BANTA CORPORATION
ECONOMIC PROFIT (EP)
LONG-TERM INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective January 2, 2000)
ARTICLE I
Statement of Purpose
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1.1 The purpose of the Banta Corporation (the "Company") Economic Profit ("EP")
Long-Term Incentive Compensation Plan (the "Plan") is to provide an
incentive compensation system which promotes and rewards the maximization
of shareholder value over the long term. The Plan is designed to create a
focus for all participants to achieve the key financial and strategic
objectives which drive shareholder value creation. The Plan aims to provide
a fair and meaningful reward for achieving or surpassing shareholder value
creation goals by directly linking incentive compensation to EP and,
thereby, reward management for creating value.
1.2 There are two different performance measures of value creation, EPS and EP.
EPS is the fully diluted earnings per average share of common stock of the
Company for the applicable year. EP is the performance measure of value
creation. EP 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. By
imputing the cost of capital upon the operating profits generated by the
Company, EP measures the total value created by management.
EP = (Net Operating Profit After Tax - Capital Charge)
1.3 Each Plan Participant has a prescribed Target Bonus which is composed of
two components, Actual EP Bonus based on the Company's EP results and
Actual EPS Bonus based on the Company's EPS results. Each bonus will be
paid out one-third annually over a three year period subject to the payout
rules contained in Section 5.5. In no circumstance will the Participant be
required to reimburse the Company for negative bank balances.
1.4 The Plan will be administered on a fiscal year basis under the direction
and control of the Compensation Committee of the Banta Corporation Board of
Directors (the "Committee"). At a meeting of the Committee during the first
quarter of each year the Committee will review and approve the list of Plan
Participants for such year, along with the Company's Cost of Capital,
Target EP, Improvement Factor, Bonus Table Generator amounts for such year
and the applicable targets for EPS.
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ARTICLE II
Definition of EP and the Components of EP
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2.1 "Capital" means the net investment employed in the operations of the
Company. The components of Capital are as follows:
Shareholders Equity
Plus: Advances from (to) Corporate
Plus: Collected cash overdrafts (balances)
Plus: Long-term debt (including current portion) and
short-term debt
Plus: Deferred taxes (net of future tax benefit)
Plus: Accrued (prepaid) income taxes
Plus: LIFO Reserve
Plus: Cumulative goodwill and non-compete amortization
Plus: Acquisition earnouts paid
Plus: Capitalized leases
Plus: Non-cash accruals
Plus: Negative EP on acquisitions and/or major R&D projects
approved by the Chief Executive Officer
Plus/Less: Other capital items as determined by management and
approved by the Committee
Less: Non-operating Cash
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Equals: Capital
Each component of Capital will be measured by computing an average balance
based on the ending period balance for each period the Company closes its
books within the year.
2.2 "Cost of Capital" will be estimated at the beginning of each year based on
the weighted average of the after-tax cost of debt and equity for the year
in question for the entire Company. Calculations will be carried to one
decimal point.
2.3 "Capital Charge" means the deemed opportunity cost of employing Capital in
the Company. The Capital Charge is computed as follows:
Capital Charge = Capital x Cost of Capital
2.4 "Net Operating Profit After Tax" or "NOPAT"
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"NOPAT" means the after-tax earnings attributable to the capital employed
in the Company for the year in question. The components of NOPAT are as
follows:
Operating Earnings Before Income Taxes
Plus: Miscellaneous income (excluding interest income)
Plus: Current LIFO expense
Plus: Change in non-cash accruals
Plus: Capitalized lease adjustment
Plus: Non-compete amortization
Plus: Goodwill amortization
Plus: Acquisition earnouts expensed
Plus: R&D expense
Plus: R&D amortization
Plus/Less: Other items as determined by management and approved by
the Committee
Less: Income Taxes
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Equals: Net Operating Profit After Tax
Gains and losses on the sale of assets, gains and losses on the disposition
of businesses and/or business segments, restructuring charges and other
large non-recurring gains and losses will be excluded from NOPAT unless the
Committee determines that a specific item should be included.
2.5 "Economic Profit" or "EP" means the NOPAT that remains after subtracting
the Capital Charge, expressed as follows:
NOPAT
Less: Capital Charge
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Equals: EP
EP may be positive or negative.
