EXHIBIT 10.9
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GRAPHIC PACKAGING
EXECUTIVE INCENTIVE PLAN
SECOND AMENDMENT AND RESTATEMENT
EFFECTIVE DECEMBER 10, 2002
SHAREHOLDER APPROVAL OBTAINED: MAY 13, 2003
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GRAPHIC PACKAGING INTERNATIONAL CORPORATION
EXECUTIVE INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
(AS AMENDED THROUGH DECEMBER 10, 2002)
The name of this plan shall be the Graphic Packaging International
Corporation Executive Incentive Plan (the "Plan"). The Plan replaces any
previous annual and long-term cash incentive plans used by Graphic Packaging
International Corporation (f/k/a ACX Technologies, Inc.) (the "Company") and its
subsidiaries listed below in Section II. Eligible Participants. This plan is
effective for fiscal years commencing on and after January 1, 1996.
I. PLAN INCLUDES:
A. Cash bonuses based upon predetermined financial goals; and
B. Equity grants of stock options and/or restricted stock.
II. ELIGIBLE PARTICIPANTS:
The Company's executive officers, division presidents and select
officers.
III. CASH BONUS OPPORTUNITY:
A. GOALS:
1. Financial goals are approved at the beginning of each
year by the Company's Compensation Committee (the
"Committee") of the Board of Directors. Goal
achievement determines the bonus amount. Each year's
participants, financial goals and other incentive
compensation terms shall be set forth in writing by
the Committee within ninety (90) days of the
beginning of the period of service to which the
performance goal applies. For purposes of any
short-term bonus, the writing shall be in the form of
a Short Term Incentive Program (STIP) for the
applicable year. For purposes of any long-term bonus,
the writing shall be in the form of a Long Term
Incentive Program (LTIP) for the applicable year.
GRAPHIC PACKAGING EXECUTIVE INCENTIVE PLAN - AMENDED AND RESTATED
DECEMBER 10, 2002 1
2. The Compensation Committee of the Board may select
from one or more of the following financial measures
in determining short term or long term financial
goals, or develop a financial measure based on, or
related to, any of the following: Shareholder Value,
Cash Flow of the Company or of the applicable
Business, as appropriate, Earnings Before Interest
and Taxes ("EBIT"), Earnings Before Interest and
Taxes plus Depreciation and Amortization ("EBITDA"),
Earnings per Share, Operating Income, Ratio of Debt
to EBITDA, Return on Capital, Return on Equity,
Return on Invested Capital, or Return on Net Assets
Employed. In addition the Compensation Committee of
the Board may approve other financial measures that
are deemed to be appropriate for the business. The
performance goals shall be set forth as an objective
formula or standard, and the objective formula or
standard will preclude discretion to increase the
amount of compensation payable on attainment of the
performance goal, all as required by Treas. Reg.
Section 1.162-27(e)(2)(ii) and (iii). Definitions are
in Section F below. Alternative financial measures
may be developed and applied by the Compensation
Committee, as determined in its discretion, without
amendment to the Plan.
3. For short-term incentive compensation, the financial
goals are set each year at "target," the expected
performance level and a minimum performance level
("threshold").
B. SHORT TERM BONUS AWARDS:
1. Potential short term bonus awards, as a percent of
annual salary, are the same for all participants
(except for the Chief Executive Officer, and if other
than the Chief Executive Officer, the President) as
follows:
Officers
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Threshold performance - 25%
Target performance - 50%
President and Chief Executive Officer
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Threshold performance - 30%
Target performance - 60%
2. Potential short-term bonus awards are uncapped except
for the limitation provided in Section D.2. below.
3. The Committee has the authority to reduce a
short-term bonus amount unilaterally and
retroactively, if needed in the sole discretion of
the Committee, to adjust for an unintended benefit,
or to address a specific transaction, which occurs
after the beginning of the year.
GRAPHIC PACKAGING EXECUTIVE INCENTIVE PLAN - AMENDED AND RESTATED
DECEMBER 10, 2002 2
C. LONG TERM BONUS AWARDS
1. The Committee has the authority to set long term
bonus awards based on an individual's level in the
organization. The awards may be based on any
financial measure so applied by the Compensation
Committee in its discretion. The Company reserves the
right to buy back options or restricted stock if it
deems doing so is appropriate.
D. BONUS PAYMENTS:
1. All bonuses are paid net of applicable withholding
taxes.
2. To comply with Section 162(m) of the Internal Revenue
Code, if, at the time the performance goal is met and
the amount to paid as a bonus is based, in whole or
in part, on a percentage of salary or base pay and
the dollar amount of the salary or base pay is not
fixed at the time the performance goal is
established, then the maximum bonus which may be
earned by any participant in any year is limited as
follows:
Officers - $1.0 million
President and Chief Executive Officer - $1.5 million
E. UNUSUAL ITEMS:
1. For purposes of measuring the extent to which an
incentive goal is achieved, the following unusual
items shall generally be excluded unless the
Committee, in its sole judgment, determines the items
shall be included:
a) restructuring charges as defined by
authoritative accounting literature;
b) income or loss, including shares issued,
related to acquisitions and dispositions of
Businesses, Business segments or substantial
assets in the year of the transaction;
c) the current year effective of adopting
accounting pronouncements under generally
accepted accounting principles;
d) legal settlements, judgments, and/or tax
audit claims;
e) tax effect of statutory tax rate changes;
f) environmental remediation costs incurred as
a result of law changes affecting prior
years;
g) accounting changes, extraordinary items,
gain or loss on disposal of a discontinued
operation and/or unusual items as reported
under Accounting Principles Board Opinion
No. 30;
GRAPHIC PACKAGING EXECUTIVE INCENTIVE PLAN - AMENDED AND RESTATED
DECEMBER 10, 2002 3
h) gains or losses from the issuance or
retirement of financial instruments;
i) other unusual items which are required to be
shown as a separate line item on the income
statement; and
j) current year impact of share repurchase
programs.
k) other unusual or extraordinary items as
deemed appropriate for the business,
approved by the Compensation Committee, or
pursuant to any applicable accounting rules
or SEC rules.
F. DEFINITIONS:
The capitalized terms used in the Plan shall have the meanings
specified below, unless otherwise specified. In determining
the values set forth below, the Committee may choose to
consult the audited financial statements of the Company and/or
the certified public accountants that regularly audit the
Company's financial affairs, such determinations to be in
accordance with generally accepted accounting principles.
1. Business means a separate line of business within the
Company.
2. Cash Flow means one or more of the cash flow
components in the Statement of Cash Flows.
3. Code means the Internal Revenue Code of 1986, as
amended.
4. Divisional Net Income means the net income generated
by a distinct division or location of the Company
during a fiscal period.
5. Earnings per Share means "primary earnings per
share."
6. Earnings Before Interest and Taxes (EBIT) means
operating income plus other income and expense except
for interest and taxes.
7. Return on Capital means net income for the fiscal
year divided by the average of total capital at the
beginning and end of the fiscal year. Total capital
is the sum of equity and long-term debt.
8. Return on Equity means the net income for the fiscal
year divided by the average of equity at the
beginning and end of the fiscal year.
9. Return on Net Assets Employed means EBIT divided by a
five-quarter average of total assets less current
liabilities.
10. Return on Invested Capital means Divisional Net
Income divided by a five-quarter average of invested
capital.
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DECEMBER 10, 2002 4
11. Ratio of Debt to EBITDA means total Company debt
divided by EBITDA (earnings before interest and taxes
plus depreciation and amortization). The program uses
a simple average of the four quarterly results
annualized.
12. Shareholder Value means a multiple of EBITDA, less
Debt, and divided by the number of shares of the
Company outstanding, as determined by the
Compensation Committee.
IV. EQUITY GRANTS:
A. Stock Options:
1. Grants of stock options shall be made
pursuant to the terms of the Company's
Equity Incentive Plan.
B. Restricted Stock:
1. Grants of restricted stock shall be made
pursuant to the terms of the Company's
Equity Incentive Plan.
V. ADMINISTRATIVE PROVISIONS:
A. PARTICIPATION FOR NEWLY PROMOTED OR NEWLY HIRED OFFICERS:
Any annual cash bonus under the Plan is prorated based upon
number of days in the eligible position, unless an exception
is made at the time of promotion or hire. The exception for a
participant at the Company is made by Office of the President
and for a Business participant by the president of the
Business.
B. IMPACT OF EMPLOYMENT TERMINATION ON BONUS PAYOUTS:
Participant must be employed on last day of calendar year to
earn a bonus except for the following terminations, which may
result in a prorated bonus based upon number of days of
participation during the year:
1. retirement, including early retirement, under a
qualified retirement plan sponsored by the Company;
2. death;
3. long-term disability, as determined under a
disability policy provided for the participant by the
Company, or if none, under such other disability plan
sponsored by the Company under which the participant
is eligible for benefits, or if none, as defined
under Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended;
4. transfer to another Business within the Company; or
GRAPHIC PACKAGING EXECUTIVE INCENTIVE PLAN - AMENDED AND RESTATED
DECEMBER 10, 2002 5
5. elimination of position or demotion for reasons other
than poor performance.
Any exceptions and a prorated bonus must be approved by the
Office of the President for a Company participant and by the
president of a Business for a Business participant.
C. BONUSES:
1. Bonus amounts must be self-funded, i.e., they must be
accrued before determining whether a bonus is earned.
2. Bonuses are subject to annual review or audit and to
approval by the Committee.
3. Bonuses will be paid, net of withholding taxes, after
the Company releases its annual earnings for the
bonus year.
4. Bonuses may be denied in whole or in part by the
Committee, if in its judgment, the participant took
any actions, which were deemed to be detrimental to
the Business, to the Company or to one of its
subsidiaries.
D. PLAN ADMINISTRATION AND TERMINATION:
1. The Plan is administered by the Company at the
direction of the Committee, which reserves the right
to interpret, modify or terminate the Plan. The
Company delegates the power to interpret and amend
the Plan to the Committee; provided that such power
of amendment shall be to the modification of terms of
the Plan other than the terms that govern
eligibility, performance thresholds or other plan
design components that involve the aggregate amount
of the cost of the Executive Incentive Plan to the
Company. Changes to the Plan shall not adversely
affect any awards or bonuses that have been paid or
earned but not paid without the consent of the
Participant(s) affected by such change.
2. To the extent the Board considers it desirable for
compensation delivered pursuant to a bonus under the
Plan to be eligible to qualify for an exemption under
Code Section 162(m), the Committee shall consist of a
committee of two or more directors of the Company,
all of whom qualify as "outside directors" within the
meaning of Code Section 162(m). The Board may from
time to time remove members from or add members to
the Committee; fill vacancies on the Committee,
howsoever caused; and otherwise increase or decrease
the number of members of the Committee, in each case
as the Board deems appropriate to satisfy such
conditions of Code Section 162(m) as then in effect.
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DECEMBER 10, 2002 6
3. Participation in the Plan does not in any way
constitute a contract of employment and does not
guarantee continued employment with the Company or
any of its subsidiaries.
4. In the event of a change of control, the Plan will
normally end and prorated bonuses will be calculated
and paid, if any are earned. Change in control at the
Company shall be defined as in the Company's Equity
Incentive Plan.
5. Potential bonus awards may not be pledged,
encumbered, assigned, alienated, anticipated or
commuted in any manner by the participant.
6. The Committee reserves the right to offset any earned
bonus against any debts owed by the participant to
the Business, to the Company or to any of the
Company's subsidiaries.
ATTEST: GRAPHIC PACKAGING INTERNATIONAL
CORPORATION
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Dated: December 10, 2002
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DECEMBER 10, 2002 7