ANNUAL INCENTIVE PLAN
FOR CERTAIN EMPLOYEES OF COLTEC INDUSTRIES INC
AND ITS SUBSIDIARIES
(As amended and restated effective January 1, 1994)
1. PURPOSE OF THE PLAN.
The purpose of this Annual Incentive Plan (the "PLAN") is to provide
an incentive and reward to employees of Coltec Industries Inc (the
"CORPORATION") and its subsidiaries who are in a position to make substantial
contributions to the management, growth and success of the business by making
such employees participants in the profits from the business through the medium
of incentive awards.
2. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by a committee which shall
consist of not less than two members of the Board of Directors of the
Corporation and shall be designated the Stock Option and Compensation Committee
of the Board of Directors (the "COMMITTEE"). Each member of the Committee shall
be a "DISINTERESTED PERSON" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and, for periods on and after the
date of the first annual meeting of shareholders to occur after July 1, 1994 at
which directors are elected, an "OUTSIDE DIRECTOR" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "CODE"). The
Committee shall be appointed by the Board of Directors, which may from time to
time appoint members to the Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Committee. The Board of Directors shall also designate one of the members of
the Committee as its Chairman. The Committee shall hold its meetings at such
times and places as it may determine. A majority of its members shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination of the Committee reduced
to writing and signed by all the members shall be fully as effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary (who need not be a member of the
Committee) and may make such rules and regulations for the conduct of its
business as it shall deem advisable. No member of the Committee shall be
liable, in the absence of bad faith, for any act or omission with respect to his
service on the Committee. Service on the Committee shall constitute service as
a director of the Corporation so that the members of the Committee shall be
entitled to indemnification and reimbursement as directors of the Corporation
pursuant to its By-laws.
(b) The Committee is authorized to interpret this Plan and may from
time to time adopt such rules and regulations for carrying out this Plan as it
may deem best. Decisions of the Committee shall be final, conclusive and
binding upon all parties, including the Corporation, the shareholders and the
employees, except that the Committee shall rely upon the amount of Operating
Profit (as hereinafter defined) which the independent public accountants of the
Corporation determine and report for each year.
3. PLAN LIMIT.
No awards to Executive Officers shall be made under this Plan for any
year unless Operating Profit for such year exceeds $100 million (the "THRESHOLD
TARGET").
4. MAXIMUM AMOUNT AVAILABLE FOR INCENTIVE AWARDS UNDER THE PLAN FOR ANY YEAR.
(a) The maximum amount available for incentive awards under this Plan
for any year (the "BONUS POOL") shall be six percent of Operating Profit.
(b) The maximum amount that may be paid to a Named Executive (as
hereinafter defined) under the Plan for any year shall not exceed 20% of the
Bonus Pool for such year (the "NAMED EXECUTIVE LIMIT"). For purposes of the
previous sentence, a "NAMED EXECUTIVE" for a given year refers to each of the
two executive officers at the end of such year who have the highest annual base
salary for such year as compared to all other executive officers of the
Corporation at the end of such year.
5. DEFINITIONS.
(a) The term "OPERATING PROFIT" as used herein shall mean, for each
year, the net earnings of the Corporation and its consolidated subsidiaries,
plus interest expense and provisions for income taxes, minus interest income and
excluding nonrecurring items, extraordinary items, accounting principle changes
and discontinued operations (as such terms are defined under United States
generally accepted accounting principles ("GAAP") as in effect from time to
time) in such year, as determined from the Consolidated
Statement of Earnings of the Corporation and its consolidated subsidiaries for
such year reported on by the Corporation's independent public accountants, less
the amount of any provision for awards under this Plan or any other incentive
plan or arrangement of the Corporation or any subsidiary (if not previously
deducted in computing Operating Profit) for such year, plus the amount of any
deferred award under this Plan which shall have become forfeited during such
year (if not previously included in computing Operating Profit) which was
deducted in computing Operating Profit for any prior year. Nonrecurring items
are material events or transactions that are unusual in nature or occur
infrequently. Accounting principle changes result from the adoption of GAAP
different from the GAAP at the start of a year.
(b) The term "EXECUTIVE OFFICERS" shall mean all officers of the
Corporation, but shall not include assistant officers.
6. PARTICIPATION IN THE PLAN.
(a) Participation in this Plan for each year shall be limited to
those employees of the Corporation and its subsidiaries who, in the opinion of
the Committee, are in a position to influence the overall success of the
Corporation and who are selected by the Committee.
(b) The term "EMPLOYEES" shall include officers as well as other
senior executives of the Corporation and its subsidiaries who are not covered by
an annual bonus plan of one of the Corporation's divisions or subsidiaries, and
shall include directors who are also employees of the Corporation or a
subsidiary. The term "SUBSIDIARY" as used in this Section 6(b) shall mean any
subsidiary of the Corporation which is designated by the Committee as a
participating subsidiary for purposes of this Plan.
7. DETERMINATION OF INCENTIVE AWARDS.
(a) As promptly as practicable after the close of each year, the
independent public accountants of the Corporation shall determine the Operating
Profit for such year and report the amount thereof to the Committee.
