COLUMBUS MCKINNON CORPORATION
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EVA(R) INCENTIVE COMPENSATION PLAN
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ARTICLE I
STATEMENT OF PURPOSE
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1.1 The purpose of the Plan is to provide a system of incentive
compensation, which will promote the maximization of EVA over the
long-term. In order to align associate incentives with shareholder and
lender interests, incentive compensation will reward the creation of
value. This Plan will tie incentive compensation to Economic Value
Added ("EVA") and, thereby, reward for creating value and penalize for
destroying value.
1.2 EVA is the performance measure of value creation for Columbus McKinnon
Corporation. EVA reflects the benefits and costs of capital employment.
Associates create value when they use capital in an endeavor that
generates a return that exceeds the cost of the capital employed.
Conversely value is destroyed when capital is used in an endeavor that
generates a return that is less than the cost of capital employed. By
imputing the cost of capital upon the operating profits generated by a
business group, EVA measures the total value created (or destroyed).
The Plan will reward increases in EVA and penalize decreases over time.
EVA = NET OPERATING PROFIT AFTER TAX - CAPITAL CHARGE
1.3 Each Plan Participant is placed in a classification. Each
classification has a prescribed target bonus. The bonus acquired in any
one year is the result of multiplying the Actual Bonus Percentage times
the Participant's total earnings as defined in the Plan and a positive
balance is distributed each year through the payroll system.
ARTICLE II
DEFINITION OF EVA AND THE COMPONENTS OF EVA
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Unless the context provides a different meaning, the following terms
shall have the following meanings:
2.1 OPERATING GROUP means a group of business divisions that are uniquely
identified for the purpose of calculating EVA and EVA based bonus
awards.
2.2 PARTICIPATING UNIT means a single division that is uniquely identified
for the purpose of calculating EVA and EVA based bonus awards.
2.3 CAPITAL means the investments made by shareholders (measured by
Shareholders' Equity) and lenders (measured by our debt obligations).
The total of invested Capital is used to acquire all of the assets
needed to run our business - Working Capital (including Accounts
Receivable and Inventory reduced by Trade Accounts Payable and Accrued
Liabilities), Property, Plant, and Equipment, and Goodwill. The amount
of Capital used by an operation is measured by the average monthly
value of the specific assets acquired by Capital that are needed to
support that operation.
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2.4 COST OF CAPITAL or "C" means the weighted average of: (i) the cost of
BORROWED capital, which is interest, net of tax, and, (ii) the cost of
EQUITY capital, which is equal to the return that investors expect from
a similar investment.
The Cost of Capital is reviewed annually and revised if it has changed
significantly. CM's current Cost of Capital is 11%.
2.5 CAPITAL CHARGE means the Cost of Capital times the value of the assets
provided by Capital actually employed by each Participating Unit,
Operating Group, or the Company as a whole. The Capital Charge is
computed as follows:
CAPITAL CHARGE = CAPITAL X COST OF CAPITAL ("C")
2.6 NOPAT stands for Net Operating Profit After Tax and represents the
after-tax economic operating profit of the business. NOPAT is
calculated by adjusting pre-tax profit from an accounting to an
economic basis.
2.7 EVA means Economic Value Added as described in Article I, EVA may be
positive or negative.
2.8 PARTICIPANT means an individual that has been selected to participate
in the Plan.
2.9 EXCOM means the Executive Committee of Columbus McKinnon Corporation.
ARTICLE III
DEFINITION AND COMPUTATION OF TARGET BONUS VALUE
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3.1 ACTUAL EVA means the EVA as calculated for the Company, each
Participating Group, and each Participating Unit for the fiscal year.
3.2 TARGET EVA means the level of EVA that is expected in order for the
Participating Unit to receive the Target Bonus.
The Target EVA for the first year is set at the average of the prior
year actual EVA and Budget EVA + Expected Improvement in EVA. After the
first year, the Target EVA is revised according to the following
formula:
TARGET EVA = (LAST YEAR ACTUAL EVA + LAST YEAR TARGET EVA) /2 +
EXPECTED IMPROVEMENT IN EVA
3.3 EXPECTED IMPROVEMENT IN EVA means the constant EVA improvement that is
added to move the target up each year. It is based upon overall
long-term shareholder expectation for the total Company growth in EVA
per year. The total Company expected improvement is allocated to
operative groups and units. The amount will be reviewed periodically by
EXCOM.
