1
Exhibit 10.7
LEXINGTON PRECISION CORPORATE OFFICE
1996 MANAGEMENT CASH BONUS PLAN
2
LEXINGTON PRECISION CORPORATE OFFICE
TABLE OF CONTENTS
SECTION
NUMBER PAGE
-------- ----
I. PURPOSE OF PLAN 1
II. ELIGIBILITY 1
III. PLAN YEAR 1
IV. GROUPING OF PARTICIPANTS 1
V. SETTING OF TARGET BONUS PERCENTAGES 1
VI. AUTHORIZATION FORM 2
VII. NOTIFICATION OF EMPLOYEES 2
VIII. BASIS FOR BONUS PAYMENTS 3
IX. SETTING OF GOALS 3
X. CALCULATING THE BONUS POOL 4
XI. TIMING OF BONUS PAYMENTS 5
XII. OTHER 5
3
LEXINGTON PRECISION CORPORATE OFFICE
1996 MANAGEMENT CASH BONUS PLAN
I. PURPOSE OF PLAN
The "1996 Management Cash Bonus Plan" (the "Plan") is designed to
provide meaningful incentives for officers and key employees of the
Corporate Office (the "Bonus Group") of Lexington Precision Corporation
(the "Company") to increase profitability while efficiently managing the
Company's assets.
II. ELIGIBILITY
A "Participant" shall mean an individual who meets both of the following
criteria:
(1) The individual has been selected to participate in the Plan by
the Compensation Committee of the Board of Directors of
Lexington Precision Corporation upon recommendation of the
president of Lexington Precision Corporation; and
(2) The individual is a full-time, salaried, exempt employee of
the Company on the last day of the plan year.
Participants who retire during the plan year and are aged 62 or older on
the date of retirement and estates of Participants who die during the
plan year will be paid bonuses (if and to the extent earned) at the same
time that all other Participants receive their bonuses after the end of
the plan year.
III. PLAN YEAR
The plan year shall mean the year ending December 31, 1996.
IV. GROUPING OF PARTICIPANTS
The Participants in the Bonus Group, will be designated at the beginning
of the plan year by the Compensation Committee of the Board of Directors
of Lexington Precision Corporation upon recommendation of the president
of Lexington Precision Corporation.
-1-
4
V. SETTING OF TARGET BONUS PERCENTAGES
Subject to the adjustment for Personal Performance (defined in Section
XI below), the "Target Bonus" for each Participant shall mean the amount
calculated by multiplying the Participant's aggregate base-salary
received during the year by a "Target Bonus Percentage" which will be
set at the beginning of the plan year by the Compensation Committee of
the Board of Directors of Lexington Precision Corporation upon
recommendation of the president of Lexington Precision Corporation. The
"Group Target Bonus" shall mean the aggregate of the Target Bonuses of
all Participants in a Bonus Group. The Target Bonus Percentage for the
president of the Company will be set by the president of Lexington
Precision Corporation.
A Participant's bonus will always be based on the aggregate base-salary
received during the year, not on the base-salary level at any particular
point during the year (i.e., when calculating bonuses for Participants
who received salary increases during the year, for Participants who are
hired during the year or for Participants who retire or die during the
year).
As a general guideline, the Target Bonus Percentage levels which would
typically be assigned to various categories of employees in the Bonus
Group are set forth below:
TARGET BONUS
POSITION PERCENTAGE
-------- ----------
Senior Vice Presidents 20-35%
Vice Presidents 15-25%
Junior Officers 5-15%
If a Participant moves to a higher management level during the year,
such Participant's Target Bonus Percentage will be reset at an
appropriate higher level determined by the Compensation Committee of the
Board of Directors of Lexington Precision Corporation upon
recommendation of the president of Lexington Precision Corporation, as
if the Target Bonus Percentage had been at the higher level for the
entire year. If a Participant moves to a lower management level during
the year, such Participant's Target Bonus Percentage will be reset at an
appropriate lower level determined by the Compensation Committee of the
Board of Directors of Lexington Precision Corporation upon
recommendation of the president of Lexington Precision Corporation, as
if the Target Bonus Percentage had been at the lower level for the
entire year.
VI. AUTHORIZATION FORM
Attached hereto as Exhibit A is the "Authorization Form" which shall be
used by the Compensation Committee of the Board of Directors of
Lexington Precision Corporation upon recommendation of the president of
Lexington
-2-
5
Precision Corporation at the beginning of each plan year when
designating Participants, Target Bonus Percentages and the Bonus Group's
Target Pre-Bonus Operating Profit (defined in Section IX below).
VII. NOTIFICATION OF EMPLOYEES
Attached hereto as Exhibit B is the form of memorandum which shall be
used at the beginning of each plan year to inform employees of their
participation in the Plan and their Target Bonus Percentages and Target
Bonuses.
VIII. BASIS FOR BONUS PAYMENTS
After the end of the plan year, when financial results for the year are
available, a calculation will be made to determine the bonus that will
be paid to each Participant.
The percentage of Target Bonus earned by each Participant will depend on
the following:
(1) how well the Bonus Group performed relative to its
Target Pre-Bonus Operating Profit; and
(2) the Participant's Personal Performance (discussed
below).
