AVERY DENNISON CORPORATION
AMENDED AND RESTATED
--------------------
KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
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Effective as of January 3, 1993
TABLE OF CONTENTS
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I. PURPOSE..................................................... 1
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II. PARTICIPATION............................................... 1
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III. DEFINITIONS................................................. 1
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IV. GENERAL PLAN DESCRIPTION.................................... 6
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A. Overview............................................... 6
B. Stock Options.......................................... 6
(1) Size of Grant..................................... 6
(2) Exercise Price and Exercise Period................ 6
(3) Vesting Provisions................................ 6
(4) Other Provisions.................................. 7
C. Deferred Cash Incentive Awards......................... 7
(1) Performance Cycle................................. 7
(2) Range of Award Opportunity........................ 7
(3) Performance Measurement and Calculation of Awards. 8
(a) Calculation Formula.......................... 8
(b) Weighting Factors - Categories 1 and 4....... 9
(c) Weighting Factors - Categories 2 and 3....... 9
(d) Achievement Factor........................... 10
(e) Measurement Process.......................... 10
(4) Total Shareholder Return Factor................... 10
(5) Discretionary Pool Participation.................. 11
V. PEER GROUP PERFORMANCE MEASUREMENT.......................... 11
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VI. NEW PARTICIPANTS............................................ 12
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VII. TERMINATION OF SERVICE...................................... 12
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A. Stock Options.......................................... 12
B. Deferred Cash Incentive Awards......................... 12
VIII. PAYMENT OF EARNED DEFERRED CASH INCENTIVE................... 13
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IX. TRANSFERS................................................... 13
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X. PLAN ADMINISTRATION......................................... 14
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A. General Administration................................. 14
B. Adjustments for Extraordinary Events................... 14
C. Amendment, Suspension or Termination of the Plan....... 14
D. Designation of Beneficiaries........................... 15
XI. CHANGE OF CONTROL........................................... 15
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XII. PRIOR PLAN.................................................. 17
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i
XIII. MISCELLANEOUS PROVISIONS..................................... 17
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A. Unsecured Status of Claim............................... 17
B. Employment Not Guaranteed............................... 17
C. Right of Offset......................................... 17
D. Nonassignability........................................ 18
E. Validity................................................ 18
F. Withholding-Tax......................................... 18
G. Applicable Law.......................................... 18
H. Inurement of Rights and Obligations..................... 18
ii
AMENDED AND RESTATED
--------------------
KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
--------------------------------------
I. PURPOSE
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The purpose of the Amended and Restated Key Executive Long-Term Incentive Plan
(the "Plan") is to focus key executives of Avery Dennison Corporation (the
"Company") on factors that influence the Company's long-term growth and success.
The Plan provides a means whereby Participants are given an opportunity to share
financially in the future value they help to create for the Company and its
stockholders.
II. PARTICIPATION
-------------
Participation in the Plan is limited to key executives of the Company who, in
the opinion of the Compensation Committee of the Board of Directors, have the
responsibility to materially influence the Company's long-range performance, and
who have been recommended for participation by the Chief Executive Officer of
the Company and designated as Participants by the Compensation Committee.
III. DEFINITIONS
-----------
"ACHIEVEMENT FACTOR" means the percentage to be used in determining a
Participants's deferred cash incentive Award for achieving a specified
percentage of the pre-established Performance Objectives.
"AFTER-TAX INTEREST EXPENSE" means total interest expense as disclosed in the
Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable,
multiplied by one (1) minus the Tax Rate.
"AVERAGE CAPITAL" means the numerical average for a given year of ending Capital
for the five most recently completed fiscal quarters, including the last quarter
of that year.
"AVERAGE SHAREHOLDERS' EQUITY" means the numerical average for a given year of
ending Shareholders' Equity for the five most recently completed fiscal
quarters, including the last quarter of that year.
"AWARD" refers to either (a) a Stock Option granted under the 1990 Plan
evidenced by an Option Agreement which generally incorporates the terms and
provisions of the Plan relating to Stock Options, or (b) a deferred cash
incentive earned by a Participant based on the achievement of Company and, in
some cases, Business Unit financial objectives.
1
"BASE SALARY" means the annual base salary rate in effect for a Participant as
of the end of a Performance Cycle.
"BUSINESS UNIT" or "UNIT" refers to a group, division or subsidiary of the
Company.
"BUSINESS UNIT NET INCOME" means net income of a Business Unit as reported in
the Company's internally prepared Summary of Operations.
