ANNUAL BONUS PLAN
OpTel, Inc.
August 21, 1996
PLAN OBJECTIVE
- --------------
The objective of the Plan is to encourage Senior Management of OpTel, Inc. to
take such decisions and measures as are needed to achieve and exceed the
objectives defined in the annual business plans of OpTel, Inc., to compensate
them on the basis of the results obtained over a financial year and, where these
results justify such action, to provide cash compensation that is competitive
when compared with the market.
DEFINITIONS
- -----------
The following definitions are applicable for the purposes of the present Plan:
"Base salary" means such compensation as is earned for services rendered to the
Corporation, but does not include bonuses, fees, director's fees, or incentives;
"Board" means the OpTel, Inc. Board of Directors;
"Committee" means the compensation committee of the OpTel, Inc. Board;
"Corporation" means OpTel, Inc.
"Economic value created (EVC)" means the amount of Net operating profit after
taxes (NOPAT) (as defined below) less the Cost of capital (as defined below) for
OpTel, Inc.
where
"the Net operating profit after tax (NOPAT)" means the operating income
before deduction of interest expenses, annual bonuses and performance
awards, but after deduction of taxes calculated at an annually set rate
and after deduction of depreciation;
and
"cost of capital" means the amount derived from the Weighted average
cost of capital (WACC) (as defined below) expressed as a rate
multiplied by the amount of the Average net assets used (as defined
below);
where
"the Weighted average cost of capital (WACC)" means the rate, expressed
as a percentage, derived from the after-tax cost of the debt plus the
cost of equity, both elements being proportionate to their importance
in the target capital structure (at market value) of OpTel, Inc. This
rate is set annually for the following financial year;
and
"the Average net assets used" means the assets calculated by dividing
by 12 the aggregate of the 12 monthly amounts of the net assets used as
determined by the Finance department of OpTel, Inc.
"Officer" means any member of the Senior Management of OpTel, Inc. designated by
the Committee as an officer.
"Plan" means the annual bonus plan for Senior Management of OpTel, Inc.
The "Senior Management" of OpTel, Inc. means generally, the Chief Executive
Officer, Chief Operating Officer and the Vice Presidents reporting directly to
the Chief Executive Officer or the Chief Operating Officer.
ADMINISTRATION
- --------------
The Plan is administered by the Committee which has decision-making authority
with respect to determining:
- - which Officers participate in the Plan;
- - the (target) and (threshold) levels of the economic value added, and the
EVC interval used to determine the bonus;
- - bonus payment method;
- - provisions applicable in case of resignation, dismissal, Retirement,
disability or death of an Officer;
- - all other rules or provisions required for the administration of the Plan.
PERFORMANCE
- -----------
The performance criteria used to determine the bonus payable to OpTel Officers
are defined according to the EVC objectives applicable to OpTel.
The objectives are approved by the Committee at the beginning of each financial
year and based on the annual business plans of OpTel, Inc.
BONUS LEVEL
- -----------
The target bonus is 25% of the annual Base salary in force at the beginning of
the financial year (September 1).
2
DETERMINATION OF BONUS
- ----------------------
The bonus is determined at the end of the financial year and depends on the
extent to which the objectives set at the beginning of the year have been
achieved, using the following formula:
Bonus = SL 25% X 1+ Real EVC-Target EVC
-------------------
EVC Interval
where
SAL =
Annual Base salary in force on September 1 that begins the financial
year.
Real EVC =
The Economic value created by OpTel, Inc. as calculated at the end of
the financial year.
Target EVC =
Anticipated Economic value created based on the annual business plans
of OpTel, Inc.
EVC Interval =
A variable that will determine the slope of the bonus earned as
established by the Committee at the beginning of each financial year.
The bonus is zero if the real EVC over a financial year is less than the minimum
EVC level (threshold) determined at the beginning of each financial year.
The maximum bonus equals 4 times the target bonus (or 100% of the annual Base
salary of the Officer).
PAYMENT OF THE BONUS
- --------------------
The bonus earned for a given financial year is paid in cash after year-end and
after statutory deductions. Payment is made as recommended by the Committee, as
soon as the financial results of the Corporation are known and approved by the
Board and the EVC measures are calculated. The Committee recommendation must
comply with the spirit of the annual business plan of OpTel, Inc.
TERMINATION OF EMPLOYMENT, RETIREMENT AND DISABILITY
- ----------------------------------------------------
o Resignation or dismissal
3
If the Officer voluntarily resigns or if his/her employment is
terminated by the Corporation for cause or for any other reason linked
to his/her performance (dismissal), no bonus is payable for the year of
termination of employment.
o Resignation triggered by the Corporation, Retirement or disability
If the resignation of the Officer is triggered by the Corporation or if
his/her employment is terminated following retirement or if the Officer
suffers from total and permanent disability, the bonus is determined in
proportion to the number of completed months of participation at the
date of termination of employment, Retirement or disability unless the
Committee should decide otherwise, in which case the bonus is
determined at the discretion of the Committee.
o Death
Upon the death of the Officer, the bonus is determined in proportion to
the number of completed months of participation at the date of death.
NEW PARTICIPANT
---------------
If an Officer begins to participate in the Plan during the first six
months of a financial year, the bonus is determined in proportion to
the number of completed months of participation during that financial
year.
If an Officer becomes a participant in the Plan during the last six months of a
financial year, participation will be deferred until the beginning of the
following year.
IMPLEMENTATION
- --------------
The CEO of OpTel, Inc. shall:
o prior to August 31 of each year, provide the Committee with the list of
Officers participating in the Plan for the upcoming financial year, the
objectives (targets, threshold and interval) of economic value added
that will serve to determine the amount of bonus for the upcoming
financial year.
The Committee shall:
o prior to September 30 of each year, approve the list of Officers
enrolled in the Plan and the EVC objectives that will be used to
determine the amount of bonus for the upcoming financial year.
4
AMENDMENT AND CANCELLATION
- --------------------------
The Committee may at any time and where necessary amend, suspend or cancel the
Plan, in whole or in part. No amendment, suspension or cancellation of the Plan
shall impact negatively on the rights accrued under the terms of the Plan.
Non-assignability and non-transferability
No right vested in the Officer with regard to his/her participation
in the Plan shall be assigned or transferred by the Officer, except
for such sums as are earned upon death under the terms of a will or
under the terms of the legal provisions governing estates.
5