2.6 Operations acquired will be excluded from the EP computations for the first
12 months after acquisition, unless the Committee approves earlier, or
later, inclusion based on the facts related to a specific acquisition.
ARTICLE III
Definition and Computation of Target Bonus
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3.1 "Actual EP" means the EP as calculated for the Company for the year in
question.
3.2 "Target EP" means the level of EP that is expected in order for a
Participant of the Company to receive one hundred percent (100%) of the
Target Bonus attributable to the EP component.
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Target EP is calculated according to the following formula:
Target EP=Prior Yr's Actual EP + Prior Yr's Target EP + Improvement Factor
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For the initial year, Target EP will be established by the Committee
independent of the above formula.
3.3 "Target Bonus" means the "Target Bonus Percentage" times a Participant's
Base Pay actually paid for the year (see article VII for calculations
related to a change in a Participant's employment status).
3.4 "Target Bonus Percentage" is 25% for each Participant.
3.5 "Base Pay" means the Participant's base rate of salary excluding bonuses
and other benefits or forms of compensation.
3.6 "Improvement Factor" means the prior year's Capital multiplied by X%, where
X is uniquely identified annually. If the Company returned a negative EP in
the prior year, the Improvement Factor will be a fixed dollar amount rather
than an amount based on X. This amount will be approved by the Committee
pursuant to Section 1.4.
3.7 "Actual EPS Bonus" means the bonus earned by a Participant based on EPS
results for the applicable year and the schedule of positive and negative
percentages of the Target Bonus attributable to the EPS results as
determined by the Committee.
ARTICLE IV
Definition and Computation of Actual Bonus
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4.1 Each Participant shall have his/her Target Bonus subdivided into two
component targets, a target based on total Company EP results and a target
based on EPS. Unless otherwise specifically provided by the Committee, the
Target Bonus will be split fifty-fifty between the two components.
4.2 "Actual EP Bonus" means the bonus earned by a Participant based on total
Company EP results and is calculated by multiplying the Target Bonus by a
percentage which is determined as follows:
[Actual EP - Target EP] + 1
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[Bonus Table Generator]
4.3 "Bonus Table Generator" is the annually determined negative (positive)
deviation from Target EP necessary before a zero (two times Target) bonus
is earned.
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4.4 "Combined Bonus" is the sum of the Actual EP Bonus and Actual EPS Bonus.
The Combined Bonus, whether positive or negative, will be capped at three
hundred percent (300%) of Target Bonus for each Participant such that any
amounts above (or below for a negative number) three hundred percent (300%)
of a Participant's Target Bonus will be ignored for any calculation and
other purpose of this Plan.
ARTICLE V
Description of Bonus Banks
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5.1 Establishment of a Bonus Bank. To encourage a long-term commitment by
Participants to the Company, all Combined Bonus amounts shall be credited
to (or debited against in the case of a negative Combined Bonus amount) "at
risk" accounts (Bonus Banks), with the level of future payout contingent on
sustained high performance and continued employment as provided herein.
5.2 Although a Bonus Bank may, as a result of negative EP, have a deficit, no
Participant shall be required, at any time, to reimburse his/her Bonus
Bank.
5.3 "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
Participants are debited.
5.4 "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.
5.5 Payout Rules:
(A) If there is no positive or negative balance in the Bonus Bank carried
over from the prior year:
(1) If the Combined Bonus is positive, pay out 1/3 of the Combined
Bonus. Add the remaining Combined Bonus to the Bonus Bank. Unless
negative bonuses in subsequent years reduce the payout, the
banked amount will be paid out in two equal installments
beginning with a payment at the time that bonuses would be paid
for the subsequent year.
(2) If the Combined Bonus is negative for the year, a negative Bonus
Bank balance equal to such amount will be created. Any such
negative amount will be offset against positive bonuses earned in
subsequent years. No payouts will be made under the Plan until
the negative balance is absorbed by future credits to the Bonus
Bank.
(3) Carry forward any positive or negative Bonus Bank amounts.
(B) If there is a positive Bonus Bank balance carried forward:
(1) If a positive Combined Bonus was earned for the year:
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(a) Pay out 1/3 of the Combined Bonus earned for the current
year.