"BUSINESS UNIT ROTC" means the return on total capital of a Business Unit as
reported in the Company's internally prepared Summary of Operations.
"CAPITAL" refers to the sum of Shareholders' Equity and Long-Term Debt.
"CASH FLOW FROM OPERATIONS" means net cash provided by operating activities as
disclosed in the Company's annual reports to shareholders and quarterly reports
on Form 10-Q.
"CAUSE" means (i) continued failure by a Participant to perform his or her
duties (except as a direct result of the Participant's incapacity due to
physical or mental illness) after receiving notification by the Chief Executive
Officer or an individual designated by the Chief Executive Officer (or the Board
of Directors in the case of the Chief Executive Officer) identifying the manner
in which the Participant has failed to perform his or her duties, (ii) engaging
in conduct, which, in the opinion of a majority of the Board of Directors, is
materially injurious to the Company, or (iii) conviction of the Participant of
any felony involving moral turpitude.
"CHANGE OF CONTROL" shall mean a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A,
Regulation 240.14a-101, promulgated under the Securities Exchange Act of 1934 as
now in effect or, if Item 6(e) is no longer in effect, any regulations issued by
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934 which serve similar purposes; provided that, without limitation, a
Change of Control shall be deemed to have occurred if and when (a) any "person"
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes a beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities, or (b)
individuals who were members of the Board of Directors of the Company
immediately prior to a meeting of the stockholders of the Company involving a
contest for the election of directors shall not constitute a majority of the
Board of Directors following such election.
"CODE" means the Internal Revenue Code of 1986, as amended.
2
"COMPANY ROTC" means the return on total capital of the Company as reported in
the Company's internally prepared Summary of Operations.
"COMPENSATION COMMITTEE" or "COMMITTEE" refers to the Compensation Committee of
the Board of Directors of the Company.
"DISABILITY" refers to a physical or mental condition that prevents a
Participant from performing his or her normal duties of employment. If a
Participant makes application for disability benefits under the Company's long-
term disability program and qualifies for such benefits, the Participant shall
be presumed to qualify as totally and permanently disabled under the Plan.
"DISCRETIONARY POOL" or "POOL" refers to the sum of cash payments made available
by the Compensation Committee to Participants who have achieved exceptional
performance and to other Company employees who have made significant
contributions to the achievement of Performance Objectives.
"EARNINGS PER SHARE" or "EPS" means earnings per share, including extraordinary
gains and losses, divested operations and changes in accounting principles as
disclosed in the Company's annual reports to shareholders.
"ECONOMIC VALUE ADDED" means operating profit after taxes on income minus a
capital charge based upon the Company's weighted average cost of capital.
"EFFECTIVE DATE" means January 3, 1993, which is the first day of the initial
Performance Cycle.
"FAIR MARKET VALUE" means the average of the high and low trading price of the
Company's common stock on a given day, as reported on the New York Stock
Exchange Composite Tape.
"GAAP" means generally accepted accounting principles.
"LONG-TERM DEBT" means long-term debt as disclosed in the Company's annual
reports to shareholders and Peer Group companies' annual reports to shareholders
and quarterly reports on Form 10-Q, if applicable.
"NET INCOME" refers to after-tax net income, including extraordinary items,
discontinued operations and changes in accounting principles, as disclosed in
the Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable.
3
"NET SALES" means net sales as disclosed in the Company's annual reports to
shareholders and quarterly reports on Form 10-Q.
"1990 PLAN" refers to the 1990 Stock Option and Incentive Plan for Key Employees
of Avery Dennison Corporation (formerly named Avery International Corporation),
or a successor plan.
"OPTION AGREEMENT" means a written stock option agreement evidencing options
granted under the 1990 Plan which generally incorporates the terms and
provisions of the Plan relating to Stock Options.
"PARTICIPANT" means an executive of the Company designated by the Compensation
Committee to participate in the Plan.
"PEER GROUP" refers to a specified group of companies approved by the
Compensation Committee against which the financial performance of the Company
will be compared for purposes of the Plan.
"PERFORMANCE CYCLE" or "CYCLE" refers to the three-year period over which
performance is measured for purposes of determining cash Awards under the Plan.
The initial Performance Cycle will cover the Company's 1993 through 1995 fiscal
years.
"PERFORMANCE OBJECTIVE" means one of four pre-established Performance
Objectives: Company ROTC, EPS, Business Unit ROTC and Business Unit Net Income.
