MANAGEMENT INCENTIVE COMPENSATION PLAN{PRIVATE }
ECONOMIC VALUE ADDED (EVA) BONUS PLAN
AS AMENDED FEBRUARY 13, 2001
ARTICLE I
STATEMENT OF PURPOSE
1.1 The purpose of the Plan is to provide a system of incentive
compensation which will promote the maximization of
shareholder value over the long term. In order to align
management incentives with shareholder interests, incentive
compensation will reward the creation of value. This Plan
will tie incentive compensation to Economic Value Added
("EVA") and, thereby, reward management for creating value
and penalize management for destroying value.
1.2 EVA is the performance measure of value creation. EVA
reflects the benefits and costs of capital employment.
Managers create value when they employ capital in an
endeavor that generates a return that exceeds the cost of
the capital employed. Managers destroy value when they
employ capital in an endeavor that generates a return that
is less than the cost of capital employed. By imputing the
cost of capital upon the operating profits generated by a
business group, EVA measures the total value created (or
destroyed) by management.
EVA = (Net Operating Profit After Tax - Capital Charge)
1.3 Each Plan Participant is placed in a classification. Each
classification has a prescribed target bonus. The bonus
earned in any one year is the result of multiplying the
Actual Bonus Percentage times the Participant's base pay.
Bonuses that fall within a pre-specified range will be
fully paid out. Positive and negative bonuses falling out-
side this range are banked forward in the Participant's
Bonus Bank, with one-third of the net positive balance paid
out each year in cash.
ARTICLE II
DEFINITION OF EVA AND THE COMPONENTS OF EVA
Unless the context provides a different meaning, the following
terms shall have the following meanings.
2.1 "Participating Group" means a business division or group of
business divisions which are uniquely identified for the
purpose of calculating EVA and EVA based bonus awards.
Some Participants' awards may be a mixture of two different
Participating Groups.
For the purpose of this plan, the Participating Groups are listed
on Exhibit C.
2.2. "Capital" means the net investment employed in the
operations of each Participating Group. The components of
Capital are as follows:
Gross Accounts Receivable (including trade A/R from
another Manitowoc unit)
Plus: FIFO Inventory
Plus: Other Current Assets
Less: Non-Interest Bearing Current Liabilities (NIBCL's -
See Note 1)
Plus: Net PP&E
Plus: Other Operating Assets
Plus: Capitalized Research & Development
Plus: Goodwill acquired after July 3, 1993
Plus: Accumulated Amortization on Goodwill acquired after
July 3, 1993
Plus (Less): Special Items (one-time)
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Equals: Capital
Notes: (1) NIBCL's include trade A/P to another Manitowoc
unit, but do not include the contingent liability associat-
ed with Bonus Banks.
2.3 Each component of Capital will be measured by computing an
average balance based on the ending monthly balance for the
twelve months of the Fiscal Year.
2.4 "Cost of Capital" or "C*" means the weighted average of the
after tax cost of debt and equity for the year in question.
The Cost of Capital will be reviewed annually and revised if it
has changed significantly. Calculations will be carried to
one decimal point.
The cost of capital for the initial year is 12.6%. See Exhibit
A. In subsequent plan years the methodology for the
calculation of the Cost of Capital will be:
a) Cost of Equity > Risk Free Rate + (Beta x Market Risk
Premium)
b) Debt Cost of Capital > Debt Yield x (1 - Tax Rate)
c) The weighted average of the Cost of Equity and the Debt Cost
of Capital is determined by reference to a projected debt
to capital ratio of 40%. The Risk Free Rate is the average
daily closing yield rate on 30 year U.S. Government Bonds
for the month of December immediately preceding the Plan
Year, the BETA is one, and the Market Risk Premium is 5%.
The Debt Yield is the projected weighted average yield on
the Company's long term obligations for the 12 month period
ending December 31 of the Plan Year, and the tax rate is
39% for U.S. Companies, and the full statutory rate of the
country where a foreign division or subsidiary is based.