3.4 TARGET BONUS means the "Target Bonus Percentage" times a Participant's
Total Earnings as defined in Section 3.5
3.5 PARTICIPANT'S TOTAL EARNINGS means the total calendar year earnings for
a Participant, including 40l(k) (or equivalent) deferred wages and
excluding Company contributions to 401(k), certain non-cash amounts
included in payroll taxable earnings, EVA and other bonuses, adjustment
for the release of restrictions on CM Stock, reimbursement for
relocation expenses, Worker's Compensation or long-term disability
payments and any other exclusion as deemed appropriate by EXCOM.
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3.6 TARGET BONUS PERCENTAGE is determined by a Participant's Classification
as assigned.
3.7 DECLARED BONUS means the bonus earned by a Participant and is computed
as the Actual Bonus Multiple times a Participant's Target Bonus.
3.8 ACTUAL BONUS MULTIPLE is calculated by taking the difference between
the Actual EVA and the Target EVA divided by the Leverage Factor plus
1.0.
Actual Bonus Multiple = (ACTUAL EVA - TARGET EVA) + 1
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Leverage Factor
3.9 LEVERAGE FACTOR is the negative (positive) deviation from Target EVA
necessary before a zero (two times Target) bonus is earned. This factor
will be reviewed periodically by EXCOM.
3.10 RETIREMENT is defined in the terms of the Participant's Monthly
Retirement Benefit Pension Plan or any succeeding Plan.
3.11 PARTICIPANT'S CLASSIFICATION each Participating Unit manager will
establish a Participant's classification. All classifications are
subject to approval by EXCOM.
ARTICLE IV
BONUS DISTRIBUTION DATE
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4.1 Bonus distributions for the preceding fiscal year will be paid on or
before two and one half months following the close of the fiscal year.
ARTICLE V
PLAN PARTICIPATION, TRANSFERS AND TERMINATIONS
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5.1 PARTICIPANT: The EXCOM will have sole discretion in determining who
shall participate in the EVA Incentive Plan.
5.2 VESTING: A Participant who has earnings from working in the prior
calendar year and is in the employ of CM on May 1st of the following
year will be eligible for a bonus distribution. Those Participants who
have terminated prior to May 1st, either voluntarily or with or without
cause will NOT be eligible for a bonus distribution. Those Participants
who have died, retired or are receiving short-term disability benefits
as of May 1st will be eligible for a bonus distribution. Those
Participants who are earning Workers' Compensation benefits or
long-term disability benefits or are on an approved leave of absence or
laid-off and subject to recall as of May 1st, will be eligible for a
bonus distribution IF, they return to work within two years of the
commencement of their Workers' Compensation benefits, long-term
disability benefits or their approved leave or layoff, as the case may
be. Such bonus would be payable upon their return to work.
5.3 TRANSFERS: A Participant who transfers his employment from one
Participating Unit to another or transfers from one job title to
another with a different classification will be eligible to receive
future EVA Plan awards in accordance with the provisions of the EVA
Incentive Plan. The effective date of the transfer for EVA purposes
will be the first day of the following calendar year.
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5.4 NO GUARANTEE: Selection as a Participant or a Participant's
classification is no guarantee that payments under the Plan will be
paid or that selection as a Participant or a Participant's
classification will be made in any subsequent fiscal year.
ARTICLE VI
GENERAL PROVISIONS
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6.1 WITHHOLDING OF TAXES: The Company shall have the right and
responsibility to withhold the amount of taxes which, in the
determination of the Company, are required under law with respect to
any amount due or paid under the Plan.
6.2 EXPENSES: All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
6.3 NO PRIOR RIGHT OR OFFER: Except and until expressly granted pursuant
to the Plan, nothing in the Plan shall be deemed to give any associate
any contractual or other right to participate in the benefits of the
Plan.
6.4 CLAIMS FOR BENEFITS: In the event a Participant (a "Claimant") desires
to make a claim with respect to this EVA Plan provided hereunder, the
Claimant shall submit evidence satisfactory to the EXCOM of facts
establishing his entitlement to a payment under the Plan. Any claim
with respect to any of the benefits provided under the Plan shall be
made in writing within ninety (90) days of the event which the Claimant
asserts entitles him to benefits. Failure by the Claimant to submit his
claim within such ninety (90) day period shall bar the Claimant from
any claim for benefits under the Plan.