"RETIREMENT" means a termination of service in accordance with the retirement
provisions of either (a) the Company sponsored tax qualified defined benefit
retirement plan in which a Participant is participating immediately prior to the
date of such termination of service, or (b) the Company-sponsored Supplemental
Retirement Plan (SERP) in which the Participant is participating immediately
prior to the date of such termination of service. If the Participant does not
participate in either of the above retirement plans, then Retirement means a
termination of service in accordance with the retirement provisions of the
Company's tax-qualified defined contribution retirement plan in which the
Participant then participates.
"ROE" means the percentage determined by dividing "Net Income" by "Average
Shareholders' Equity."
"ROS" means the percentage determined by dividing Net Income by Net Sales.
"ROTC" means the percentage determined by dividing (a) the sum of Net Income
plus After-Tax Interest Expense by (b) Average Capital.
"SERVICE" means continuous and substantially full-time employment with the
Company.
4
"SHAREHOLDERS' EQUITY" means total shareholders' equity, as disclosed in the
Company's annual reports to shareholders and Peer Group companies' annual
reports to shareholders and quarterly reports on Form 10-Q, if applicable.
"STOCK OPTION" or "OPTION" refers to an option to purchase common stock of the
Company at a fixed price for a specified period granted pursuant to the 1990
Plan and evidenced by an Option Agreement which generally incorporates the terms
and provisions of the Plan relating to Stock Options.
"TARGET AWARD" refers to the deferred cash incentive Award earned for achieving
100% of the targeted financial objectives established for a Performance Cycle.
"TAX RATE" refers to taxes on income divided by income before taxes on income,
each as disclosed in the Company's annual reports to shareholders and Peer Group
companies' annual reports to shareholders and quarterly reports on Form 10-Q, if
applicable, subject to adjustments to exclude the effect of unusual, non-
recurring items, as described in the Company's annual reports to shareholders
and Peer Group companies' annual reports to shareholders and quarterly reports
on Form 10-Q, if applicable.
"TERMINATION OF SERVICE" means a termination of Service from the Company for any
reason, whether voluntary or involuntary, including death, Retirement and
Disability.
"TOTAL SHAREHOLDER RETURN" means the cumulative shareholder return on a
company's common stock, including the reinvestment of dividends, as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the company's closing stock price at the end and the beginning of the
measurement period, by (ii) the closing stock price at the beginning of the
measurement period.
"TOTAL SHAREHOLDER RETURN FACTOR" means the additional deferred cash incentive
Award opportunity for Participants classified as Senior Executive Officers which
is based on the Company's Total Shareholder Return versus the Total Shareholder
Return of the Peer Group for a Performance Cycle.
"TRANSFER" means the appointment of a Participant to a new position within the
Company which may either be within the same position classification under the
Plan or in a different position classification under the Plan.
"WEIGHTING FACTOR" means the percentage of a Participant's Target Award which
will be calculated based on the achievement of a particular Performance
Objective.
5
IV. GENERAL PLAN DESCRIPTION
------------------------
A. OVERVIEW
--------
Commencing as of the Effective Date, the Plan provides for each Participant (a)
the opportunity to receive an annual grant of Stock Options, and (b) the
opportunity to earn a deferred cash incentive Award based on the financial
performance of the Company and, in some cases, its Business Units.
B. STOCK OPTIONS
-------------
(1) SIZE OF GRANT
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Annual Stock Option grants will be determined by the Committee.
(2) EXERCISE PRICE AND EXERCISE PERIOD
----------------------------------
The exercise price for Options will equal 100% of the Fair Market Value of
the Company's common stock as of the date of grant. Options will have a
maximum exercise period ("Term") of ten (10) years from the date of grant.
(3) VESTING PROVISIONS
------------------
Options will vest (become available for exercise) nine years and nine
months from their date of grant.
However, if certain conditions are met, Options will become eligible for
accelerated or early vesting three years from their date of grant. Such
early vesting will occur provided that the Company ROTC for the Company's
most recently completed fiscal year equals or exceeds the ROTC of the
median company among the Peer Group for that year, except that for Options
granted under this Plan in 1993, such early vesting will occur provided
that the Company ROTC for its most recently completed fiscal year equals or
exceeds the ROTC of the bottom 40th percentile company among the Peer Group
for that year (e.g., the performance test for accelerated vesting for
Options granted in 1993 will be based on ROTC for the 1995 fiscal year).
If the Company meets the performance test described above, all prior non-
vested Options eligible for early vesting will become available for
exercise as soon as possible following certification of the Company's
performance and the performance of the median company, or the bottom 40th
percentile company, as the case may be, among the Peer Group by the
Committee.