The debt to capital ratio, BETA, and Market Risk Premium should
be reviewed at least every three years with the assistance
of Stern Stewart.
d) Short-term debt is to be treated as long-term for purposes
of computing the cost of capital.
2.5 "Capital Charge" means the deemed opportunity cost of
employing Capital in the business of each Participating
Group. The Capital Charge is computed as follows:
Capital Charge > Capital X Cost of Capital (C*)
2.6 "Net Operating Profit After Tax" or "NOPAT"
"NOPAT" means the after tax cash earnings attributable to the
capital employed in the Participating Group for the year in
question. The components of NOPAT are as follows:
Operating Earnings
Plus: Increase (Decrease) in Capitalized R & D (See Note 1)
Plus: Increase (Decrease) in Bad Debt Reserve
Plus: Increase (Decrease) in Inventory Reserves
Plus: Amortization of Goodwill acquired after July 3, 1993
Less: Other Expense (Excluding interest on debt)
Plus: Other Income (Excluding investment income)
Equals: Net Operating Profit Before Tax
Less: Taxes (See Note 2)
Equals: Net Operating Profit After Tax
(1)
Since R & D is Capitalized, the difference in the balance is
the expensed amount for that year.
(2)Taxes is assumed to be 39% of Net Operating Profit Before Tax.
(For exceptions see 2.4(c)).
2.7 "Economic Value Added" or "EVA" means the NOPAT that
remains after subtracting the Capital Charge, expressed as
follows:
NOPAT
Less: Capital Charge
Equals: EVA
EVA may be positive or negative.
ARTICLE III
DEFINITION AND COMPUTATION OF TARGET BONUS VALUE
3.1 "Actual EVA" means the EVA as calculated for each
Participating Group for the year in question.
3.2 "Target EVA" means the level of EVA that is expected in
order for the Participating Group to receive the Target
Bonus Value.
The Target EVA for the first year is set at the expected EVA for
the year prior to the first year of the plan after
adjusting for inventory write-offs, Manitex relocation, FAS
106 and 109 and the $5 million product liability settlement
(except for $1.2 million). After the first year, the
Base-Line EVA is revised according to the following
formula:
(Last Year's Actual EVA +
Last Year's Target EVA)
Target EVA = --------------------------- + Expected Improvement
2 in EVA
"Expected Improvement in EVA" means the constant EVA improvement
that is added to shift the target up each year. This is
determined by the expected growth in EVA per year.
See Exhibit B for the Expected Improvement for each Participating
Group.
3.3 "Target Bonus Value" means the "Target Bonus Percentage"
times a Participant's base pay.
3.4 "Target Bonus Percentage" is determined by a Participant's
classification as shown on Exhibit B.
3.5 "Actual Bonus Value" means the bonus earned (*) by a
Participant and is computed as the Actual Bonus Percentage
times a Participant's base pay.
3.6 "Actual Bonus Percentage" is determined by multiplying the
Target Bonus Percentage by the Bonus Performance Value.
3.7 "Bonus Performance Value" means the difference between the
Actual EVA and the Target EVA divided by the Leverage
Factor plus 1.0.
3.8 "Leverage Factor" is the negative (positive) deviation from
Target EVA necessary before a zero (two times Target) bonus
is earned. See Exhibit C for the Leverage Factor of each
Participating Group.
3.9 A Participant's classification is determined by each
business unit manager. They are subject to approval by the
CEO and the Compensation Committee of the Board of
Directors.
* Note: A portion of the Actual Bonus Value may be placed in the
Participants' Bonus Bank. See Article IV for details on
the Bonus Bank.
ARTICLE IV
DESCRIPTION OF BONUS BANKS
4.1 Establishment of a Bonus Bank. To encourage a long-term
commitment by Participants to the Company, a portion of
exceptional bonuses (amounts above Target and negative
bonuses) shall be credited to "at risk" deferred accounts
("Bonus Banks"), with the level of payout contingent on
sustained high performance and improvements and continued
employment as provided herein.
