COLUMBUS McKINNON CORPORATION
MANAGEMENT EVA(R) INCENTIVE COMPENSATION PLAN
December 10, 1997
ARTICLE I
STATEMENT OF PURPOSE
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 management incentives with shareholder
interests, incentive compensation will reward the creation of value.
This Plan will tie incentive compensation to Economic Value Added
(AEVA@) and, thereby, reward management for creating value and penalize
management 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.
Managers create value when they employ capital in an endeavor that
generates a return that exceeds the cost of the capital employed.
Managers destroy value when they employ capital 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) by
management. 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 base pay. Bonus Bank participant bonuses are banked
forward in the Participant's Bonus Bank, a prescribed distribution (as
specified in Article IV) of the net positive balance is distributed each
year through the payroll system.
ARTICLE II
DEFINITION OF EVA AND THE COMPONENTS OF EVA
Unless the context provides a different meaning, the following terms shall have
the following meanings.
2.1 "PARTICIPATING 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 business division that is uniquely
identified for the purpose of calculating EVA and EVA based bonus
awards.
2.3 "CAPITAL" means the investment made by shareholders and lenders in the
operation of the business. Operating capital includes Net Working
Capital, Net Fixed Assets, Goodwill, and other Operating Assets.
Each component of Capital will be measured by computing an average
balance based on the beginning monthly balance for the twelve months of
the Fiscal Year.
1
2.4 "COST OF CAPITAL" or "C" means the expected return on a typical
investment of equivalent risk. It is not really a cash cost, rather it
is an opportunity cost, equal to the return investors would expect from
an equally risky investment.
The Cost of Capital will be reviewed annually and revised by EXCOM if it
has changed significantly. Calculations will be carried to one decimal
point.
2.5 "CAPITAL CHARGE" means the deemed opportunity cost of employing Capital
in the business of each Participating Group. The Capital Charge is
computed as follows:
Capital Charge = Capital x Cost of Capital (C)
2.6 "NOPAT" 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. (Adjustments are listed in the
technical manual on pages 10 through 12)
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
3.1 "ACTUAL EVA" means the EVA as calculated for the Company, each
Participating Group, and each Participating Unit for the year in
question.
3.2 "TARGET EVA" means the level of EVA that is expected in order for the
Participating Group to receive the Target Bonus.
The Target EVA for the first year is set at the 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 shift the target up each year. This is determined by the
expected growth in EVA per year.
3.4 "TARGET BONUS" means the "Target Bonus Percentage" times a Participant's
Base Pay.
3.5 "BASE PAY" means a Participant's annual salary as of the beginning of
the fiscal year.
3.6 "TARGET BONUS PERCENTAGE" is determined by a Participant's
Classification.
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.
2
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
-----------------------
Leverage Factor
3.9 "LEVERAGE FACTOR" is the negative (positive) deviation from Target EVA
necessary before a zero (two times Target) bonus is earned. See Exhibit
B for the Leverage Factor of each Participating Group.
3.10 "RETIREMENT" is defined in the terms of the Monthly Retirement Benefit
Pension Plan or succeeding Plan.
3.11 "PARTICIPANT'S CLASSIFICATION" each Participating Unit manager will
establish a Participant's classification, Participant's shall generally
be direct reports. All classifications are subject to approval by EXCOM.
ARTICLE IV
DESCRIPTION OF BONUS BANKS
4.1 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 amounts ("Bonus Banks") with the level of
distribution contingent on sustained high performance and improvements
and continued employment as provided herein.
4.2 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.
4.3 "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.
4.4 "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.
4.5 DISTRIBUTION RULE: 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. Carry the remaining Bank Balance
(positive or negative) forward to the next year.
ARTICLE V
BONUS DISTRIBUTION DATE
5.1 Bonus distributions for the preceding fiscal year will be paid on or
before June 16th of the following fiscal year.
3
ARTICLE VI
PLAN PARTICIPATION, TRANSFERS AND TERMINATIONS
6.1 PARTICIPANT: The EXCOM will have sole discretion in determining who
shall participate in the EVA Incentive Plan.
6.2 TRANSFERS. A Participant who transfers his 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. During the year of
transfer the awards shall be pro rata based on time spent in each
Participating Unit.
6.3 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 qualifying for benefit payments under the
Company's long-term disability benefits program.
6.4 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.
6.5 VOLUNTARY TERMINATION: In the event that a Participant voluntarily
terminates employment with the Company, they shall be eligible to
receive the balance of their Bonus Bank subject to a (5) year vesting
period in the EVA Incentive Plan.
6.6 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.
6.7 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 by such Participant shall be forfeited.
6.8 NO GUARANTEE: Selection as a Participant is no guarantee that payments
under the Plan will be paid or that selection, as a Participant will be
made in any subsequent fiscal year.
4
ARTICLE VII
GENERAL PROVISIONS
7.1 WITHHOLDING OF TAXES. The Company shall have the right 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.
7.2 EXPENSES. All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
7.3 NO PRIOR RIGHT OR OFFER. Except and until expressly granted pursuant to
the Plan, nothing in the Plan shall be deemed to give any employee any
contractual or other right to participate in the benefits of the Plan.
7.4 CLAIMS FOR BENEFITS. In the event a Participant (a "Claimant") desires
to make a claim with respect to any of the benefits 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.
7.5 In the event that a claim, which is made by a Claimant, is wholly or
partially denied, the Claimant will receive from the EXCOM a written
explanation of the reason for denial. The Claimant or his duly
authorized representative may appeal the denial of the claim to the
EXCOM at any time within ninety (90) days after the receipt by the
Claimant of written notice from the EXCOM of the denial of the claim. In
connection therewith, the Claimant or his 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, the 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.
5
7.6 ACTION TAKEN IN GOOD FAITH: INDEMNIFICATION. The 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 the EXCOM in good faith shall
be final and binding upon all employees who have received awards,
Claimants, the Company and all other interested parties. No member of
the EXCOM, nor any officer, director, employee or representative of the
Company, or any of its affiliates acting on behalf of or in conjunction
with the 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 the EXCOM or as officers or employees of the Company. All members of
the EXCOM and any officer, employee or representative of the Company or
any of its 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
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 be 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.
7.7 RIGHTS PERSONAL TO EMPLOYEE. Any rights provided to an employee under
the Plan shall be personal to such employee, shall not be transferable
(except by will or pursuant to the laws of descent or distribution), and
shall be exercisable, during his lifetime, only by such employee.
7.8 TERMINATION OF THE PLAN. Upon termination of the Plan or suspension for
a period of more than 90 days, the Bank Balance of each Participant
shall be distributed as soon as practicable but in no event later than
90 days from such event. The EXCOM, in its sole discretion, may
accelerate distribution of the Bank Balance, in whole or in part, at any
time without penalty.
7.9 NON-ALLOCATION OF AWARD: In the event of a suspension of the Plan in any
Plan Year, as provided herein at Article VIII, Section 8, 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 in any subsequent year.
ARTICLE VIII
LIMITATIONS
8.1 NO CONTINUED EMPLOYMENT: Neither the establishment of the Plan, nor the
grant of an award hereunder, nor anything contained herein, shall
provide any employee 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 employee with
or without cause at any time.
6
8.2 NO VESTED RIGHTS: Except as otherwise provided herein, no employee 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 Bonus Bank and no
officer or employee 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.
8.3 NOT 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
employees. 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.
8.4 OTHER PLANS: Nothing contained herein shall limit the Company's or the
Board of Directors' power to grant bonuses to employees of the Company,
whether or not Participants in this Plan.
8.5 UNFUNDED PLAN: This Plan is unfunded and is maintained by the Company in
part to provide deferred compensation to a select group of management
and highly compensated employees. Nothing herein shall create or be
construed to create a trust of any kind, or a fiduciary relationship
between the Company and any Participant.
ARTICLE IX
AUTHORITY
9.1 EXCOM AUTHORITY: Except as otherwise expressly provided herein, full
power and authority to interpret and administer this Plan shall be
vested in the EXCOM. The 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 the 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.
9.2 BOARD OF DIRECTORS AUTHORITY: The Board shall be ultimately responsible
for administration of the Plan. References made herein to the "EXCOM"
assume 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. The Board or EXCOM, as appropriate, shall work with
the CEO of the Company in all aspects of the administration of the Plan.
ARTICLE X
NOTICE
10.1 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
business address or office location.
7
ARTICLE XI
EFFECTIVE DATE
11.1 This Plan shall be effective April 01, 1997 and will be administered on
a fiscal year basis, consistent with the Company's March 31 year end.
ARTICLE XII
AMENDMENTS
12.1 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 of termination shall be given promptly to each
Participant.
ARTICLE XIII
APPLICABLE LAW
13.1 This Plan shall be construed in accordance with the State of New York
law.
8