MANAGEMENT INCENTIVE COMPENSATION PLAN
ECONOMIC VALUE ADDED (EVA) BONUS PLAN
AS AMENDED FEBRUARY 14, 2000
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 shareholder value 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 ("EVA") and, thereby,
reward management for creating value and penalize management for
destroying value.
1.2 EVA is the performance measure of value creation. 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.
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 earned in any one year is the
result of multiplying the Actual Bonus Percentage times the Participant's
base pay. Bonuses that fall within a pre-specified range will be fully
paid out. Positive and negative bonuses falling outside this range are
banked forward in the Participant's Bonus Bank, with one-third of the net
positive balance paid out each year in cash.
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 business division or group of business
divisions which are uniquely identified for the purpose of calculating EVA
and EVA based bonus awards. Some Participants' awards may be a mixture of
two different Participating Groups.
For the purpose of this plan, the Participating Groups are listed on Exhibit C.
2.2. "Capital" means the net investment employed in the operations of each
Participating Group. The components of Capital are as follows:
Gross Accounts Receivable (including trade A/R from another
Manitowoc unit)
Plus: FIFO Inventory
Plus: Other Current Assets
Less: Non-Interest Bearing Current Liabilities (NIBCL's - See Note 1)
Plus: Net PP&E
Plus: Other Operating Assets
Plus: Capitalized Research & Development
Plus: Goodwill acquired after July 3, 1993
Plus: Accumulated Amortization on Goodwill acquired after July 3, 1993
Plus (Less): Special Items (one-time)
--------------------------------------
Equals: Capital
Notes: (1) NIBCL's include trade A/P to another Manitowoc unit, but do not in-
clude the contingent liability associated with Bonus Banks.
2.3 Each component of Capital will be measured by computing an average balance
based on the ending monthly balance for the twelve months of the Fiscal
Year.
2.4 "Cost of Capital" or "C*" means the weighted average of the after tax cost
of debt and equity for the year in question.
The Cost of Capital will be reviewed annually and revised if it has changed
significantly. Calculations will be carried to one decimal point.
The cost of capital for the initial year is 12.6%. See Exhibit A. In
subsequent plan years the methodology for the calculation of the Cost of
Capital will be:
a) Cost of Equity = Risk Free Rate + (Beta x Market Risk Premium)
b) Debt Cost of Capital = Debt Yield x (1 - Tax Rate)
c) The weighted average of the Cost of Equity and the Debt Cost of Capital is
determined by reference to a projected debt to capital ratio of 40%. The
Risk Free Rate is the average daily closing yield rate on 30 year U.S.
Government Bonds for the month of December immediately preceding the Plan
Year, the BETA is one, and the Market Risk Premium is 5%. The Debt Yield is
the projected weighted average yield on the Company's long term obligations
for the 12 month period ending December 31 of the Plan Year, and the tax rate
is 39% for U.S. Companies, and the full statutory rate of the country where a
foreign division or subsidiary is based.
The debt to capital ratio, BETA, and Market Risk Premium should be reviewed at
least every three years with the assistance of Stern Stewart.
d) Short-term debt is to be treated as long-term for purposes of computing
the cost of capital.
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 "Net Operating Profit After Tax" or "NOPAT"
"NOPAT" means the after tax cash earnings attributable to the capital employed
in the Participating Group for the year in question. The components of
NOPAT are as follows:
Operating Earnings
Plus: Increase (Decrease) in Capitalized R & D (See Note 1)
Plus: Increase (Decrease) in Bad Debt Reserve
Plus: Increase (Decrease) in Inventory Reserves
Plus: Amortization of Goodwill acquired after July 3, 1993
Less: Other Expense (Excluding interest on debt)
Plus: Other Income (Excluding investment income)
Equals: Net Operating Profit Before Tax
Less: Taxes (See Note 2)
---------------------------
Equals: Net Operating Profit After Tax
(1)Since R & D is Capitalized, the difference in the balance is the expensed
amount for that year.