In the event that a claim, which is made by a Claimant, is wholly or
partially denied, the Claimant will receive from EXCOM a written
explanation of the reason for denial. The Claimant or his/her duly
authorized representative may appeal the denial of the claim to EXCOM
at any time within ninety (90) days after the receipt by the Claimant
of written notice from EXCOM of the denial of the claim. In connection
therewith, the Claimant or his/her duly authorized representative may
request a review of the denied claim; may review pertinent documents;
and may submit issues and comments in writing. EXCOM shall make a
decision with respect to an appeal no later than sixty (60) days after
receipt of a request for review. EXCOM shall furnish the Claimant with
a decision on review in writing, including the specific reasons for the
decision. The decision shall be written in a manner designed to be
understood by the Claimant, as well as specific reference to the
pertinent provisions of the Plan upon which the decision is based. In
reaching its decision, EXCOM shall have complete discretionary
authority to determine all questions arising in the interpretation and
administration of the Plan and to construe the terms of the Plan,
including any doubtful or disputed terms and the eligibility of a
Participant for benefits.
6.5 ACTION TAKEN IN GOOD FAITH: INDEMNIFICATION EXCOM may employ attorneys,
consultants, accountants or other persons and the Company's directors
and officers shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all
interpretations and determinations made by EXCOM in good faith shall be
final and binding upon all associates who have received awards,
Claimants, the Company and all other interested parties. No member of
EXCOM, nor any officer, director, associate or representative of the
Company, or any of its affiliates acting on behalf of or in conjunction
with EXCOM, shall be personally liable for any action, determination,
or interpretation, whether of commission or omission, taken or made
with respect to the Plan, except in indemnification as they may have as
members of the Company's Board of Directors, as members of EXCOM or as
officers or associates of the Company. All members of EXCOM and any
officer, associate or representative of the Company or any of its
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subsidiaries acting on their behalf shall be fully indemnified and
protected by the Company with respect to any such action, determination
or interpretation against the reasonable expenses, including attorneys
fees actually and necessarily incurred in the connection with the
defense of any civil or criminal action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or an award granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any action,
suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding, that such person
claiming indemnification shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
Expenses (including attorneys fees) incurred in defending a civil or
criminal action, suit or proceeding shall by paid by the Company in
advance of the final disposition of such action, suit or proceeding if
such person claiming indemnification is entitled to be indemnified as
provided in this Section.
6.6 RIGHTS PERSONAL TO ASSOCIATE: Any rights provided to an associate under
the Plan shall be personal to such associate, shall not be transferable
(except by will or pursuant to the laws of descent or distribution),
and shall be exercisable, during his/her lifetime, only by such
associate.
6.7 NON-ALLOCATION OF AWARD: In the event of a suspension of the Plan in
any Plan Year, the current bonus for the subject Plan year shall be
deemed forfeited and no portion thereof shall be allocated to
Participants. Any such forfeiture shall not affect the calculation of
EVA or bonus award allocation in any subsequent year.
ARTICLE VII
LIMITATIONS
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7.1 NO CONTINUED EMPLOYMENT: Neither the establishment of the Plan, nor the
grant of an award hereunder, nor anything contained herein, shall
provide any associate with any right to continued employment or shall
be deemed to constitute an express or implied contract of employment
for any period of time or in any way abridge the rights of the Company
and its Participating Units to determine the terms and conditions of
employment or whether to terminate the employment of any associate with
or without cause at any time.
7.2 NO PART OF OTHER BENEFITS: The benefits provided in this Plan shall not
be deemed a part of any other benefit provided by the Company to its
associates. The Company assumes no obligation to Plan Participants
except as specified herein. This is a complete statement, along with
the exhibits attached hereto, of the terms and conditions of the Plan.
7.3 OTHER PLANS: Nothing contained herein shall limit the Company's or the
Board of Directors' power to grant bonuses to associates of the
Company, whether or not Participants in this Plan.
7.4 UNFUNDED PLAN: This Plan is unfunded and is maintained by the Company
in part to provide an incentive for associates. Nothing herein shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant.
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ARTICLE VIII
AUTHORITY
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8.1 EXCOM AUTHORITY: Except as otherwise expressly provided herein, full
power and authority to interpret and administer this Plan shall be
vested in EXCOM. EXCOM may, from time to time, make such decisions and
adopt such rules and regulations for implementing the Plan, as it deems
appropriate for any Participant under the Plan. Any decision taken by
EXCOM arising out of or in connection with the construction,
administration, interpretation and effect of the Plan shall be final,
conclusive and binding upon all Participants and any person claiming
under or through them.
8.2 BOARD OF DIRECTORS AUTHORITY: The Board has the ultimate responsibility
for administration of the Plan. References made herein to "EXCOM"
indicate that the Board of Directors approved EXCOM to administer the
Plan. In the event EXCOM is not so designated, the Board shall
administer the Plan directly. The Board or EXCOM, as appropriate, shall
work with the CEO of the Company in all aspects of the administration
of the Plan.
ARTICLE IX
NOTICE
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9.1 Any notice to be given pursuant to the provisions of the Plan shall be
in writing and directed to the appropriate recipient thereof at his/her
business address or office location.
ARTICLE X
EFFECTIVE DATE
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10.1 This Plan shall be effective July 1, 1998, and will be administered on
a fiscal year basis, consistent with the Company's March 31st year end.
ARTICLE XI
AMENDMENTS
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11.1 This Plan may be amended, suspended or terminated at any time at the
sole discretion of the Board of Directors. Provided, however, that no
such change in the Plan shall be effective to eliminate or diminish any
award that has been allocated to the Bank of a Participant prior to the
date of such amendment, suspension or termination. Notice of any such
amendment, suspension or termination shall be given promptly to each
Participant.
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ARTICLE XII
APPLICABLE LAW
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12.1 This Plan shall be construed in accordance with the State of New York
law and any dispute will be adjudicated in the State of New York.
PLAN REVISED AS OF JANUARY 2000 WITH REVISIONS TO BE EFFECTIVE FOR THE
PLAN YEAR BEGINNING APRIL 1, 2000.
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EVA(R) INCENTIVE PLAN
ADDENDUM FOR MANAGEMENT PARTICIPANTS
DESCRIPTION OF BONUS BANKS
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1.1 ESTABLISHMENT OF A BONUS BANK: To encourage a long-term commitment by
Participants to the Company, a portion of the declared bonuses shall be
credited to "at risk" deferred accounts ("Bonus Banks") with the level
of distribution contingent on sustained high performance and
improvements and continued employment as provided herein.
1.2 NEGATIVE BONUS BANK: Although a Bonus Bank may, as a result of negative
EVA, have a deficit, no Plan Participant shall be required, at any
time, to reimburse his/her Bonus Bank.
1.3 BONUS BANK means, with respect to each Participant, a bookkeeping
record of an account to which amounts are credited, or debited as the
case may be, from time to time under the Plan and from which bonus
payments to such Participant are debited.
1.4 BANK BALANCE means with respect to each Participant, a bookkeeping
record of the net balance of the amounts credited to and debited
against such Participant's Bonus Bank. A Participant's Bank Balance
shall initially be equal to zero.
1.5 DISTRIBUTION RULE: The Plan Administrator will add the Declared Bonus
(including negative bonuses) to the Bonus Bank, pay out the lesser of
Target Bonus or Bank Balance + 1/3 of the remaining Bonus Bank and
carry the remaining Bank Balance (positive or negative) forward to the
next year.
1.6 PARTICIPANT: A Bonus Bank Participant is defined as a management
associate at a classification level established by EXCOM.
PLAN PARTICIPATION, TRANSFERS AND TERMINATIONS
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2.1 TRANSFERS: A Participant who transfers his/her employment from one
Participating Unit of the Company to another shall retain his Bonus
Bank and will be eligible to receive future EVA Plan awards in
accordance with the provisions of the EVA Incentive Plan.
2.2 RETIREMENT OR DISABILITY: A Participant who terminates employment with
the Company by virtue of retirement or suffers a "disability" as such
term is defined in the Company's long-term disability benefits program,
while in the Company's employ shall be eligible to receive the balance
of his/her Bonus Bank. The Participant will receive his/her balance as
soon as practical after retirement or qualifying for benefit payments
under the Company's long-term disability benefits program.
2.3 INVOLUNTARY TERMINATION WITHOUT CAUSE OR DEATH: A participant who is
terminated without cause or who dies shall receive any positive Bonus
Bank balance. Such payments will be made as soon as is practical.
2.4 VOLUNTARY TERMINATION: In the event that a Participant voluntarily
terminates employment with the Company, he/she shall be eligible to
receive the balance of his/her Bonus Bank subject to a five (5) year
vesting period in the EVA Incentive Plan.
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2.5 INVOLUNTARY TERMINATION FOR CAUSE: In the event of termination of
employment for cause, the right of the Participant to the Bonus Bank
shall be forfeited.
"CAUSE" Shall Mean:
(i) any act or acts of the Participant constituting a felony under
the laws of the United States of America, or any state thereof
or any jurisdiction;
(ii) any material breach by the Participant of any employment
agreement with the Company or the policies of the Company or
the willful and persistent (after written notice to the
Participant) failure or refusal of the Participant to comply
with any lawful directives of the Board;
(iii) a course of conduct amounting to gross neglect, willful
misconduct or dishonesty; or
(iv) any misappropriation of material property of the Company by
the Participant or any misappropriation of a corporate or
business opportunity of the Company by the Participant.
2.6 BREACH OF AGREEMENT: Notwithstanding any other provision of the Plan or
any other agreement, in the event that a Participant shall breach any
non-competition agreement with the Company or breach any agreement,
with respect to the post-employment conduct of such Participant, the
Bonus Bank held for such Participant shall be forfeited.
GENERAL PROVISIONS
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3.1 TERMINATION OF THE PLAN: Upon termination of the Plan or suspension for
a period of more than ninety (90) days, the Bank Balance of each
Participant shall be distributed as soon as practicable but in no event
later than ninety (90) days from such event. EXCOM, in it sole
discretion, may accelerate distribution of the Bank Balance, in whole
or in part, at any time without penalty.
3.2 NO VESTED RIGHTS: Except as otherwise provided herein, no associate or
other person shall have any claim of right (legal, equitable, or
otherwise) to any award, allocation, or distribution or any right,
title, or vested interest in any amounts in his/her Bonus Bank and no
officer or associate of the Company or any Participating Unit or Group
or any other person shall have any authority to make representations or
agreements to the contrary. No interest conferred herein to a
Participant shall be assigned or subject to claim by Participant's
creditors. The right of the Participant to receive a distribution
thereunder shall be an unsecured claim against the general assets of
the Company and the Participant shall have no rights in or against any
specific assets of the Company as the result of Participation
hereunder.
ADDENDUM REVISED AS OF JANUARY 2000 WITH REVISIONS TO BE EFFECTIVE FOR
THE PLAN YEAR BEGINNING APRIL 1, 2000.
(TOTAL 10 PAGES)
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COLUMBUS McKINNON
EVA(R) BONUS ELIGIBILITY
Effective April 1, 2000
Associates'
Plan Year
Work Requirements in Associates'
Bonus Status on May 1st. of Eligibility Date
Calendar Year Following Calendar Year for Bonus Payable Calculation
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Worked Full or Partial Year Died YES 6/16 of Plan Year Pro Rata
Worked Full or Partial Year Long Term Disability YES, if return Earlier of 6/16 or
to work within return to work date
two years. if after June 16th. Pro Rata
Worked Full or Partial Year Earning Short Term 6/16 of
Disability Benefits YES Plan Year Pro Rata
Worked Full or Partial Year Earning Worker's YES, if return Earlier of 6/16 or
Compensation Benefits to work within return to work date
two years. if after June 16th. Pro Rata
Worked Full or Partial Year On FMLA or Other Approved YES, if return Earlier of 6/16 or
Leave of Absence to work within return to work date
two years. if after June 16th. Pro Rata
Worked Full or Partial Year Laid off and Subject to Recall YES, if return Earlier of 6/16 or
to work within return to work date
two years. if after June 16th. Pro Rata
Worked Full or Partial Year Terminated prior to May 1st NO
either voluntarily or with or ----------
without cause.
Worked Full or Partial Year Retired YES 6/16 of Plan Year Pro Rata