DRAFT
10/15/99
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HUTTIG BUILDING PRODUCTS, INC.
EVA INCENTIVE COMPENSATION PLAN
1. Purpose.
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Huttig Building Products, Inc., a Delaware corporation (the "Company") has
adopted an annual incentive compensation program based on the principles of
Economic Value Added ("EVA") throughout the Company. The purpose of the EVA
approach is to maximize stockholder value by aligning management's interests
with those of stockholders and rewarding management for sustainable and
continuous improvement in the business being managed.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), places limits on the deductibility of the compensation paid to the
executive officers who may be named in the compensation table of the Company's
proxy statement ("Named Executive Officers") to the extent such compensation
exceeds $1 million per calendar year for an individual unless the compensation
meets requirements set forth in Section 162(m) and the regulations issued
thereunder. This limit on deductibility does not apply to compensation paid to
any other executive officer, business unit president, key business unit
executive or other participant in the Company's incentive compensation programs.
In order to preserve the deductibility of incentive compensation paid to
Named Executive Officers in the future, the Company has created this EVA
Incentive Compensation Plan (the "Plan") for the Company's executive officers
and for any other employees who may become Named Executive Officers by reason of
the executive compensation disclosure rules under the Securities Exchange Act of
1934, as amended. The Plan is intended to satisfy the specific requirements of
Section 162(m) of the Code, as outlined in regulations issued by the Internal
Revenue Service. This Plan shall become effective upon the date of distribution
of the Company's Common Stock to the stockholders of Crane Co. (the "Effective
Date"). This Plan is intended to be, and shall be operated as, a successor to
Crane Co.'s EVA Incentive Compensation Plan with respect to the participation of
employees of the Company who were participating in such plan of Crane Co.
immediately prior to the Effective Date.
2. Administration.
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The Plan will be administered by the Organization and Compensation
Committee of the Board of Directors (the "Committee"). The Committee's decisions
in the administration of the Plan shall be final and binding on all parties.
3. Definition of EVA and Description of Formulae.
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EVA is defined as the difference between the return on total capital
invested in the business and the cost of capital, multiplied by total capital
employed ("EVA Calculation"). The Plan will be formula driven. The primary EVA
formula shall be for the Company as a whole but particular EVA formulas may be
tailored by the Committee to the size and unique characteristics of the business
unit or units for which a specific executive is responsible. The key elements of
the EVA formula applicable to any executive will be the Cost of Capital
(generally the cost of capital to the Company), the Return on Capital, the
Amount of Capital employed in the business unit, the net operating profit of the
unit after tax, and the prior year's EVA. Awards will be calculated on the basis
of year-end results.
Formulas may utilize both a percentage of the change in the EVA of the
Company or a business unit from the prior year, whether positive or negative,
plus a percentage of the positive EVA, if any, in the current year; the EVA
award may be calculated for the entire Company or an entire business unit and an
executive may receive a percentage of a unit's EVA award. When an executive is
responsible for more than one business unit, a formula may be based on a
percentage of the aggregate EVA, positive or negative, of the units reporting to
the executive or unit. The Committee has the discretion and authority to develop
other EVA based formulae or goals for utilization pursuant to this Plan in
future years. In any instance in which an executive participates in a unit EVA
award in which a group of employees participates, the executive's percentage of
the unit's EVA award will be specified.
4. Procedure.
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Before the beginning of each fiscal year, the Committee will establish and
set forth in writing the EVA formula applicable to each executive and each
potential Named Executive Officer of the Company for that year (including the
percentage of any business unit EVA award in which he may participate). The
Committee will retain discretion to revise formulas or an executive's percentage
participation in any unit EVA award if the Committee deems it appropriate as
circumstances develop during the year; provided, however, in the case of a Named
Executive Officer, such revision may only have a negative effect on the amount
of the Named Executive Officer's award for the year. As soon as is reasonably
practicable after the year ends the Committee will review the EVA calculation,
calculate the EVA award for each executive pursuant to the formula established
at the beginning of the year (revised downward if the Committee so determines),
and certify the EVA incentive compensation award for each executive to the Board
of Directors.
5. Bank Account and Payout.
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After the EVA award for a particular executive has been determined, it will
be credited whether positive or negative to the executive's account. The
executive will then
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be paid, if the account remains positive, a specified percentage of the account
balance in cash. The remainder of the account balance will represent that
individual's "equity" in the account for future years. If EVA awards are or have
been negative, an account balance may be negative. In such case, the executive
will receive no incentive compensation until the aggregate of subsequent EVA
awards results in a positive account balance. Each year, the Company will add
interest to a positive balance or charge interest on a negative balance at an
appropriate money market rate. In the event an executive leaves the Company by
reason of termination or resignation, his or her account balance will be treated
as follows:
EVENT DISPOSITION OF ACCOUNT BALANCE
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- - - - - - Terminate/quit Lose account balance
- - - - - - Removed from plan/demotion Account balance paid out in two
equal installments on the second
and third succeeding EVA payout
dates
- - - - - - Unit sold by Huttig Receive account balance in cash
- - - - - - Retirement(1)/death/disability Receive account balance in cash
- - - - - - Unit spun off No payout; account balance
continued with spun off company
- - - - - - Huttig acquired Receive account balance in cash
- - - - - - Transfer to another business unit Account balance transfers with
executive
The entire account balance will become payable upon normal retirement (age
65), death, or disability, or a change-in-control. (The Committee will retain
the discretion to pay the entire account balance upon early retirement.) For
purposes of the Plan, the term "change in control" means (i) the first purchase
of shares pursuant to a tender offer or exchange offer (other than a tender
offer or exchange offer by the Company) for all or part of the Company's Common
Stock or any securities convertible into such Common Stock, (ii) the receipt by
the Company of a Schedule 13D or other advice indicating that a person is the
"beneficial owner" (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of 20% or more of the
Company's Common Stock calculated as provided in paragraph (d) of said Rule
13d-3, (iii) the date of approval by stockholders of the Company of an agreement
providing for any consolidation or merger of the Company in which the Company
will not be the continuing or surviving corporation or pursuant to which shares
of Common Stock of the
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1 Retirement is defined as normal retirement - age 65
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Company would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of Common Stock of the Company
immediately prior to the merger would have the same proportion of ownership of
Common Stock of the surviving corporation immediately after the merger, (iv) the
date of the approval by stockholders of the Company of any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company or (v) the adoption of any
plan or proposal for the liquidation (but not a partial liquidation) or
dissolution of the Company or (vi) individuals who, as of the Effective Date,
constituted the Board of Directors of the Company (the "Board") generally and as
of the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the Directors
of Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board. If it is determined
that any payment of an account by the Company to an executive or Named Executive
Officer by reason of a change-in-control is subject to the excise tax imposed by
Section 4999 of the Code, the Company shall make additional cash payments to the
employee such that after payment of all taxes including any excise tax imposed
on such payments, the employee will retain an amount equal to the excise tax on
all the payments.
6. Plan Termination.
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The Board of Directors may modify, suspend or terminate the Plan at any
time.