4.2 Although a Bonus Bank may, as a result of negative EVA,
have a deficit, no Plan Participant shall be required, at
any time, to reimburse his/her Bonus Bank.
4.3 "Bonus Bank" means, with respect to each Participant, a
bookkeeping record of an account to which amounts are
credited, or debited as the case may be, from time to time
under the Plan and from which bonus payments to such
Participant are debited.
4.4 "Bank Balance" means, with respect to each Participant, a
bookkeeping record of the net balance of the amounts
credited to and debited against such Participant's Bonus
Bank. A Participant's Bank Balance shall initially be
equal to zero.
4.5 Payout Rule: If the Bank Balance entering the Plan Year is
zero or positive, then
1) Pay any positive bonus earned up to the "Target Bonus
Value",
2) Add any unpaid portion of the bonus earned (including
negative bonuses) to the Bonus
Bank,
3) Pay out 1/3 of any Positive Bank Balance
4) Carry the remaining Bank Balance forward to the next year.
If the Bank Balance entering the Plan Year is negative, then
1) Pay 1/3 of the positive bonus earned up to the "Target
Bonus Value",
2) Add any unpaid portion of the bonus earned (including
negative bonuses) to the Bonus Bank,
3) Pay out 1/3 of any Positive Bank Balance,
4) Carry the remaining Bank Balance forward to the next year.
4.6 A Participant may elect to withdraw, in cash, all or a
portion of the Bank Balance. The amount available for such
withdrawal is the lesser of the ending Bank Balance of the
applicable year or the Bank Balance at the end of the third
prior year.
ARTICLE V
Plan Participation, Transfers and Terminations
5.1 Participant Group. The Committee will have sole discretion
in determining who shall participate in the EVA Bonus Plan.
Employees designated for Plan participation by the
Committee shall be management or highly compensated
employees. In order for a Participant to receive or be
credited with his or her Actual Bonus Value for a Plan
Year, the Participant must have (I) remained employed by
the Company or an affiliate through the last day of such
Plan Year, (ii) terminated employment with the Company
during the Plan Year at or after age fifty-five, for any
reason, (iii) suffered a disability within the meaning of
Section 5.3 during the Plan Year, or (iv) died during the
Plan Year. In all other cases of termination of employment
prior to the last day of the Plan Year, a Participant shall
not be entitled to any Actual Bonus Value for such Plan
Year.
5.2 Transfers. A Participant who transfers his employment from
one Participating Unit of the Company to another shall
retain his Bonus Bank and will be eligible to receive
future EVA Plan Awards in accordance with the provisions of
the EVA Plan. Any positive Bonus Bank balance would payout
in full as soon as is practical.
5.3 Retirement or Disability. A Participant who terminates
employment with the Company, at or after age fifty-five,
for any reason ("retirement"), or suffers a "disability,"
as such term is defined in the Company's long-term
disability benefits program, while in the Company's employ
shall be eligible to receive the balance of their Bonus
Bank. In the case of retirement, the Participant will
receive any positive bank balance in the year immediately
following their retirement. In the case of disability
while in the Company's employ, the Participant will receive
their balance as soon as practical after qualifying for
benefit payments under the Company's long-term disability
benefits program.
5.4 Involuntary Termination Without Cause or Death. A
Participant who is Terminated without cause or who dies
shall receive any positive Bonus Bank balance. Such
payments will be made as soon as is practical.
5.5 Voluntary Termination. In the event that a Participant
voluntarily terminates employment with the Company, the
right of the Participant to their Bonus Bank shall be
forfeited unless a different determination is made by the
Committee.
5.6 Involuntary Termination for Cause. In the event of
termination of employment for cause, the right of the
Participant to the Bonus Bank shall be determined by the
Committee.