(b) The Committee may make awards for each year totaling any amount
not greater than the amount of the Bonus Pool for such year; PROVIDED that, with
respect to awards to Executive Officers, the Threshold Target has been
achieved; and PROVIDED FURTHER that the maximum amount of the award to any Named
Executive shall not exceed the Named Executive Limit for such year specified in
Section 4(b). If a Named Executive's award for a given year is less than the
Named Executive Limit for such year, the difference between the amount paid to
the Named Executive and the Named Executive Limit shall not be paid or otherwise
reallocated under the Plan to any other participants. The Committee shall not
be obligated to make awards for the maximum amount available nor to make any
awards at all if, in the sole discretion of the Committee, awards are not
appropriate in a given year. Any unawarded balance of the maximum amount
available for awards in any year shall not be carried forward or made available
for awards in any future year.
(c) The Committee shall have absolute discretion to determine the
employees who are to receive awards under this Plan for any year and to
determine the amount of such awards. Recommendations as to the employees who
are to receive awards under this Plan for any year and as to the amount of such
awards may be made to the Committee by the Chief Executive Officer of the
Corporation.
(d) A person whose employment terminates during the year or who is
granted a leave of absence during the year may, in the discretion of the
Committee and under such rules as the Committee may from time to time prescribe,
receive an award with respect to the period of his services during such year.
(e) The amount determined and reported by the independent public
accountants of the Corporation as the Operating Profit for a given year shall
be final, conclusive and binding upon all parties, including the Corporation,
the shareholders and the employees, notwithstanding any subsequent special item
or surplus charge or credit which may be considered applicable in whole or in
part to such year; PROVIDED, HOWEVER, that, if the maximum amount determined and
reported by the independent public accountants of the Corporation as the
Operating Profit for any year shall later be held by final judgment of a court
of competent jurisdiction to have been more than the actual Operating Profit for
such year, the amounts subsequently available for awards under this Plan shall
be reduced by the amount of any excess paid under the Plan as a result of the
overstatement of Operating Profit, except that, if the amount awarded for such
year was less than the recalculated Bonus Pool for such year, the amount of the
reduction in future awards shall be decreased by such difference. Any such
overstatement of Operating Profit and resulting excess awards shall be corrected
exclusively by adjustment of the amounts subsequently available for awards and
not by recourse to any person.
8. METHOD AND TIME OF PAYMENT OF AWARDS.
(a) Following the completion of each year, the Committee shall
certify the amount of the Bonus Pool in the manner required by Section 162(m) of
the Code. Upon final determination of awards for each year by the Committee,
the Committee shall have sole authority to determine the method of payment of
each award.
(b) Awards for any year shall be paid in cash.
(c) Awards shall be paid in full, as soon as practicable after the
end of the year for which the award is made, except that, subject to such rules
and regulations as may be adopted by the Committee, the Committee shall have
discretion, with respect to any class or classes of employees, to defer, in full
or in part, payment of awards, or to defer, in full or in part, payment of
awards in specific cases.
(d) Awards deferred under this Plan shall become payable to the
recipient or his beneficiary in such manner, at such time or times (which may be
either before or after retirement or other termination of service), and subject
to such conditions, as the Committee in its sole discretion shall determine. A
person to whom an award has been made shall not have any interest in the cash
awarded to him until the cash has been paid to him in accordance with the
determination of the Committee.
Any forfeited deferred awards shall be included in Operating Profit if
such forfeited awards have previously been charged against Consolidated Net
Income.
9. OTHER INCENTIVE PLANS.
Any division or subsidiary of the Corporation may have a separate
incentive plan or arrangement for the employees of that division or subsidiary.
Awards under any such separate incentive plans or arrangements shall
not be included in or considered a part of the maximum amount available for
awards under this Plan. However, awards made in any division or subsidiary of
the Corporation which may heretofore or hereafter have any such separate
incentive plan or arrangement shall be deducted from the income of such division
or subsidiary before computation of Operating Profit.
10. MODIFICATION, SUSPENSION OR TERMINATION.
While it is contemplated that awards will be made annually, the Board
of Directors of the Corporation may at any time terminate or from time to time
modify or suspend, in whole or in part, and if suspended, may reinstate, any or
all of the provisions of this Plan, except that no modification of this Plan by
the Board of Directors without the approval of shareholders shall increase the
maximum amount available for awards under this Plan for any year or render any
member of the Committee eligible for an award under
this Plan or under any other incentive plan of the Corporation or any
subsidiary.
11. MISCELLANEOUS.
In the event of a change in the Corporation's fiscal year, this Plan
shall apply, with PRO RATA adjustment in Operating Profit to be applied, for any
intermediate period not consisting of twelve months, and shall then apply to
each fiscal year following.
This Plan shall be submitted to the shareholders of the Corporation at
the annual meeting of shareholders in 1994, and if approved by the shareholders
shall become effective as of January 1, 1994. Any approval of shareholders
under this Plan shall require the affirmative vote of the holders of a majority
of the outstanding voting stock of the Corporation present in person or by proxy
at the meeting and voting on the proposal.