(2)Taxes is assumed to be 39% of Net Operating Profit Before Tax. (For
exceptions see 2.4(c)).
2.7 "Economic Value Added" or "EVA" means the NOPAT that remains after
subtracting the Capital Charge, expressed as follows:
NOPAT
Less: Capital Charge
--------------------------
Equals: EVA
EVA may be positive or negative.
ARTICLE III
DEFINITION AND COMPUTATION OF TARGET BONUS VALUE
3.1 "Actual EVA" means the EVA as calculated for each Participating Group 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 Value.
The Target EVA for the first year is set at the expected EVA for the year prior
to the first year of the plan after adjusting for inventory write-offs,
Manitex relocation, FAS 106 and 109 and the $5 million product liability
settlement (except for $1.2 million). After the first year, the
Base-Line EVA is revised according to the following formula:
(Last Year's Actual EVA + Last Year's Target EVA) Expected
Target EVA =------------------------------------------------- + Improvement
2 in EVA
"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.
See Exhibit B for the Expected Improvement for each Participating Group.
3.3 "Target Bonus Value" means the "Target Bonus Percentage" times a
Participant's base pay.
3.4 "Target Bonus Percentage" is determined by a Participant's classification
as shown on Exhibit B.
3.5 "Actual Bonus Value" means the bonus earned (*) by a Participant and is
computed as the Actual Bonus Percentage times a Participant's base pay.
3.6 "Actual Bonus Percentage" is determined by multiplying the Target Bonus
Percentage by the Bonus Performance Value.
3.7 "Bonus Performance Value" means the difference between the Actual EVA and
the Target EVA divided by the Leverage Factor plus 1.0.
[Actual EVA - Target EVA]
Bonus Performance Value = ------------------------- +1
[Leverage Factor]
3.8 "Leverage Factor" is the negative (positive) deviation from Target EVA
necessary before a zero (two times Target) bonus is earned. See Exhibit C
for the Leverage Factor of each Participating Group.
3.9 A Participant's classification is determined by each business unit manager.
They are subject to approval by the CEO and the Compensation Committee of
the Board of Directors.
* Note: A portion of the Actual Bonus Value may be placed in the Participants'
Bonus Bank. See Article IV for details on the Bonus Bank.
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 exceptional bonuses (amounts
above Target and negative bonuses) shall be credited to "at risk" deferred
accounts ("Bonus Banks"), with the level of payout contingent on sustained
high performance and improvements and continued employment as provided
herein.
4.2 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 Payout Rule: If the Bank Balance entering the Plan Year is zero or
positive, then
1) Pay any positive bonus earned up to the "Target Bonus Value",
2) Add any unpaid portion of the bonus earned (including negative bonuses)
to the Bonus
Bank,
3) Pay out 1/3 of any Positive Bank Balance
4) Carry the remaining Bank Balance forward to the next year.
If the Bank Balance entering the Plan Year is negative, then
1) Pay 1/3 of the positive bonus earned up to the "Target Bonus Value",
2) Add any unpaid portion of the bonus earned (including negative bonuses)
to the Bonus Bank,
3) Pay out 1/3 of any Positive Bank Balance,
4) Carry the remaining Bank Balance forward to the next year.
4.6 A Participant may elect to withdraw, in cash, all or a portion of the Bank
Balance. The amount available for such withdrawal is the lesser of the
ending Bank Balance of the applicable year or the Bank Balance at the end
of the third prior year.
ARTICLE V
Plan Participation, Transfers and Terminations
5.1 Participant Group. The Committee will have sole discretion in determining
who shall participate in the EVA Bonus Plan. Employees designated for Plan
participation by the Committee shall be management or highly compensated
employees. In order for a Participant to receive or be credited with his
or her Actual Bonus Value for a Plan Year, the Participant must have (I)
remained employed by the Company or an affiliate through the last day of
such Plan Year,(ii) terminated employment with the Company during the Plan
Year at or after age fifty-five, for any reason, (iii) suffered a
disability within the meaning of Section 5.3 during the Plan Year, or (iv)
died during the Plan Year. In all other cases of termination of employment
prior to the last day of the Plan Year,a Participant shall not be entitled
to any Actual Bonus Value for such Plan Year.