"Cause" shall mean:
(i) any act or acts of the Participant constituting a felony
under the laws of the United States, any state thereof or
any foreign jurisdiction;
(ii) any material breach by the Participant of any employment
agreement with the Company or the policies of the Company
or the willful and persistent (after written notice to the
Participant) failure or refusal of the Participant to
comply with any lawful directives of the Board;
(iii) a course of conduct amounting to gross neglect, willful
misconduct or dishonesty; or
(iv) any misappropriation of material property of the Company
by the Participant or any misappropriation of a corporate
or business opportunity of the Company by the Participant.
5.7 Breach of Agreement. Notwithstanding any other provision
of the Plan or any other agreement, in the event that a
Participant shall breach any non-competition agreement with
the Company or breach any agreement with respect to the
post-employment conduct of such Participant, the Bonus Bank
held by such Participant shall be forfeited.
5.8 No Guarantee. Participation in the Plan provides no
guarantee that a payment under the Plan will be paid.
Selection as a Participant is no guarantee that payments
under the plan will be paid or that selection as a
Participant will be made in the subsequent Calendar Year.
ARTICLE VI
General Provisions.
6.1 Withholding of Taxes. The Company shall have the right to
withhold the amount of taxes, which in the determination of
the Company, are required to be withheld under law with
respect to any amount due or paid under the Plan.
6.2 Expenses. All expenses and costs in connection with the
adoption and administration of the plan shall be borne by
the Company.
6.3 No prior Right or Offer. Except and until expressly
granted pursuant to the Plan, nothing in the Plan shall be
deemed to give any employee any contractual or other right
to participate in the benefits of the Plan.
6.4 Claims for Benefits. In the event a Participant (a
"claimant") desires to make a claim with respect to any of
the benefits provided hereunder, the claimant shall submit
evidence satisfactory to the Committee of facts
establishing his entitlement to a payment under the Plan.
Any claim with respect to any of the benefits provided
under the Plan shall be made in writing within ninety (90)
days of the event which the claimant asserts entitles him
to benefits. Failure by the claimant to submit his claim
within such ninety (90) day period shall bar the claimant
from any claim for benefits under the Plan.
6.5 In the event that a claim which is made by a claimant is
wholly or partially denied, the claimant will receive from
the Committee a written explanation of the reason for
denial and the claimant or his duly authorized
representative may appeal the denial of the claim to the
Committee at any time within ninety (90) days after the
receipt by the claimant of written notice from the
Committee of the denial of the claim. In connection
therewith, the claimant or his duly authorized
representative may request a review of the denied claim;
may review pertinent documents; and may submit issues and
comments in writing. Upon receipt of an appeal, the
Committee shall make a decision with respect to the appeal
and, not later than sixty (60) days after receipt of a
request for review, shall furnish the claimant with a
decision on review in writing, including the specific
reasons for the decision written in a manner calculated to
be understood by the claimant, as well as specific
reference to the pertinent provisions of the Plan upon
which the decision is based. In reaching its decision, the
Committee shall have complete discretionary authority to
determine all questions arising in the interpretation and
administration of the Plan, and to construe the terms of
the Plan, including any doubtful or disputed terms and the
eligibility of a Participant for benefits.
6.6 Action Taken in Good Faith; Indemnification. The Committee
may employ attorneys, consultants, accountants or other
persons and the Company's directors and officers shall be
entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all
interpretations and determinations made by the Committee in
good faith shall be final and binding upon all employees
who have received awards, the Company and all other
interested parties. No member of the Committee, nor any
officer, director, employee or representative of the
Company, or any of its affiliates acting on behalf of or in
conjunction with the Committee, shall be personally liable
for any action, determination, or interpretation, whether
of commission or omission, taken or made with respect to
the Plan, except in circumstances involving actual bad
faith or willful misconduct. In addition to such other
rights of indemnification as they may have as members of
the Board, as members of the Committee or as officers or
employees of the Company, all members of the Committee and
any officer, employee or representative of the Company or
any of its subsidiaries acting on their behalf shall be
fully indemnified and protected by the Company with respect
to any such action, determination or interpretation against
the reasonable expenses, including attorneys' fees actually
and necessarily incurred, in connection with the defense of
any civil or criminal action, suit or proceeding, or in
connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or an
award granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by Company )
or paid by them in satisfaction of a judgment in any
action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or
proceeding that such person claiming indemnification shall
in writing offer the Company the opportunity, at its own
expense, to handle and defend the same. Expenses
(including attorneys' fees) incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action,
suit or proceeding if such person claiming indemnification
is entitled to be indemnified as provided in this Section.
