Exhibit 10.4
STRATTEC SECURITY CORPORATION
ECONOMIC VALUE ADDED
BONUS PLAN
FOR
NON-EMPLOYEE MEMBERS OF THE
BOARD OF DIRECTORS
Effective June 30, 1997
as Amended August 21, 2001, October 23, 2001,
August 24, 2007 and July 4, 2011

 

 

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STRATTEC SECURITY CORPORATION
ECONOMIC VALUE ADDED
BONUS PLAN
FOR
NON-EMPLOYEE MEMBERS OF THE
BOARD OF DIRECTORS
TABLE OF CONTENTS

              Page  
 
       
I. Plan Objectives
    1  
 
       
II. Plan Administration
    1  
 
       
III. Definitions
    1  
 
       
IV. Eligibility
    4  
 
       
V. Individual Participation Levels
    4  
 
     
VI. Performance Factors
    4  
 
       
VII. Change in Status During Plan Year
    5  
 
       
VIII. Bonus Payment
    6  
 
       
IX. Administrative Provisions
    6  
 
       
X. Miscellaneous
    7  

 

 

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I.   PLAN OBJECTIVES

  A.   To promote the maximization of shareholder value over the long term by
providing incentive compensation to non-employee members of the Board of
Directors of STRATTEC SECURITY CORPORATION (the “Company”) in a form which is
designed to financially reward participants for an increase in the value of the
Company.     B.   To provide competitive levels of compensation that enable the
Company to attract and retain people who can have a positive impact on the
economic value of the Company to its shareholders.     C.   To encourage
teamwork and cooperation in the achievement of Company goals.

II.   PLAN ADMINISTRATION

The Chairman & C.E.O. of the Company shall be responsible for the design,
administration, and interpretation of the Plan.

III.   DEFINITIONS

  A.   “Actual EVA” means the EVA as calculated for the relevant Plan Year.    
B.   “Bonus” means the bonus which is calculated in the manner set forth in
Section V.A.     C.   “Capital” means the Company’s average monthly net
operating capital employed for the Plan Year, calculated as follows:

      Current Assets     +   Bad Debt Reserve     +   LIFO Reserve     -  
Future Income Tax Benefits     -   Current Noninterest-Bearing Liabilities     +
  Property, Plant, Equipment, (Net)     -   Construction in Progress     (+/-)  
Unusual Capital Items

  D.   “Capital Charge” means the deemed opportunity cost of employing Capital
in the Company’s business, determined as follows:

 

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Capital Charge = Capital x Cost of Capital

  E.   “Company” means STRATTEC SECURITY CORPORATION. The Company’s Chairman &
C.E.O., or his/her designee may act on behalf of the Company with respect to
this Plan.     F.   “Compensation Committee” means the Compensation Committee of
the Board of Directors, which among other duties, is responsible for
administering the EVA Plan for the Company’s Officers and Senior Managers.    
G.   “Cost of Capital” means the weighted average of the cost of equity and the
after tax cost of debt for the relevant Plan Year. For Plan administration
purposes, it is assumed the Company’s capital structure will be 80% Equity and
20% Debt. The Cost of Capital will be initially set at 10% for fiscal year 2008
and reviewed by the Compensation Committee prior to each Plan Year thereafter,
consistent with the following methodology:

  (a)   Cost of Equity = Risk Free Rate + (Business Risk Index x Average Equity
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 the expected debt-to-capital ratio

where the Risk Free Rate is the average daily closing yield rate on 30 year U.S.
Treasury Bonds for an appropriate period (determined by the Compensation
Committee from time to time) preceding the relevant Plan Year, the Business Risk
Index is determined by reference to an auto supply industry factor selected by
the Compensation Committee, the Average Equity Risk Premium is 6%, the Debt
Yield is the weighted average yield of all borrowing included in the Company’s
permanent capital, and the tax rate is the combination of the relevant corporate
Federal and state income tax rates.
The Compensation Committee will review the Cost of Capital annually and make
appropriate adjustments only if the calculated Cost of Capital changes by more
than 1% from that used during the prior Plan Year.