(b) Pay out any scheduled installments from prior years
applicable to the current year.
(2) If the Combined Bonus is negative for the year:
(a) If the Combined Bonus is greater than the carryover balance,
the entire prior positive balance will be eliminated. The
remaining negative balance will be offset against bonuses
earned in subsequent years as in (A)(2) above.
(b) If the negative bonus is less than the carryover balance, it
will first offset any scheduled installment amount which
would have otherwise been paid for the current year. Any
negative amount remaining after this offset will be used to
reduce any installments that would otherwise have been paid
for the subsequent year.
(3) Carry forward any positive or negative Bonus Bank balances.
(C) If there is a negative Bonus Bank balance carried forward:
(1) If the Combined Bonus is positive for the year:
(a) If the Combined Bonus is greater than the negative carryover
balance, the negative balance will be offset against the
current payment and the two installment payments in the
order in which they would otherwise have been paid until the
negative balance is consumed. No payment will be made from
the Bonus Bank unless all carryover negative balances have
been offset.
(b) If the Combined Bonus earned is less than the negative
carryover balance, the two are offset and the remaining
negative balance will be carried forward to the next year.
(2) If the Combined Bonus is negative for the year it will be added
to the negative carryover balance.
(3) Carry forward any positive or negative balances.
See attached Exhibit A for payout examples.
5.6 Payment of Awards. All amounts payable to Participants shall be paid in
cash within 30 days following approval of the calculations by the
Committee.
ARTICLE VI
Deferred Payment
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6.1 Deferrals. A Participant may elect in advance to defer payment of all or
any portion of the payments he/she would otherwise receive pursuant to
Sections 5.5 and 5.6. No bonus amount otherwise payable in a year shall be
deferred for any year unless the Company shall have received a written
notice from the Participant not later than December 31 of the second
preceding year specifying the portion of the award which is to be deferred.
By way of example, an election to defer any 1998 awards (which would
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otherwise be paid in early 1999) must be received by December 31,1997. Any
such deferral election shall be irrevocable.
6.2 Deferral Accounts. All amounts so deferred will be credited, as of the
dates otherwise payable, to an account created on the Company's books for
the Participant. Amounts standing to a Participant's credit in the account
shall be paid to the Participant or his designated beneficiary or estate:
(1) over a period of not more than fifteen years following termination of
the Participant's employment by reason of death, disability or normal or
early retirement as permitted by the Company's Retirement Plan; and (2)
over a period of not more than three years following termination of a
Participant's employment for any other reason, in either case at such times
and in such installments as shall be determined in the sole discretion of
the Committee.
6.3 Interest. Until such time as all amounts in the account are paid in full, a
credit in lieu of interest shall be made to the account on December 31 of
each year (or on the date of the final installment payment from the
account, as the case may be) in an amount equal to interest on the balance
from time to time outstanding in the account during the year at a rate
equal to the average prime rate of interest less one percentage point. For
purposes of this section the "average prime rate of interest" in effect
during the applicable period shall be computed by multiplying each prime
rate of interest in effect at the Firstar Bank of Milwaukee during such
period by the number of days each such rate was so m effect, and by
dividing the total number so obtained by the total number of days in such
period.
ARTICLE VII
Plan Participation, Transfers and Terminations
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7.1 Participant. "Participant" shall mean an employee employed on a regular
full time or part-time basis by the Company and who has been recommended by
the Chief Executive Officer to be eligible to participate in the Plan and
approved by the Committee. In order to be eligible for an Actual EP Bonus
for a year, the Participant must be designated as such pursuant to Section
1.4. A person shall remain a Participant for other purposes of the Plan as
long as he/she has a Bonus Bank balance or a deferred balance.
7.2 New Participants. The percentage (%) of award to which a Participant is
entitled in the first year of his/her participation in the Plan is prorated
at a rate of 1/12 for each complete month from date of participation.