6
If the Company fails to meet the performance test described above, all
prior non-vested Options eligible for early vesting will be subject to a
similar performance test following the end of the next fiscal year. The
test for early vesting of Options will continue to "roll" in the manner
described above until the Company passes the performance test or nine years
and nine months have elapsed from the date of grant.
(4) OTHER PROVISIONS
----------------
All Options granted as contemplated by the Plan will be granted under the
1990 Plan. Each Option granted under the 1990 Plan will be evidenced by an
Option Agreement specifying the terms and conditions of the Option. In the
event of any inconsistency between the Plan and an Option Agreement, the
terms and conditions of the Option Agreement shall control.
C. DEFERRED CASH INCENTIVE AWARDS
------------------------------
In addition to the opportunity for annual Option grants described in Section
IV.B. above, each Participant will be provided with the opportunity to earn a
deferred cash incentive Award after the end of a three-year Performance Cycle.
(1) PERFORMANCE CYCLE
-----------------
The initial Performance Cycle will cover the period beginning with the
Company's 1993 fiscal year and ending with the Company's 1995 fiscal year.
Subsequent three-year Performance Cycles will begin every two years,
starting with the Company's 1995 fiscal year.
(2) RANGE OF AWARD OPPORTUNITY
--------------------------
The deferred cash incentive Award opportunity for each Participant during
each Performance Cycle ranges from 0% to one of 80%, 60% or 30% of Base
Salary depending upon position classification as illustrated in Table 1
below. In addition, the deferred cash incentive Award opportunity for
Participants classified in Category 1 may be increased by the Total
Shareholder Return Factor described in Section IV.C.(4) below.
Classification of Participants into the categories listed in Table 1 will
be recommended by the Chief Executive Officer of the Company and approved
by the Compensation Committee.
The Target Award for each Participant (the deferred cash incentive Award
earned for achieving the targeted performance goals) equals the maximum
Award opportunity.
7
TABLE 1
DEFERRED CASH INCENTIVE AWARD RANGE
BY POSITION CLASSIFICATION
AWARD RANGE AS TARGET AWARD AS
CATEGORY POSITION CLASSIFICATION % OF BASE SALARY % OF BASE SALARY
- ----------- ----------------------------- ----------------- -----------------
1 Senior Executive Officers 0% - 80% 80%
2 Group and Sub-Group VP's 0% - 60% 60%
3 Division VP/GM's and Officers 0% - 30% 30%
4 Corporate & Staff Officers 0% - 30% 30%
The actual deferred cash incentive Award earned within this range will
depend upon the level of achievement versus specific performance goals
established under the Plan for each Performance Cycle.
(3) PERFORMANCE MEASUREMENT AND CALCULATION OF AWARDS
-------------------------------------------------
(a) CALCULATION FORMULA
-------------------
Deferred cash incentive Awards will be determined based upon the Company's,
and in some cases, Business Unit's achievement versus pre-established
Performance Objectives. The total Award will equal the sum of the Awards
for each Performance Objective. The Award for each Performance Objective
will be determined by (i) multiplying the Target Award by the Weighting
Factor (set forth in (b) and (c) below) for each Performance Objective and
(ii) multiplying the product of clause (i) by the Achievement Factor (set
forth in (d) below) for that Performance Objective. In addition, for
Participants classified in Categories 2, 3 and 4 only, the Compensation
Committee may, in its discretion, provide for deferred cash compensation
Awards in excess of the Awards which would be made based on the foregoing
formula.
The foregoing formula can be expressed as the following mathematical
equation:
Total Award = [Target Award (Base Salary x Target Award as % of Base
Salary) x Weighting Factor x Achievement Factor for first Performance
Objective] + [Target Award (Base Salary x Target Award as % of Base Salary)
x Weighting Factor x Achievement Factor for second Performance Objective] +
[Target Award (Base Salary x Target Award as % of Base Salary) x Weighting
Factor x Achievement Factor for third Performance Objective, if any] +
[Target Award (Base Salary x Target Award as % of Base Salary) x Weighting
Factor x Achievement Factor for fourth Performance Objective, if any].
8
(b) WEIGHTING FACTORS - CATEGORIES 1 AND 4
--------------------------------------
For Participants classified in Categories 1 and 4, deferred cash incentive
Awards will be determined based upon the Company's achievement versus pre-
established Company ROTC and EPS Performance Objectives.