 

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  H.   “Earned Wages” includes all cash compensation paid in the Plan Year.    
I.   “Economic Value Added” or “EVA” means the NOPAT that remains after
subtracting the Capital Charge, expressed as follows:

EVA = NOPAT - Capital Charge
EVA may be positive or negative.

  J.   Effective Date. June 30, 1997, the date as of which the Plan first
applies to the Company.     K.   “EVA Leverage Factor” means the adjustment
factor reflecting deviation in the use of capital expressed as a percentage of
net operating capital employed. For purposes of this Plan, the Company’s EVA
Leverage Factor is determined to be 3% of the monthly average net operating
capital employed during the prior Plan year.         For fiscal year 2008
(beginning July 2, 2007) the EVA Leverage Factor is set at $3,316,000.     L.  
“NOPAT” means cash adjusted net operating profits after taxes for the Plan Year,
calculated as follows:

      Net Sales     -   Cost of Goods Sold     (+ -)   Change in LIFO Reserve  
  -   Engineering/Selling & Admin.     (+ -)   Change in Bad Debt Reserve     (+
-)   Other Income & Expense excluding Interest Expense     (+ -)   Other Unusual
Income or Expense Items     (+ -)   Amortization of Unusual Income or Expense
Items     -   Cash Adjusted Taxes on the Above (+/- change in deferred tax
liability)

  M.   Participant. Any individual who has satisfied the eligibility
requirements of the Plan as provided in Section IV.     N.   “Plan Year” means
the one-year period coincident with the Company’s fiscal year.

 

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  O.   “Target EVA” means the target level of EVA for the Plan Year, determined
as follows:

                                 
 
  Current Plan       Prior Year           Prior Year       Expected
 
  Year Target EVA   =   Target EVA     +     Actual EVA   +   Improvement      
               
 
                2              

Expected Improvement will be approved by the Board of Directors annually, based
on increasing economic value in the context of the then current relevant
economic conditions.
For fiscal year 2008 (beginning July 2, 2007) the Target EVA is set at
$1,154,000.

IV.   ELIGIBILITY

Members of the Company’s Board of Directors who are not regular full-time
employees of the Company are the only individuals eligible to participate in
this Plan.

V.   INDIVIDUAL PARTICIPATION LEVELS

  A.   Bonus Formula. Each Participant’s Bonus will be determined as a function
of the Participant’s Earned Wages, the Participant’s Target Incentive Award
(provided in paragraph V.B., below), and the Company Performance Factor
(provided in Section VI.) for the Plan Year. Each Participant’s Accrued Bonus
will be calculated as follows:

                         
 
          Target       Company    
 
  Participant’s   x   Incentive   x   Performance    
 
  Earned Wages       Award       Factor    

  B.   Target Incentive Award. The Target Incentive Award for all non-employee
Directors will be 40% of Earned Wages.

VI.   PERFORMANCE FACTOR

  A.   Company Performance Factor Calculation. For any Plan Year, the Company
Performance Factor will be calculated as follows:

 

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  Company Performance Factor = 1.00 +   Actual EVA - Target EVA    
 
           
 
      EVA Leverage Factor    

  B.   Adjustments to Company Performance. When Company performance is based on
Economic Value Added, it may be necessary to exclude significant, unusual,
unbudgeted or noncontrollable gains or losses from actual financial results in
order to properly measure performance. The Chairman & C.E.O. will decide those
items that shall be considered in adjusting actual results. For example, some
types of items that may be considered for exclusion are:

  (1)   Any gains or losses which will be treated as extraordinary in the
Company’s financial statements.     (2)   Profits or losses of any entities
acquired by the Company during the Plan Year, assuming they were not included in
the budget and/or the goal.     (3)   Material gains or losses not in the budget
and/or the goal which are of a nonrecurring nature and are not considered to be
in the ordinary course of business. Some of these would be as follows:

  (a)   Gains or losses from the sale or disposal of real estate or property.  
  (b)   Gains resulting from insurance recoveries when such gains relate to
claims filed in prior years.     (c)   Losses resulting from natural
catastrophes, when the cause of the catastrophe is beyond the control of the
Company and did not result from any failure or negligence on the Company’s part.

