1
EXHIBIT 10.37
CENTURY ALUMINUM COMPANY
1996 STOCK INCENTIVE PLAN
IMPLEMENTATION GUIDELINES
[PERFORMANCE SHARE AWARDS]
1. PURPOSE
These guidelines ("Guidelines") are intended to provide direction for
implementation of the Company's 1996 Stock Incentive Plan (the "Plan")
with respect to Performance Share Awards. The Plan is intended to
advance the interests of the Company by enabling Executive Officers and
other key employees of the Company and its Subsidiaries to acquire
proprietary interests in the Company, which interests are
"performance-based compensation" within Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, through achievement by the Company of specified future
performance and earnings goals.
2. DEFINITIONS
A. "Award" shall be as defined in Section 4.
B. "Award Factor" shall be the percentage of each Participant's Award
that is payable for any of the Plan Periods as follows:
(1) If Cumulative Earnings Before Taxes are at least 5%
greater than Target, then 110% of the Award, and then
increasing in additional 10% increments for each
additional 5% that Cumulative Earnings Before Tax
exceed the Target for the same period; provided,
however, that in no event shall the Award Factor
exceed 150%.
(2) 100% of the Award if Cumulative Earnings Before Tax
are at least 100% of Target for the same period but
not equal to or greater than 105% of such Target.
(3) 85% of the Award if Cumulative Earnings Before Tax
are at least 90% of Target for the same period but
are not equal to or greater than such Target.
(4) 70% of the Award if Cumulative Earnings Before Tax
are least 80% of Target for the same period but are
not 90% or more of such Target.
(5) 60% of the Award if Cumulative Earnings Before Tax
are less than 80% of Target, but 70% or more of
Target, for the same period, but ROI of the Company
exceeds Industry ROI for all companies set forth in
Section 2.H.
76
2
(6) 50% of the Award if Cumulative Earnings Before Tax
are less than 70% of the Target, but 60% or more of
Target, for the same period, but ROI of the Company
exceeds Industry ROI for any four of the six
companies set forth in Section 2.H.
(7) Zero if Cumulative Earnings Before Tax are less than
60% of the Target.
C. "Board" shall mean the Board of Directors of the Company.
D. "Committee" shall mean the Compensation Committee of the Board
of Directors of the Company, two members or more of whom shall
be directors who are not employees of the Company or any
Subsidiary.
E. "Company" shall mean Century Aluminum Company.
F. "Cumulative Earnings Before Tax" shall mean the aggregate
Earnings Before Tax during any of the Plan Periods.
G. "Earnings Before Tax" shall mean the earnings before all
taxes, and after deducting interest expense, on income of the
Company as reported in the annual audited financial statements
after adjustment for accrual for payments to be made under
this Plan, but, at the discretion of the Board, excluding
non-recurring items.
H. "Industry ROI" shall mean for Alumax Inc., the Aluminum
Company of America, Commonwealth Industries, Inc., Reynolds
Metals Company, Alcan Aluminum Limited and Kaiser Aluminum and
Chemical Corporation, the returns on invested capital for each
of the Plan Periods thereafter determined in each case in the
same manner as ROI of the Company, except that in each case,
as applicable, average minority shareholder interest, if any,
shall be added to average invested capital. For the purposes
of the comparisons contained in Section 2.B, (5) and (6), ROI
for each of the companies and the Company shall be carried out
to as many decimal places as required so that no two ROI's are
the same.
I. "Initial Periods" shall mean (a) calendar year 1998 and (b)
calendar years 1998 and 1999.
J. "Participant" shall mean any full-time salaried employee of
the Company or a Subsidiary designated as a Participant by the
Committee.
K. "Performance Shares" shall have the meaning set forth in the
Plan and shall entitle the grantee to receive one share of the
Company's common stock for each Performance Share awarded.
77
3
L. "Plan Periods" shall mean overlapping periods of three
consecutive calendar years each, the first of which shall
commence January 1, 1998, and end December 31, 2000.