5.2 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 Plan. Any positive Bonus Bank balance would
payout in full as soon as is practical.
5.3 Retirement or Disability. A Participant who terminates employment with the
Company, at or after age fifty-five, for any reason ("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 their Bonus Bank. In the case of
retirement, the Participant will receive their balance over three years
subject to reduction if the Actual Bonus Value is negative in any of the
three years subsequent to the year of retirement. In the case of
disability while in the Company's employ, the Participant will receive
their balance as soon as practical after qualifying for benefit payments
under the Company's long-term disability benefits program.
5.4 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.
5.5 Voluntary Termination. In the event that a Participant voluntarily
terminates employment with the Company, the right of the Participant to
their Bonus Bank shall be forfeited unless a different determination is
made by the Committee.
5.6 Involuntary Termination for Cause. In the event of termination of
employment for cause, the right of the Participant to the Bonus Bank shall
be determined by the Committee.
"Cause" shall mean:
(i) any act or acts of the Participant constituting a felony under the laws
of the United States, any state thereof or any foreign 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.
5.7 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.
5.8 No Guarantee. Participation in the Plan provides no guarantee that a
payment under the Plan will be paid. 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 the subsequent Calendar Year.
ARTICLE VI
General Provisions.
6.1 Withholding of Taxes. The Company shall have the right to withhold the
amount of taxes,which in the determination of the Company, are required to
be withheld 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 employee 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 any of the benefits provided hereunder, the
claimant shall submit evidence satisfactory to the Committee 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.
6.5 In the event that a claim which is made by a claimant is wholly or
partially denied, the claimant will receive from the Committee a written
explanation of the reason for denial and the claimant or his duly
authorized representative may appeal the denial of the claim to the
Committee at any time within ninety (90) days after the receipt by the
claimant of written notice from the Committee 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. Upon receipt of an appeal,
the Committee shall make a decision with respect to the appeal and, not
later than sixty (60) days after receipt of a request for review, shall
furnish the claimant with a decision on review in writing, including the
specific reasons for the decision written in a manner calculated 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 Committee 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.
6.6 Action Taken in Good Faith; Indemnification. The Committee 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 Committee in good faith
shall be final and binding upon all employees who have received awards,the
Company and all other interested parties. No member of the Committee, nor
any officer, director, employee or representative of the Company,or any of
its affiliates acting on behalf of or in conjunction with the Committee,
shall be personally liable for any action, determination, or inter-
pretation, whether of commission or omission,taken or made with respect to
the Plan, except in circumstances involving actual bad faith or willful
misconduct. In addition to such other rights of indemnification as they
may have as members of the Board, as members of the Committee or as
officers or employees of the Company, all members of the Committee 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 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.
6.7 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.
6.8 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
Committee, in its sole discretion, may accelerate distribution of the Bank
Balance, in whole or in part, at any time without penalty.
6.9 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 VII
Limitations
7.1 No Continued Employment. Nothing contained herein shall provide any
employee with any right to continued employment or in any way abridge the
rights of the Company and its Participating Units to determine the terms
and conditions of employment and whether to terminate employment of any
employee.
7.2 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 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 assignable or subject
to claim by a Participant's creditors. The right of the Participant to
receive a distribution hereunder 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.
7.3 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
Schedules and Appendices attached hereto, of the terms and conditions of
the plan.
7.4 Other Plans. Nothing contained herein shall limit the Company or the
Compensation Committee's power to grant bonuses to employees of the
Company, whether or not Participants in this plan.
7.5 Limitations. Neither the establishment of the plan or the grant of an
award hereunder 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 to determine the terms and conditions of employment
or to terminate the employment of any employee with or without cause at any
time.