7.3 Retirement. Disability. Involuntary Termination Without Cause or Death. A
Participant who retires under the terms of the Company's Retirement Plan,
or suffers a "disability", as such term is defined in the Company's
long-term disability benefits program and is not reasonably expected by
management to return to work, or is involuntarily terminated without cause
or who dies shall be eligible to receive the
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balance of his/her Bonus Bank as of the end of the year pursuant to Article
5.6 after taking into account the actual bonus value for the said year. The
actual bonus value for the said year shall be equal to zero dollars ($0) if
the Participant has not completed six full months of employment with the
Company during the year. Otherwise, the percentage of award for the said
year to which a Participant is entitled shall be prorated at a rate of 1/12
for each complete month of employment during the year.
7.4 Voluntary Termination. In the event that a Participant voluntarily
terminates employment with the Company on or before the end of the
applicable fiscal year, the right of the Participant to his/her Bank
Balance and/or any potential current year payout shall be forfeited.
7.5 Termination for Cause. "Cause" shall mean:
(1) misappropriation by the Participant of funds of the Company or
any of its subsidiaries;
(2) the Participant personally and secretly obtaining profits from
dealings with the Company or any of its subsidiaries;
(3) the Participant's unreasonable neglect of, or refusal to perform,
his/her duties or responsibilities; and
(4) conviction of a serious crime involving moral turpitude.
7.6 Payment and Breach of Agreement. Notwithstanding any other provision of the
Plan or any other agreement, in the event that a Participant shall breach
any noncompetition agreement with the Company or breach any agreement with
respect to the postemployment conduct of such Participant, any remaining
payment otherwise due to the Participant hereunder shall be forfeited.
7.7 No Guarantee. Selection as a Participant is no guarantee that benefits
under the Plan will be earned or that selection as a Participant will be
made in any subsequent year.
ARTICLE VIII
General Provisions
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8.1 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.
8.2 Expenses. All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
8.3 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.
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8.4 Rights Personal to Employee. Any rights provided to a Participant under the
Plan shall be personal to such Participant, 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 Participant.
8.5 Distribution of Bank Balances Upon Termination of the Plan. Upon
termination of the Plan, the Bank Balance of each Participant shall be
distributed as soon as practicable but in no event later than 90 days from
such event.
ARTICLE IX
Limitation
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9.1 No Continued Employment. Nothing contained herein shall provide any
Participant with any right to continued employment or in any way abridge
the rights of the Company to determine the terms and conditions of
employment and whether to terminate employment of any Participant.
9.2 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/her Bonus Bank and no officer or employee of
the Company 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.
ARTICLE X
Authority
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10.1 Committee Authority. Except as otherwise expressly provided herein, full
power and authority to interpret and administer this Plan shall be vested
in the Committee. The 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
Committee 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.
10.2 Board of Directors Authority. The Board shall be ultimately responsible for
administration of the Plan. The Board or the Committee, as appropriate,
shall work
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with the Chief Executive Officer of the Company in all aspects of the
administration of the Plan.
ARTICLE XI
Notice
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11.1 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 XII
Effective Date
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12.1 This Plan was originally effective as of January 1, 1998. The effective
date of this restatement is January 2, 2000.
12.2 The Plan is intended to remain in force indefinitely beginning on the first
day of each fiscal year after the effective date hereof, unless the Board
of Directors, in its discretion, terminates it by resolution and notifies
the Participants.
ARTICLE XIII
Amendments
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13.1 Amendment. This Plan may be amended or terminated at any time at the sole
discretion of the Board upon the recommendation of the Committee. The
annual activities of the Committee pursuant to the Plan are not Plan
amendments, including but not limited to the determinations pursuant to
Section 1.4.
13.2 Protected Benefits. Notwithstanding the foregoing, after the last day of an
applicable fiscal year, other than 1998, the Plan may not be amended or the
Participants revised such that the Participant receives less than the
amount payable by the Plan nor may an amendment reduce or eliminate any
previously banked amount under Article V prior to such amendment or
revision. For 1998, the Committee, at its discretion, has the right to make
any retroactive changes to the terms and conditions of the Plan it deems
necessary and prudent up to and including the date of payment of bonuses
pursuant to Section 5.6.
13.3 Notice. Notice of any amendment or termination shall be given promptly to
each Participant.
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ARTICLE XIV
Applicable Law
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14.1 This Plan shall be construed in accordance with the provisions of the laws
of the State of Wisconsin to the extent not preempted by Federal law.
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