M. "ROI" shall mean the arithmetic average of the returns on
invested capital of the Company, stated as a percent, for each
of the calendar years of each Plan Period. It shall be
computed by dividing the Earnings Before Tax, after adding any
interest expense for such year, by the average of the
shareholders' equity plus borrowings of the Company, the
average in each case to be the sum of the shareholders' equity
plus borrowings on the last day of the immediately preceding
calendar year and on the last day of the calendar year in
question, in all respects as these items appear in the audited
financial statements of the Company.
N. "Section" shall mean a section of these Guidelines.
O. "Subsidiary" shall mean any corporation the voting stock of
which is 50% or more is owned, directly or indirectly, by the
Company.
P. "Target" shall mean the cumulative annual earnings before
income taxes established by the Committee as the goal for the
Initial Periods and for each of the Plan Periods, which goal
shall be guided by the cumulative forecasted earnings before
income taxes of the Company for the first three years of each
Five-Year Plan as contained in and submitted to the Board
annually in the document entitled "Century Aluminum Company's
Five Year Profit Plan". The Committee may use as its guide for
the Initial Periods and the first of the Plan Periods the
Profit Plan present to the Board by the Company on December
18, 1997.
3. TERM
Implementation of these Guidelines shall commence as of January 1,
1998, and shall continue until such time as terminated by the Board.
4. AWARD
A. AWARD. The Committee shall, on or before each May 15 during
the Initial Periods and each of the Plan Periods, make an
award of Performance Shares to each Participant, which award
shall be communicated in writing to each Participant by the
Chief Executive Officer of the Company. Awards shall be issued
as provided in Section 5. The Award for each Participant shall
be determined by creating a monetary award, and converting
that monetary award to Performance Share units. The monetary
award shall be a percentage of such Participant's base salary
(within the allowable range), which percentage shall be
established by the Committee at the beginning of each of the
Plan Periods. The allowable percentages are as follows:
78
4
Participant's Position Range of Allowable Percentages
---------------------- ------------------------------
CEO and COO 80 - 100%
EVPs and Sr. VPs 60 - 80%
VPs 45 - 60%
Business Unit Heads 30 - 45%
Sr. Operating/Corporate Staff 15 - 30%
The number of Performance Shares shall be determined by dividing the
Participant's monetary award by the average closing price for the Company's
common stock for the month preceding the month in which the grant is made.
B. TARGET AWARD; ADJUSTED AWARD.
1. TARGET AWARD. If the Company's Cumulative Earnings Before
Tax are at least 100% of Target but not equal to or greater
than 105% of such Target, then Participants shall be issued
the number of shares equal to the number of Performance Share
units in Participants' awards.
2. ADJUSTED AWARD. If the Award Factor is other than
as described in Section 4.B.(1), the Target Awards shall be
adjusted upward or downward as follows:
(a) If a Participant's Award Factor is 105% or greater,
the number of Performance Shares in excess of the
100% award shall be calculated by dividing the
Participant's monetary award in excess of 100% by the
greater of the stock value on the date of the initial
grant of the Performance Shares or the average stock
price for the month immediately preceding the month
in which the Performance Shares are issued. An
example of how this provision is intended to operate
is attached to these Guidelines as Exhibit A.1.
(b) If a Participant's Award Factor is less than 100% of
Target, the number of Performance Shares shall be
calculated by recalculating the Participant's
monetary Award by the applicable Award Factor and
converting the monetary award to Performance Share
units by the stock value used in calculating the
Target Award. An example of how this provision is
intended to operate is illustrated on Exhibit A.2.
5. ISSUANCE OF AWARDS
A. On or before March 15 (or, if required, such later date when
the annual audited financial statement of the Company and the
other companies referred to in the definition of Industry ROI
are available) of each calendar year, the Company shall, in
respect of the Initial Period or Plan Period which has just
ended, issue to each Participant Performance Shares in an
amount equal to such Participant's Award multiplied by the
applicable Award Factor.
79
5
B. Except as provided in Section 5.C., no grant with respect to
any Award shall be made to a Participant who is not employed
full time by the Company or a Subsidiary on the 31st day of
December preceding the date of issuance provided in Section
5.A.