For the initial Performance Cycle, the Company and Business Unit
performance factors will be weighted as follows in determining the deferred
cash incentive Award:
PERFORMANCE OBJECTIVE WEIGHTING FACTOR
- ------------------------ -----------------
Company ROTC 50%
EPS 50%
In subsequent Performance Cycles, the Compensation Committee may select
different measures (including, without limitation, ROS, ROE, Net Income,
Net Sales, Cash Flow from Operations and Economic Value Added) and
weightings to determine such Awards.
(c) WEIGHTING FACTORS - CATEGORIES 2 AND 3
--------------------------------------
For Participants classified in Categories 2 and 3, deferred cash incentive
Awards will be determined based upon (i) the Company's achievement versus
pre-established Company ROTC and EPS Performance Objectives, and (ii) the
performance of the Participant's Business Unit against pre-established
Business Unit ROTC and Business Unit Net Income objectives for the Unit.
For the initial Performance Cycle, the Company and Business Unit
performance factors will have the following Weighting Factors:
PERFORMANCE OBJECTIVE WEIGHTING FACTOR
- --------------------------- -----------------
Company ROTC 10%
EPS 10%
Business Unit ROTC 40%
Business Unit Net Income 40%
In subsequent Performance Cycles, the Compensation Committee may select
different measures (including, without limitation, ROS, ROE, Net Income,
Net Sales, Cash Flow from Operations and Economic Value Added) and
weightings to determine such Awards.
9
(d) ACHIEVEMENT FACTOR
------------------
The Achievement Factor for each Performance Objective will be
between a threshold Achievement Factor of 70% (for achieving 80%
of the Performance Objective) and a maximum Achievement Factor of
100% (for achieving the Performance Objective) as illustrated in
the table below. The Achievement Factors for performance between
the threshold and maximum Achievement Factors will be linearly
interpolated.
% ACHIEVEMENT OF
----------------
PERFORMANCE OBJECTIVE ACHIEVEMENT FACTOR
--------------------- ------------------
Less than 80% 0
80% 70%
85% 77.5%
90% 85.0%
95% 92.5%
100% 100%
(e) MEASUREMENT PROCESS
-------------------
For the initial Performance Cycle, the measurement of Company
ROTC, EPS, Business Unit ROTC and Business Unit Net Income will
be based upon performance during the final year of the Cycle
(1995). For subsequent Performance Cycles, performance
measurement may be based upon different criteria (e.g., average
performance over the Cycle) at the discretion of the Compensation
Committee.
(4) TOTAL SHAREHOLDER RETURN FACTOR
-------------------------------
Participants classified in Category 1 will have an opportunity to
increase their deferred cash incentive Award by the Total
Shareholder Return Factor, but only if the Company's Total
Shareholder Return exceeds the median Total Shareholder Return
for the Peer Group for a Performance Cycle. However, the
Compensation Committee, in its discretion, may determine that the
Total Shareholder Return Factor shall not be payable if neither
of the Company's EPS or ROTC threshold Performance Objectives
(i.e., 80% of the targeted Performance Objective) for the
Performance Cycle has been met.
The Total Shareholder Return Factor will equal (i) 5% of the
Participant's Base Salary for each percentage point (up to five
percentage points) by which the compound annual growth of the
Company's Total Shareholder Return exceeds the median compound
annual growth of the Total Shareholder Return for the Peer Group
(calculated on a comparable basis), plus
10
(ii) 10% of the Participant's Base Salary for each percentage point (in
excess of five percentage points) by which the Company's Total Shareholder
Return exceeds the median Total Shareholder Return for the Peer Group. The
maximum Total Shareholder Return Factor will be 100% of the Participant's
Base Salary. If the Company's Total Shareholder Return in excess of the
median Total Shareholder Return for the Peer Group is not a whole number,
the Total Shareholder Return Factor will be linearly interpolated.
(5) DISCRETIONARY POOL PARTICIPATION
--------------------------------
A Discretionary Pool will be available for each Performance Cycle to
provide the opportunity for Participants (other than Category I
Participants) who have achieved exceptional performance to earn more than
the Target Award, or for individuals who are not selected to be
Participants in the Plan but who have made significant contributions to the
achievement of Performance Objectives to earn cash payments. A "target"
Discretionary Pool will be determined by the Compensation Committee prior
to the beginning of each Performance Cycle. The actual Discretionary Pool
made available will be determined by the Committee at the end of the
Performance Cycle and may exceed or fall below the "target" Pool based upon
the Committee's assessment of (i) overall Company performance during the
Cycle and (ii) the performance of the individual Business Units.