VII.   CHANGE IN STATUS DURING THE PLAN YEAR

  A.   New Board Members. A newly appointed or elected non-employee Director
will accrue a pro rata Bonus based on Earned Wages received during the first
Plan Year in which that Director joins the Board of Directors.

 

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  B.   Removal. A non-employee Director removed from the Board of Directors by
due process during the Plan Year shall not be eligible for a Bonus.     C.  
Resignation. A non-employee Director who resigns during the Plan Year will be
eligible for a pro rata Bonus based on Earned Wages received.     D.   Death,
Disability and Retirement. If a non-employee Director ceases to function as a
member of the Board of Directors during a Plan Year by reason of death or
disability, a tentative Bonus will be calculated as if the Participant had
remained an active member of the Board as of the end of the Plan Year. The final
Bonus will be calculated based upon the Earned Wages received.         Each
non-employee Director may name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under this Plan is to be
paid in case of the non-employee Director’s death.         Each such designation
shall revoke all prior designations by the non-employee Director, shall be in
the form prescribed by the Compensation Committee, and shall be effective only
when filed by the non-employee Director in writing during his or her lifetime
with the Chairman & C.E.O.         In the absence of any such designation,
benefits remaining unpaid at the non-employee Director’s death shall be paid to
that Director’s estate.     E.   Leave of Absence. A non-employee Director whose
status as an active Board Member is changed during a Plan Year as a result of a
leave of absence may, at the discretion of the Chairman & C.E.O., be eligible
for a pro rata Bonus determined in the same way as in paragraph D of this
Section.

VIII.   BONUS PAYMENT

All positive Bonuses of Participants for the Plan Year shall be paid in full as
soon as administratively feasible following the end of the Plan Year in which
the Bonus was earned.

 

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IX.   ADMINISTRATIVE PROVISIONS

  A.   Amendments. The Chairman & C.E.O. of the Company shall have the right to
amend or restate the Plan at any time from time to time. The Company reserves
the right to suspend or terminate the Plan at any time. No such modification,
amendment, suspension, or termination may, without the consent of any affected
participants (or beneficiaries of such participants in the event of death),
reduce the rights of any such participants (or beneficiaries, as applicable) to
a payment or distribution already earned under Plan terms in effect prior to
such change.     B.   Authority to Act. The Chairman & C.E.O. (or in his or her
absence, the President & C.O.O.) may act on behalf of the Company for purposes
of the Plan.     C.   Interpretation of Plan. Any decision of the Chairman &
C.E.O. with respect to any issues concerning, the amounts, terms, form and time
of payment of awards, and interpretation of any Plan guideline, definition, or
requirement shall be final and binding.     D.   Reporting Compliance. Awards
made under this Plan shall be included in the employee’s compensation for
purposes of Securities & Exchange Commission required reporting.     E.   Right
to Continued Employment; Additional Awards. The receipt of a bonus award shall
not give the recipient any right to continued membership on the Company’s Board
of Directors. In addition, the receipt of a bonus award with respect to any Plan
Year shall not entitle the recipient to an award with respect to any subsequent
Plan Year.

X.   MISCELLANEOUS

  A.   Indemnification. The Chairman & C.E.O. (or any Company officer designated
to act in the Chairman’s behalf) shall not be liable for, and shall be
indemnified and held harmless by the Company from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred in connection with any
claim, action, suit, or proceeding to which the Chairman & C.E.O., President &
C.O.O. and/or the Compensation Committee may be a party by reason of any action
taken or failure to act under this Plan. The foregoing right of indemnification
shall not be exclusive of any other rights of

 

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    indemnification to which such person(s) may be entitled under the Company’s
Certificate of Incorporation of By-Laws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.    
B.   Expenses of the Plan. The expenses of administering this Plan shall be
borne by the Company.     C.   Governing Law. This Plan shall be construed in
accordance with and governed by the laws of the State of Wisconsin.

 

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