C. In the event of death, permanent disability or retirement of a
Participant in any year following an Award, the Participant or
his representative or designated beneficiaries shall be
entitled to receive a portion of the amount calculated under
Section 5.A., and payable in the year following death,
permanent disability or retirement, determined by multiplying
such amount by a fraction, the numerator of which is the
number of weeks of full employment during any of the Initial
Periods or Plan Periods and the denominator of which is 52 for
the first Initial Period, 104 for the second Initial Period
and 156 for any Plan Period.
D. If an employee is selected as a Participant at any time other
than the beginning of any given Initial Period or Plan Period,
such Participant shall be entitled to receive a portion of the
amount calculated under Section 5.A. by multiplying such
amount by a fraction the numerator of which is the number of
months that such employee was a Participant under the plan
during any of the Initial Period or Plan Periods and the
denominator of which is number of months in the applicable
period. For the purposes of this Section 5.D. an employee
shall be deemed to have been a Participant under the Plan as
of January 1 of the calendar year in which such employee was
first selected a Participant if such selection occurred on or
before May 15 of such calendar year and if such selection
occurred after May 15 of any calendar year the employee shall
be deemed to have first become a Participant on January 1 of
the calendar year immediately following the employee's
election as a Participant.
6. ADMINISTRATION
A. Each grant of a Performance Share shall be evidenced by an
agreement executed on behalf of the Company by an officer
designated by the Compensation Committee and accepted by the
recipient. Such agreement shall state that such award is
subject to all the terms and provisions of the Plan.
B. Full power and authority to amend, modify, terminate,
construe, interpret and administer these Guidelines shall be
vested in the Committee. Any interpretation of these
Guidelines by the Committee or any administrative act by the
Committee shall be final and binding on all Participants.
7. NON-ASSIGNABILITY
Nothing in these Guidelines shall be deemed to make rights granted
pursuant hereto assignable or transferable by a Participant except
pursuant to the laws of descent and distribution. No rights under these
Guidelines may be hypothecated or encumbered in any manner whatsoever,
and creditors of Participants shall have no right or power to obtain
all or any portion of grants made hereunder. Any attempted assignment,
80
6
hypothecation or encumbrance by a Participant shall be null and void.
Each Participant may, however, designate one or more beneficiaries
under the Plan on a form to be supplied by the Secretary of the Company
Adopted by the Board on May 4, 1998.
/s/ Craig A. Davis
----------------------------------
Craig A. Davis, Chairman
/s/ Gerald J. Kitchen
- ---------------------------------------
Gerald J. Kitchen, Secretary
81
7
E X H I B I T A
Assume a Participant whose base salary is $200,000 is given a 75% Target Award
and that the Company's common stock has an average closing price of $15 in the
month preceding the month in which the grant is made. This Participant would
have a Target Award of 10,000 Performance Shares ($200,000 x 75% / 15 = 10,000).
1. Award Factor Greater Than Target
If the Company achieves 105% of Target, the Participant's monetary
award (pursuant to the Award Factor described in Section 2.B.(1)) would
be $165,000 ($150,000 x 110%). The $15,000 by which the adjusted
monetary award exceeds 100% of the target monetary award would be
converted to Performance Shares as follows:
a. If the Company's average stock price in the month preceding
the date in which the grant vests is $15 or less, the
additional Award would be 1,000 Performance Shares ($15,000 /
15 = 1,000), and the Participant's total Award would be 11,000
Performance Shares.
b. If the Company stock in the month preceding the date in which
the grant vests is greater than $15 (e.g. $20), the adjusted
Award would be calculated using the higher share value
($15,000 / 20 = 750), and the Participant's total Award in
this case would be 10,750 Performance Shares.
2. Award Factor Less Than Target
If the Company achieves 90% of Target, the Participant's monetary award
would be $127,500 ($150,000 x 85% = $127,500), and the Award would be
8,500 Performance Shares ($127,500 / 15 = 8,500).
82