The actual Discretionary Pool approved by the Compensation Committee will
be allocated among individuals recommended by the Chief Executive Officer
and approved by the Compensation Committee; provided, however, that
Category I Participants will not be eligible for participation in the
Discretionary Pool.
No payments will be made from the Discretionary Pool unless at least one of
the Company's EPS or ROTC threshold Performance Objectives (i.e., 80% of
the targeted Performance Objective) for the Performance Cycle has been met.
V. PEER GROUP PERFORMANCE MEASUREMENT
----------------------------------
In order to facilitate the Peer Group performance comparison needed to
determine the accelerated Option vesting, the Peer Group ROTC figures for
the individual years used to determine accelerated Option vesting will be
based upon the twelve months performance for each company in the Peer Group
closest to the Company's fiscal year end, based on the most recent publicly
available financial information for such company. In order to facilitate
the Peer Group performance comparison needed to determine the Total
Shareholder Return Factor, the Peer Group Total Shareholder Return figures
for the Performance Cycle will be based upon the performance for each
company in the Peer Group for the year ended December 31. Peer Group
performance calculations will be made from
11
information obtained from the Peer Group companies' annual reports to
shareholders and publicly available stock price information.
VI. NEW PARTICIPANTS
----------------
New Participants may be added to the Plan at any time at the discretion of the
Compensation Committee. The timing and performance test for determining
accelerated vesting for the grant will be identical to the test and timing
associated with the regular Option grant made to other Participants for that
fiscal year. If an executive becomes a Participant, he or she will be eligible
to receive an Option grant at the time of the next regular Option grant.
For the deferred cash incentive portion of the Plan, the Award opportunity of a
new Participant will be prorated for each Performance Cycle based on the number
of months of participation in the Plan divided by 36. Notwithstanding the
above, an individual must participate in the Plan for at least 12 months during
any Performance Cycle to be eligible to receive a deferred cash incentive Award
for that Cycle.
VII. TERMINATION OF SERVICE
----------------------
A. STOCK OPTIONS
-------------
Options may be exercised following a Termination of Service in the manner and to
the extent provided for in the Option Agreement which governs the grant.
B. DEFERRED CASH INCENTIVE AWARDS
------------------------------
If a Participant terminates Service with the Company prior to the end of a
Performance Cycle due to voluntary termination or termination for Cause, the
Participant will not receive any deferred cash incentive Award for that
Performance Cycle.
Upon a Termination of Service during a Performance Cycle due to death or
Disability, a Participant's deferred cash incentive Award opportunity for that
Cycle will be prorated by dividing the number of full months of participation in
the Cycle by thirty-six (36).
If a Participant's Service is terminated involuntarily without Cause prior to
the completion of a Performance Cycle, the Participant will be entitled to
receive the following percentage of his or her earned deferred cash incentive
Award for the Cycle:
12
IF TERMINATION OCCURS BETWEEN % OF EARNED
X MONTHS FROM START OF CYCLE AWARD TO BE PAID
- -------------------------------- ----------------
0 - 27 Months 0%
27 - 36 Months 33 1/3%
Upon a Termination of Service due to Retirement prior to the completion of a
Performance Cycle, the Participant will be entitled to receive the following
percentage of his or her earned deferred cash incentive Award for the Cycle:
IF TERMINATION OCCURS BETWEEN % OF EARNED
X MONTHS FROM START OF CYCLE AWARD TO BE PAID
- -------------------------------- ------------------
0 - 3 Months 0%
3 - 12 Months 33 1/3%
12 - 15 Months 50%
15 - 24 Months 66 2/3%
24 - 27 Months Prorate to 100%
27 - 36 Months 100%
VIII. PAYMENT OF EARNED DEFERRED CASH INCENTIVE
-----------------------------------------
Earned Awards under the deferred cash incentive portion of the Plan (net of any
applicable taxes) will be paid in cash as soon as possible following the
determination of Company, Business Unit and Peer Group performance for the
Performance Cycle. Upon the death of a Participant, the Compensation Committee
may elect to provide early payment in order to facilitate the settlement of the
Participant's estate.
IX. TRANSFERS
---------
Upon a Transfer prior to the completion of a Performance Cycle, the Participant
will earn his or her deferred cash incentive Award for the Cycle based on his or
her old and/or new positions, as follows:
IF TRANSFER OCCURS BETWEEN
X MONTHS FROM START OF CYCLE AWARD EARNED IN OLD/NEW POSITION
---------------------------- --------------------------------
0 - 6 Months 100% in new position
6 - 30 Months Prorated between old and new positions
30 - 36 Months 100% in old position
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X. PLAN ADMINISTRATION
-------------------
A. GENERAL ADMINISTRATION
----------------------
The Compensation Committee will administer the Plan, and will interpret the
provisions of the Plan. The interpretation and application of these terms by
the Compensation Committee shall be binding and conclusive. The Committee's
authority will include, but is not limited to:
. The selection of Participants;
. The establishment and modification of performance measures,
Performance Objectives and weighting of objectives;
. The determination of performance results and Awards;
. Exceptions to the provisions of the Plan made in good faith and for
the benefit of the Company.
B. ADJUSTMENTS FOR EXTRAORDINARY EVENTS
------------------------------------
If an event occurs during a Performance Cycle that materially influences
Company ROTC, EPS, Business Unit ROTC or Business Unit Net Income and
is deemed by the Compensation Committee to be extraordinary and out of
the control of management, the Committee may, in its sole discretion,
increase or decrease Company ROTC, EPS, Business Unit ROTC, or
Business Unit Net Income figure used to determine deferred cash
incentive Awards or Option vesting. Events warranting such action may
include, but are not limited to, changes in accounting, tax or
regulatory rulings and significant changes in economic conditions
resulting in "windfall" gains or losses.
C. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
------------------------------------------------
The Committee may amend, suspend or terminate the Plan, whole or in part,
at any time, if, in the sole judgment of the Committee, such action is
in the best interests of the Company. Notwithstanding the above, any
such amendment, suspension or termination must be prospective in that
it may not deprive Participants of that which they otherwise would
have received under the Plan for the current Performance Cycle had the
Plan not been amended, suspended or terminated.
14
D. DESIGNATION OF BENEFICIARIES
----------------------------
Each Participant shall have the right at any time to designate any person or
persons as beneficiary(ies) to whom any cash payments earned under the Plan
shall be made in the event of the Participant's death prior to the distribution
of all benefits due the Participant under the Plan. Each beneficiary designation
shall be effective only when filed in writing with the Company during the
Participant's lifetime, on a Beneficiary Designation Form approved by the
Compensation Committee.
The filing of a new Beneficiary Designation Form will cancel all designations
previously filed. Any finalized divorce or marriage (other than a common law
marriage) of a Participant subsequent to the date of filing of a Beneficiary
Designation Form shall revoke such designation unless:
. In the case of divorce, the previous spouse was not designated as
beneficiary, and
. In the case of marriage, the Participant's new spouse had previously
been designated as beneficiary.
The spouse of a married Participant shall join in any designation of a
beneficiary other than the spouse on a form prescribed by the Compensation
Committee.
If a Participant fails to designate a beneficiary as provided for above, or if
the beneficiary designation is revoked by marriage, divorce or otherwise without
execution of a new designation, then the Compensation Committee shall direct the
distribution of Plan benefits to the Participant's estate.
XI. CHANGE OF CONTROL
-----------------
A. Subject to paragraphs (C) through (E) of this Section XI, upon a Change of
Control: (i) each Participant shall receive a cash payment equal to his or her
Target Award under the deferred cash incentive portion of the Plan for each
Performance Cycle that begins on or before the date of the Change of Control and
ends after the date of the Change of Control, based on the Participant's annual
base salary rate in effect at the time of the Change of Control; and (ii)
treatment of Options upon a Change of Control will be governed by the provisions
of the relevant Option Agreement.
B. Following a Change of Control, each Participant shall continue to be
entitled to receive payments under the deferred cash incentive portion of the
Plan for each Performance Cycle that begins on or before the date of the Change
of Control and ends after the date of the Change of Control, as earned in
accordance with the terms of the Plan, to the extent such Participant has not
already received such payment for that Performance Cycle pursuant to paragraph
(A) of this Section XI.
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C. Notwithstanding the foregoing, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of a Participant
(whether paid or payable or distributed or distributable pursuant to the terms
of the Plan or otherwise) (a "Payment") would be nondeductible by the Company
for Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or distributable to or for the
benefit of the Participant pursuant to the Plan (such payments or distributions
pursuant to the Plan are hereinafter referred to as "Plan Payments") shall be
reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value that maximizes the aggregate present
value of Plan Payments without causing any Payment to be nondeductible by the
Company because of Section 280G of the Code. For purposes of this Section XI,
present value shall be determined in accordance with Section 280(d)(4) of the
Code.
D. All determinations required to be made under paragraphs (C) through (E) of
this Section XI shall be made by Coopers & Lybrand (the "Accounting Firm"),
which shall provide detailed supporting calculations to both the Company and the
Participant within 30 business days of the date of the Change of Control or such
earlier time as is requested by the Company. Any such determination by the
Accounting Firm shall be binding upon the Company and the Participant. The
Participant shall determine which and how much of the Plan Payments (or, at the
election of the Participant, other Payments) shall be eliminated or reduced
consistent with the requirements of paragraph (C) of this Section XI, provided
that, if the Participant does not make such determination within ten business
days of the receipt of the calculations made by the Accounting Firm, the Company
shall elect which and how much of the Plan Payments shall be eliminated or
reduced consistent with the requirements of paragraph (C) of this Section XI and
shall notify the Participant promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of
the Participant such amounts as are then due to the Participant under the Plan.
E. As a result of the uncertainty in the application of Section 280G of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Plan Payments will have been made by the Company that should
not have been made ("Overpayment") or that additional Plan Payments that will
not have been made by the Company could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made hereunder. In the
event that the Accounting Firm determines that an Overpayment has been made, any
such Overpayment shall be treated for all purposes as a loan to the Participant,
which the Participant shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Participant to the
Company (or if paid by the Participant to the Company shall be returned to the
Participant) if and to the extent such payment would not reduce the amount which
is subject to taxation under Section 4999 of the Code. In the event that the
Accounting Firm determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or for the benefit of
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the Participant together with interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code.
XII. PRIOR PLAN
----------
The Company's Key Executive Long-Term Incentive Plan, effective as of January 1,
1991 (the "Prior Plan"), shall remain in effect as to all Participants therein
for the balance of the initial Performance Cycle thereunder (1991 to 1993) and
for Options granted thereunder. Nothing contained in this Plan shall affect the
calculation or payment of benefits under the Prior Plan as to such initial
Performance Cycle, or the vesting of Options granted under the Prior Plan.
XIII. MISCELLANEOUS PROVISIONS
------------------------
A. UNSECURED STATUS OF CLAIM
-------------------------
Participants and their beneficiaries, heirs, successors and assigns shall have
no legal or equitable rights, interests or claims in any specific property or
assets of the Company. No assets of the Company shall be held under any trust
for the benefit of Participants, their beneficiaries, heirs, successors or
assigns, or held in any way as collateral security for the fulfillment of the
Company's obligations under the Plan.
Any and all of the Company's assets shall be, and shall remain, the general
unpledged and unrestricted assets of the Company. The Company's obligations
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay benefits in the future.
B. EMPLOYMENT NOT GUARANTEED
-------------------------
Nothing contained in the Plan nor any action taken in the administration of the
Plan shall be construed as a contract of employment or as giving a Participant
any right to be retained in the Service of the Company.
C. RIGHT OF OFFSET
---------------
If a Participant becomes entitled to a payment under the deferred cash incentive
portion of the Plan, and if at such time the Participant has outstanding any
debt, obligation or other liability representing any amount owing to the
Company, then the Company may offset such amount against the amount of the
payment otherwise due the Participant under the Plan.
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D. NONASSIGNABILITY
----------------
No person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, hypothecate or convey, in advance of
actual receipt, the benefits, if any, payable under the Plan, or any part
thereof, or any interest therein, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable. No portion of the
amounts payable shall, prior to actual payment, be subject to seizure,
attachment, lien or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person, nor
be transferable by operation of law in the event of the Participant's or any
other person's bankruptcy or insolvency. Any such transfer or attempted
transfer in violation of the preceding provisions shall be null and void.
E. VALIDITY
--------
In the event that any provision of the Plan is held to be invalid, void or
unenforceable, the same shall not effect, in any respect whatsoever, the
validity of any other provision of the Plan.
F. WITHHOLDING-TAX
---------------
The Company shall withhold from all benefits due under the Plan an amount
sufficient to satisfy any federal, state and local tax withholding requirements.
G. APPLICABLE LAW
--------------
The Plan shall be governed in accordance with the laws of the State of Delaware.
H. INUREMENT OF RIGHTS AND OBLIGATIONS
-----------------------------------
The rights and obligations under the Plan shall inure to the benefit of, and
shall be binding upon the Company, its successors and assigns, and the
Participants and their beneficiaries.
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