7.6 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 VIII
Authority
8.1 Compensation Committee Authority. Except as otherwise expressly provided
herein, full power and authority to interpret and administer this plan
shall be vested in the Compensation Committee. The Compensation Committee
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 Compensation
Committee arising out of or in connection with the construction, ad-
ministration, 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 shall be ultimately responsible
for administration of the plan. References made herein to the
"Compensation Committee" assume that the Board of Directors has created a
Compensation Committee to administer the Plan. In the event a Compensation
Committee is not so designated, the Board shall administer the Plan. The
Board or its Compensation Committee, as appropriate, shall work with the
CEO of the Company in all aspects of the administration of the Plan.
ARTICLE IX
Notice
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 business
address or office location.
ARTICLE X
Effective Date
10.1 This Plan shall be effective as of July 4, 1993.
ARTICLE XI
Amendments
11.1 This Plan may be amended, suspended or terminated at any time at the sole
discretion of the Board upon the recommendation of the Compensation
Committee. Provided, however, that no such change in the Plan shall be
effective to eliminate or diminish the distribution of 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.
ARTICLE XII
Applicable Law
12.1 This Plan shall be construed in accordance with the provisions of the laws
of the State of Wisconsin.
Exhibit A
Calculation of the Cost of Capital
Inputs Variables:
-----------------
Risk Free Rate = Average Daily closing yield on U.S. Government 30 Yr. Bonds
(for the month of December preceding the Plan Year).
Market Risk Premium = 5.0% (Fixed)
Beta = One (Fixed)
Debt/Capital Ratio = 40% (Fixed)
b = Cost of Debt Capital (Projected & Weighted Average Yield on the Company's
Long Term Debt Obligations).
Marginal Tax Rate = 39.0% (Historical Average). However, for exceptions see
2.4(C)
Calculations:
-------------
y = Cost of Equity Capital
= Risk Free Rate + (Beta x Market Risk Premium)
Weighted Average Cost of Capital = [Cost of Equity Capital x (1 - Debt/Capital
Ratio)] + [Cost of Debt x (Debt/Capital Ratio) x (1 - Marginal Tax Rate)]
c* = [y x (1 - Debt/Capital)] + [b x (Debt/Capital) x (1 - Marginal Tax Rate)]
Exhibit B
Participant Target Bonus
Classification Percentage
I 60%
II 50%
III 40%
IV 35%
V 30%
VI 25%
VII 20%
VIII 15%
IX 10%
X 5%
XI 2%
Exhibit C
Participation Groups Expected Improvement in EVA Leverage Factor
MANITOWOC ICE - MII 500,000 2,000,000
KOLPAK 350,000 1,000,000
MCCALL 450,000 500,000
KOLPAK MANUFACTURING 100,000 500,000
FOODSERVICE GROUP (1) 1,500,000 4,000,000
SERVEND 250,000 750,000
FOODSERVICE GROUP (2) 750,000 2,250,000
JOINT VENTURE (CHINA) 100,000 300,000
FOODSERVICE SEGMENT 1,000,000 3,500,000
MANITOWOC CRANES - MCC 1,000,000 3,000,000
RE-MANUFACTURING - MRI 50,000 150,000
FEMCO 200,000 600,000
NORTH CENTRAL CRANE - NCC 40,000 120,000
MTW EUROPE LTD ($)-MEL 75,000 225,000
MTW EUROPE LTD (POUNDS) 50,000 150,000
MCC GROUP (3) 1,500,000 4,000,000
CRAWLER CRANE GROUP (4) 1,100,000 3,400,000
AFTERMARKET GROUP (5) 1,200,000 3,600,000
MANITEX - MIT 500,000 1,000,000
WEST MANITOWOC 200,000 350,000
MARINE 150,000 750,000
CORPORATE 1,000,000 7,000,000
(1) Includes MII, Kolpak, McCall, & Kolpak Manufacturing
(2) Includes MII and SerVend
(3) Includes MCC, Femco, Re-Man, NCC, and MEL
(4) Includes MCC, Re-Man, NCC, and MEL
(5) Includes MCC and Femco