6.7 Rights Personal to Employee. Any rights provided to an
employee under the Plan shall be personal to such employee,
shall not be transferable (except by will or pursuant to
the laws of descent or distribution), and shall be
exercisable, during his lifetime, only by such employee.
6.8 Upon termination of the Plan or suspension for a period of
more than 90 days, the Bank Balance of each Participant
shall be distributed as soon as practicable but in no event
later than 90 days from such event. The Committee, in its
sole discretion, may accelerate distribution of the Bank
Balance, in whole or in part, at any time without penalty.
6.9 Non-Allocation of Award. In the event of a suspension of
the Plan in any Plan Year, as provided herein at Article
VIII, Section 8, the Current Bonus for the subject Plan
year shall be deemed forfeited and no portion thereof shall
be allocated to Participants. Any such forfeiture shall
not affect the calculation of EVA in any subsequent year.
ARTICLE VII
Limitations
7.1 No Continued Employment. Nothing contained herein shall
provide any employee with any right to continued employment
or in any way abridge the rights of the Company and its
Participating Units to determine the terms and conditions
of employment and whether to terminate employment of any
employee.
7.2 No Vested Rights. Except as otherwise provided herein, no
employee or other person shall have any claim of right
(legal, equitable, or otherwise)to any award, allocation,
or distribution or any right, title, or vested interest in
any amounts in his Bonus Bank and no officer or employee of
the Company or any Participating Group or any other person
shall have any authority to make representations or
agreements to the contrary. No interest conferred herein
to a Participant shall be assignable or subject to claim by
a Participant's creditors. The right of the Participant to
receive a distribution hereunder shall be an unsecured
claim against the general assets of the Company and the
Participant shall have no rights in or against any specific
assets of the Company as the result of participation
hereunder.
7.3 Not Part of Other Benefits. The benefits provided in this
plan shall not be deemed a part of any other benefit
provided by the Company to its employees. The Company
assumes no obligation to plan Participants except as
specified herein. This is a complete statement, along with
the Schedules and Appendices attached hereto, of the terms
and conditions of the plan.
7.4 Other Plans. Nothing contained herein shall limit the
Company or the Compensation Committee's power to grant
bonuses to employees of the Company, whether or not
Participants in this plan.
7.5 Limitations. Neither the establishment of the plan or the
grant of an award hereunder shall be deemed to constitute
an express or implied contract of employment for any period
of time or in any way abridge the rights of the Company to
determine the terms and conditions of employment or to
terminate the employment of any employee with or without
cause at any time.
7.6 Unfunded Plan. This Plan is unfunded and is maintained by
the Company in part to provide deferred compensation to a
select group of management and highly compensated
employees. Nothing herein shall create or be construed to
create a trust of any kind, or a fiduciary relationship
between the Company and any Participant.
ARTICLE VIII
Authority
8.1 Compensation Committee Authority. Except as otherwise
expressly provided herein, full power and authority to
interpret and administer this plan shall be vested in the
Compensation Committee. The Compensation Committee may
from time to time make such decisions and adopt such rules
and regulations for implementing the Plan as it deems
appropriate for any Participant under the Plan. Any deci-
sion taken by the Compensation Committee arising out of or
in connection with the construction, administration,
interpretation and effect of the Plan shall be final,
conclusive and binding upon all Participants and any person
claiming under or through them.
8.2 Board of Directors Authority. The Board shall be
ultimately responsible for administration of the plan.
