigned to his or her position with the Company in accordance with the following schedule: