Exhibit 99.3
HEADWATERS INCORPORATED
INCENTIVE BONUS PLAN
Effective 1 October 2003
1. PURPOSE
The purpose of this Incentive Bonus Plan is to promote the success of
Headwaters Incorporated and Headwaters' subsidiaries, by providing
financial incentive for employees to strive for more effective
operation of the business through ongoing development and use of their
knowledge, skill, ingenuity, resourcefulness and industry. The Plan
provides that annual Awards may be made to employees who are
responsible for successful operation and management of the Company.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Award" means the total dollar amount that may be paid to a
Participant following a given Performance Year.
(b) "Base Compensation" means the annualized W2 wages of a
Participant determined on the last day of a Performance Year.
(c) "Board" means the Board of Directors of Headwaters
Incorporated
(d) "Bonus Percent" means the percentages associated with each
Participant based on position, responsibility, and other
factors, listed on the appropriate Participation Schedule as
defined on Schedule 1.
(e) "Business Unit" means the businesses, subsidiaries, or units
thereof, identified on Schedule 1.
(f) "Change in Control" means:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or
surviving entity;
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
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Incentive Bonus Plan
(iii) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the
Company representing at least 50% of the total voting power represented
by the Company's then outstanding voting securities. For purposes of
this Paragraph (iii), the term "person" shall have the same meaning as
when used in sections 13(d) and 14(d) of the Securities Exchange Act of
1934 but shall exclude (A) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a parent
or subsidiary of the Company and (B) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Company's incorporation or to
create a holding company that will be owned in substantially the same
proportions by the persons who held the Company's securities
immediately before such transaction.
(g) "Committee" means the Headwaters' Compensation Committee, or
such other committee comprised of members of the Board
designated by the Board to oversee the Plan.
(h) "Company" means collectively Headwaters Incorporated and
certain subsidiaries named on Schedule 1.
(i) "Completion Factor" means the percentage completion of IBO and
EIBO commitments of the Participants. The Completion Factor of
an EIBO can exceed the original percent allocated to the EIBO
if the Participant exceeds the original performance agreed to
in the EIBO. The incremental Completion Factor for an EIBO
shall be the product of the appropriate EBITDA Factor
multiplied by the appropriate Percent Factor, based on the
following table:
Increase in EBITDA Increase in EBIDA Percent
EBITDA Factor as a % of EIBO Goal Factor
------ ------ ------------------- ------
(Dollars in Thousands)
$0 to 100 10% 0 to 5% 10%
101 to 200 20% 5.01% to 10% 12.5%
201 to 300 30% 10.1% to 15% 15%
301 to 400 40% 15.1% to 20% 17.5%
401 to 500 50% 20.1% to 25% 20.0%
501 to 600 60% 25.1% to 30% 22.5%
601 to 700 70% 30.1% to 35% 25.0%
701 to 800 80% 35.1% to 40% 27.5%
801 to 900 90% 40.1% to 45% 30.0%
$900 and higher 100% 45% and higher 32.5%
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Incentive Bonus Plan
(j) "Economic Individual Business Objective or EIBO" means an IBO
that has been determined by the Chief Executive Officer to
qualify as an IBO that has a direct relationship to EVA
generation.
(k) "EVA" means the net operating profit before taxes, as adjusted
pursuant to items identified in Schedule 1, ("NOPAT"), less
the average cost of capital employed by the Company during the
Performance Year. In calculating EVA, license fees received
from the Pace license escrow, to the extent that the
distribution from the escrow causes Pace license revenues to
exceed the Pace licensee budgeted amounts, will be excluded;
likewise, proceeds received or damages incurred from a
resolution of the A.J. Gallagher litigation will be excluded.
(l) "EVA Multiplier" means that factor identified on the EVA
Multiplier Table for the Company, associated with different
levels of EVA obtained during the Performance Year that
exceeds the Threshold EVA.
(m) "Individual Business Objective or IBO" means the goals
established by each Participant used to determine his/her
Performance Adjustment Factor.
(n) "Participant" means a full time employee of the Company,
employed by the Company on the last day of a Performance Year
and who otherwise meets the eligibility requirements for
participation set forth in section 4.
(o) "Performance Adjustment Factor or PAF" means the multiplier
obtained by combining the completion factors from the IBO
commitments of the Participants. The Performance Adjustment
Factor can vary from 0% to greater than 100% depending upon
the attainment of the Participant's IBOs.
(p) "Performance Year" means a designated fiscal year of the
Company during which Company and individual performance will
be measured and Participant services will be rendered for
which an Award may be granted.
(q) "Plan" means this Headwaters Incorporated Incentive Bonus
Plan.
(r) "Chief Executive Officer" means the Chief Executive Officer of
Headwaters Incorporated.
(s) "Retrospective Review" means the formal report prepared
annually which details the Company's, and the Participants'
performance during the Performance Year and provides the basis
for the Committee's determination of the Performance
Adjustment Factor and Participant Awards.
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(t) "Threshold EVA" means the level of EVA performance below which
there will be no Award.
3. POWERS AND ADMINISTRATION
The Committee shall have such powers and duties as are
conferred upon it under this Plan, or any amendments thereto, or by the
Board. The Committee shall have the authority to determine the time or
times when approved Participant Awards shall be paid each year; and the
Committee shall determine Plan participation and Award amounts for
Participant's pursuant to Section 6(a).
The Committee shall take whatever action is necessary in
fulfilling the purposes and intent of the Plan. The Committee is
authorized and empowered to interpret the terms and conditions of the
Plan, to promulgate any rules, regulations and schedules of general
applicability and to adopt such forms deemed necessary to carry out the
purposes of the Plan. However, no such interpretation, rule or
regulation shall be contrary to the clearly expressed provisions of the
Plan.
The Committee may prescribe rules and procedures for the
allocation of responsibilities among the agents appointed by the
Committee for the performance of ministerial duties.
4. ELIGIBILITY FOR PARTICIPATION
(a) Those employees of the Company employed by the Company on the
last day of the Performance Year who:
(i) have achieved relevant Plan performance criteria;
(ii) are not otherwise eligible to receive regularized,
periodic performance-based bonus compensation under
some established plan of the Company or its business
units or subsidiaries; and
(iii) are identified on Schedule I or are added to the Plan
during the Performance Year.
(b) Those employees of the Company who are eligible to participate
are entitled to receive a copy of this Plan document.
(c) Participation in a given Performance Year does not entitle
participation in any subsequent Performance Year.
5. CALCULATION OF AWARDS
An Award shall be computed as follows:
EVA Multiplier X Base Compensation X Bonus Percent X PAF
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6. PARTICIPANT SELECTION AND AWARD DETERMINATION
(a) Chief Executive Officer. Each year the Chief Executive Officer
shall present to the Committee the list of Participants, their
PAF and the computation of the proposed Award, and the Award
amounts recommended for each Participant.
(b) Committee. The Committee shall consider the Chief Executive
Officer's report referred to in Section 6(a) and approve the
total Awards to be granted for the Performance Year.
7. INDIVIDUAL AWARDS
(a) A Participant's Award shall be prorated based upon number of
months of service in a given Performance Year or if the
Participant is in different employment categories during a
Performance year.
(b) The actual Award granted to any individual Participant
hereunder shall be based upon the Company's overall
performance and individual performance considerations and
shall be determined by the Committee, in its sole discretion.
(c) No Award will be granted if the Company's overall performance
is below Threshold EVA or if a Participant's individual
performance is unsatisfactory, as determined by the Committee
in its sole discretion, upon the recommendation of the Chief
Executive Officer.
8. FORM AND TIME OF PAYMENT
(a) An Award shall be paid to the Participant in cash, less
applicable federal, state, local and FICA taxes, as soon as
practicable after the date on which all awards are approved by
Committee.
(b) If Banking applies to a Participant as shown on Schedule 1,
then 50% of the amount of the Award that is in excess of the
Award that would be computed if the EVA multiplier were 1,
shall be withheld from payment. Payment of the withheld Award
shall be made over the two years immediately subsequent to the
Performance Plan Year (50% of the withheld year in the first
subsequent year and 50% in the second subsequent year) if the
Company reaches the Threshold EVA in the subsequent years. If
the Company fails to achieve the Threshold EVA in the
subsequent two years, the withheld amounts are forfeited. Any
Banked Awards will be paid to a Participant upon the
occurrence of (i) the Participant's retirement from the
Company after reaching age 60; or (ii) a Change in Control of
the Company.
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9. RETIREMENT, TERMINATION, DISABILITY, INCOMPETENCY AND DEATH
(a) In the event of the Participant's disability, incompetency or
death, or retirement such Participant may receive an Award,
prorated to the effective date of such event, at the sole
discretion of the Committee. Any such prorated Award shall be
determined and paid in accordance with the regular procedures
of the Plan.
(b) Should an Award be approved under Section 9(a), such Award
shall be paid in cash, less applicable federal, state, local
and FICA taxes, on the normal Award payout date to the
Participant, or, in the event of the Participant's death, to
the Participant's estate, or to the person or persons who have
acquired, by will or by the laws of descent and distribution
or by other legal proceedings, the right to such Award.
10. NO RESERVE OR TRUST
Nothing contained in the Plan shall require the Company to segregate
any monies from its general funds, or to create any trust or make any
special deposit in respect of any amounts payable under the Plan to or
for any Participant or group of Participants. All amounts payable under
the Plan shall be paid out of the general funds of the Company.
11. NO RIGHT TO ASSIGN
No right or interest of any Participant in the Plan or in any unpaid
Award shall be assignable or transferable in whole or in part, either
voluntarily or by operation of law or otherwise, or be subject to
payment of debts of any Participant by execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner.
12. NO EMPLOYMENT RIGHTS CONFERRED
Nothing contained in the Plan or any Award shall confer upon any
employee any right with respect to continuation of employment with the
Company in any capacity or interfere in any way with the right of the
Company to terminate an employee's employment at any time or guarantee
any right of participation in any other employee benefit plan of the
Company.
13. SUCCESSORS AND MERGERS, CONSOLIDATIONS OR CHANGE IN CONTROL
The terms and conditions of this Plan shall inure to the benefit of and
bind the Company, the Participants, their successors, assignees, and
personal representatives. If substantially all of the stock or assets
of the Company are acquired by another corporation or entity or if the
Company is merged into, or consolidated with another corporation or
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entity, then upon such event the Banked portion of any Awards shall be
immediately payable to the Participants and all other obligations
created hereunder shall be obligations of the acquirer or successor
corporation or entity without the requirement of further action by the
acquirer or successor corporation or entity.
14. GOVERNING STATE LAW
The provisions of this Plan shall be construed and administered in
accordance with the laws of the State of Utah.
15. AMENDMENT
The Committee may from time to time amend, suspend, terminate or
reinstate any or all of the provisions of the Plan. However, the
Committee may not cancel awards, including any banked awards, payable
on account of a completed Performance Year.
16. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective for the Performance Year commencing
October 1, 2003 upon adoption by the Committee and shall remain in
effect until such time as the Committee may terminate it.
Approved by Committee: 23 October 2003
/s/ Kirk A. Benson
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Kirk A. Benson, Chairman & CEO
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