References made herein to the "Compensation Committee"
assume that the Board of Directors has created a
Compensation Committee to administer the Plan. In the
event a Compensation Committee is not so designated, the
Board shall administer the Plan. The Board or its
Compensation Committee, as appropriate, shall work with the
CEO of the Company in all aspects of the administration of
the Plan.
ARTICLE IX
Notice
9.1 Any notice to be given pursuant to the provisions of the
Plan shall be in writing and directed to the appropriate
recipient thereof at his business address or office
location.
ARTICLE X
Effective Date
10.1 This Plan shall be effective as of July 4, 1993.
ARTICLE XI
Amendments
11.1 This Plan may be amended, suspended or terminated at any
time at the sole discretion of the Board upon the
recommendation of the Compensation Committee. Provided,
however, that no such change in the Plan shall be effective
to eliminate or diminish the distribution of any Award that
has been allocated to the Bank of a Participant prior to
the date of such amendment, suspension or termination.
Notice of any such amendment, suspension or termination
shall be given promptly to each Participant.
ARTICLE XII
Applicable Law
12.1 This Plan shall be construed in accordance with the
provisions of the laws of the State of Wisconsin.
Exhibit A
Calculation of the Cost of Capital
Inputs Variables:
Risk Free Rate > Average Daily closing yield on U.S. Government
30 Yr. Bonds (for the month of December preceding the Plan
Year).
Market Risk Premium > 5.0% (Fixed)
Beta > One (Fixed)
Debt/Capital Ratio > 40% (Fixed)
b > Cost of Debt Capital (Projected & Weighted Average Yield on
the Company's Long Term Debt Obligations).
Marginal Tax Rate > 39.0% (Historical Average). However, for
exceptions see 2.4(C)
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Calculations:
y > Cost of Equity Capital
> Risk Free Rate + (Beta x Market Risk Premium)
Weighted Average Cost of Capital > [Cost of Equity Capital x (1 -
Debt/Capital Ratio)] + [Cost of Debt x (Debt/Capital Ratio)
x (1 - Marginal Tax Rate)]
c* > [y x (1 - Debt/Capital)] + [b x (Debt/Capital) x (1 -
Marginal Tax Rate)]
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Exhibit B
Participant Target Bonus
Classification Percentage
I 60%
II 50%
III 40%
IV 35%
V 30%
VI 25%
VII 20%
VIII 15%
IX 10%
X 5%
XI 2%
Exhibit C
Participation Groups Expected Leverage
Improvement Factor
in EVA
MANITOWOC ICE - MII 500,000 2,000,000
KOLPAK 350,000 1,000,000
MCCALL 450,000 500,000
KOLPAK MANUFACTURING 100,000 500,000
FOODSERVICE GROUP (1) 1,500,000 4,000,000
SERVEND 250,000 750,000
FOODSERVICE GROUP (2) 750,000 2,250,000
JOINT VENTURE (CHINA) 100,000 300,000
FOODSERVICE SEGMENT 1,000,000 3,500,000
MANITOWOC CRANES - MCC 1,000,000 3,000,000
RE-MANUFACTURING - MRI 50,000 150,000
FEMCO 200,000 600,000
NORTH CENTRAL CRANE - NCC 40,000 120,000
MTW EUROPE LTD ($)-MEL 75,000 225,000
MTW EUROPE LTD (POUNDS) 50,000 150,000
MCC GROUP (3) 1,500,000 4,000,000
CRAWLER CRANE GROUP (4) 1,100,000 3,400,000
AFTERMARKET GROUP(5) 1,200,000 3,600,000
MANITEX - MIT 500,000 1,000,000
WEST MANITOWOC 200,000 350,000
MARINE 150,000 750,000
CORPORATE 1,000,000 7,000,000
(1) Includes MII, Kolpak, McCall, & Kolpak Manufacturing
(2) Includes MII and SerVend
(3) Includes MCC, Femco, Re-Man, NCC, and MEL
(4) Includes MCC, Re-Man, NCC, and MEL
(5) Includes MCC and Femco