All bonuses will be subject to the review and approval of the Board of
Directors of Lexington Precision Corporation.
IX. SETTING OF GOALS
"Operating Profit" means profit before interest, income taxes and other
non-operating expenses in accordance with the Company's standard
accounting procedures.
"Pre-Bonus Operating Profit" means operating profit before deducting any
expenses for bonuses relating to the 1996 Management Cash Bonus Plan.
The "Target Pre-Bonus Operating Profit" for the Bonus Group will be set
at the beginning of the year by the Compensation Committee of the Board
of Directors of Lexington Precision Corporation upon recommendation of
the president of Lexington Precision Corporation. The Target Pre-Bonus
Operating Profit will equal ONE of the following:
(1) the Bonus Group's "Budgeted Pre-Bonus Operating
Profit" as reflected in the annual budget for the
Company;
-3-
6
(2) an amount higher than the Company's Budgeted
Pre-Bonus Operating Profit if the Budgeted Pre-
Bonus Operating Profit is below reasonable
performance-standards (taking into account,
among other things, industry performance
standards, historical performance standards, and
the amount of capital invested in the Company); or
(3) an amount lower than the Company's Budgeted
Pre-Bonus Operating Profit if the Budgeted Pre-
Bonus Operating Profit is above reasonable
performance-standards (taking into account,
among other things, industry performance
standards, historical performance standards, and
the amount of capital invested in the Company).
The "reasonable performance standards" discussed above will be
determined in the sole discretion of the Compensation Committee of the
Board of Directors of Lexington Precision Corporation upon
recommendation by the president of Lexington Precision Corporation.
The Target Pre-Bonus Operating Profit will not be revised during the
plan year, except in cases where an acquisition or divestiture of a
business completed during the plan year materially affects reported
operating results during that plan year.
X. CALCULATING THE BONUS POOL
To calculate the bonus for each of the Participants in the Bonus Group,
it is first necessary to calculate the "Group Bonus Pool".
The Group Bonus Pool will be calculated by multiplying the Group Target
Bonus by the percentage in the column on the right below, opposite the
percentage of the Target Pre-Bonus Operating Profit which was attained
by that Bonus Group.
PERCENTAGE PERCENTAGE OF TARGET
OF TARGET BONUS EARNED
PRE-BONUS (BEFORE ADJUSTING FOR
OPERATING PROFIT ATTAINED PERSONAL PERFORMANCE)
------------------------- ---------------------
less than 85.00% None
85.00 - 89.99% 25%
90.00 - 94.99% 50
95.00 - 99.99% 75
100.00 - 109.99% (target) 100
110.00 - 119.99% 125
120.00 - 129.99% 150
130.00 - 139.99% 175
140.00% or more 200 (maximum)
-4-
7
The percentage of Target Bonus earned, before giving effect to
adjustments for Personal Performance, must be in the increments shown on
the above chart. For example, if the Bonus Group attained 108% of the
Target Pre-Bonus Operating Profit, the percentage used for each
Participant in the Bonus Group would be 100% (not 120% or 125%). The
percentages of Target Bonus earned are "stepped," not linear. No bonuses
will be earned by any Participants in the Bonus Group if less than 85%
of the Target Pre-Bonus Operating Profit is attained. The Group Bonus
Pool cannot exceed 200% of the Group Target Bonus.
XI. TIMING OF BONUS PAYMENTS
All bonus payments will be made as soon as practicable after the end of
the plan year. Before any bonus payments can be made the following two
requirements must be met:
(1) necessary accounting and audit work must be
completed so that all bonus calculations can be
made; and
(2) the bonus must be approved by a vote of the Board of Directors
of Lexington Precision Corporation.
It is anticipated that bonuses will be paid approximately 45-75 days
after the end of the plan year.
XII. OTHER
Bonuses will be subject to income and employment tax withholding to the
extent required by applicable law.
Bonuses and the right to receive bonuses cannot be pledged, assigned or
alienated, voluntarily or involuntarily, by any Participant.
THE 1996 MANAGEMENT CASH BONUS PLAN AND ANY BONUSES GRANTED UNDER THE
1996 MANAGEMENT CASH BONUS PLAN SHALL NOT CONFER UPON ANY PARTICIPANT
ANY RIGHT WITH RESPECT TO THE CONTINUANCE OF EMPLOYMENT BY THE COMPANY,
NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY TO
TERMINATE A PARTICIPANT'S EMPLOYMENT AT ANY TIME.
THE 1996 MANAGEMENT CASH BONUS PLAN MAY BE REVISED, MODIFIED OR
TERMINATED IN ANY WAY, FOR ANY REASON AND AT ANY TIME AT THE SOLE
DISCRETION OF THE BOARD OF DIRECTORS OF LEXINGTON PRECISION CORPORATION
BY VOTE OF A MAJORITY OF THE BOARD AT ANY REGULAR OR SPECIAL MEETING OF
THE BOARD.
Revised and approved by the Board of Directors of Lexington Precision
Corporation on October 18, 1994
-5-