Exhibit 10.4

 

H.B. FULLER COMPANY

PERFORMANCE UNIT PLAN

AWARD AGREEMENT

(FY 2004 – FY 2006)

 

This Agreement, dated as of December 3, 2003 is entered into between H.B. Fuller
Company, a Minnesota corporation (the “Company”) and                     , (the
“Participant”).

 

The Company, pursuant to the H.B. Fuller Company Annual and Long-Term Incentive
Plan (the “Plan”), wishes to grant Performance Units to the Participant, subject
to the terms and conditions contained in this Award Agreement and the Plan.

 

Accordingly, in consideration of the premises and agreements set forth herein,
the parties hereto agree as follows:

 

Section 1. Definitions.

 

Unless otherwise defined herein, capitalized terms used in this Award Agreement
shall have the meanings assigned to them in the Plan, a copy of which has been
provided to the Participant. As used in this Award Agreement, the following
terms shall have the specific meanings set forth below:

 

“Average Net Invested Capital” shall mean a five point average of Net Invested
Capital based on the five most recent quarters. Net Invested Capital for each
quarter will be calculated as follows using each company’s 10-Q quarterly and
10-K annual reports.

 

Net Invested Capital =

 

  + Total Assets (TA)

 

  - Non-Interest Bearing Current Liabilities (NIBCL)

 

  + Accumulated Goodwill Amortization (if included in TA)

 

  + Restructuring Liabilities (if included in NIBCL)

 

  + Current year asset write-offs related to restructuring (if included in TA)

 

“Change in Control” shall mean a change in the control of the Company and shall
be deemed to have occurred upon any of the following events:

 

(i) a public announcement (which, for purposes hereof, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) that
any individual, corporation, partnership, association, trust or other entity
becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the
Exchange Act), directly or indirectly, of securities of the Company representing
15% or more of the Voting Power of the Company then outstanding;

 

(ii) the individuals who, as of the date of this Award Agreement, are members of
the Board of Directors of the Company (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board (provided, however, that
if the election or

 

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nomination for election by the Company’s shareholders of any new director was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall be considered to be a member of the Incumbent Board);

 

(iii) the approval of the shareholders of the Company of (A) any consolidation,
merger or statutory share exchange of the Company with any person in which the
surviving entity would not have as its directors at least 60% of the Incumbent
Board and as a result of which those persons who were shareholders of the
Company immediately prior to such transaction would not hold, immediately after
such transaction, at least 60% of the Voting Power of the Company then
outstanding or the combined voting power of the surviving entity’s then
outstanding voting securities; (B) any sale, lease, exchange or other transfer
in one transaction or series of related transactions substantially all of the
assets of the Company; or (C) the adoption of any plan or proposal for the
complete or partial liquidation or dissolution of the Company; or

 

(iv) a determination by a majority of the members of the Incumbent Board, in
their sole and absolute discretion, that there has been a Change in Control of
the Company.

 

For purposes of this definition, “Voting Power” when used with reference to the
Company shall mean the voting power of all classes and series of capital stock
of the Company now or hereafter authorized.

 

“Net Operating Profit After-Tax” or “NOPAT” shall be calculated as follows using
each company’s 10-Q quarterly and 10-K annual reports.

 

Net Operating Profit After-Tax =

 

  + Gross Profit

 

  - SG&A (including R&D)

 

  + Goodwill Amortization (if included above)

 

  + Restructuring Expenses (if included above)

 

  = Operating Income

 

  - (Effective Tax Rate X Operating Income)

 

“Peer Group Companies” shall mean a group of 19 specialty chemical companies
which are determined by the Committee to be at a peer level to the Company. The
initial list of Peer Group Companies is attached as Exhibit B. This list shall
be reviewed periodically by the Committee and substitutions shall be made as the
Committee deems necessary to ensure continued peer level review and the ability
to make ROIC Improvement calculations for all listed companies.

 

“Performance Period” shall mean the three-year period, commencing at the start
of the Company’s fiscal year 2004 and ending at the close of the Company’s
fiscal year 2006.

 

“Performance Unit” shall mean a unit granted under this Award Agreement
evidencing the Participant’s right to receive a cash payment upon achievement,
as set forth herein, of the Target Performance Objective or, alternatively, the
Superior Performance Objective.

 

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“Return On Invested Capital” or “ROIC” shall, subject to Committee certification
in Section 4.1, mean a company’s Net Operating Profit After Tax (NOPAT) divided
by its Average Net Invested Capital. A determination of ROIC in each case shall
be computed in accordance with generally accepted accounting principles.

 

“ROIC Improvement” shall mean the percentage point change in a company’s ROIC
for the Performance Period compared to that same company’s average ROIC over the
three year period of 2001, 2002, and 2003.

 

“Superior Performance Objective” shall mean the achievement by the Company of a
first quartile ranking amongst the Peer Group Companies for ROIC Improvement for
the Performance Period. See attached Exhibit A for concept discussion and
example.

 

“Target Performance Objective” shall mean the achievement by the Company of a
second quartile ranking amongst the Peer Group Companies for ROIC Improvement
for the Performance Period. See attached Exhibit A for concept discussion and
example.

 

Section 2. Award of Performance Units.

 

Effective as of the date of this Award Agreement, the Company hereby grants to
the Participant                      Performance Units, which shall be payable
in cash in accordance with and subject to the terms and conditions set forth in
the Plan and this Award Agreement, upon achievement of the Target Performance
Objective, or alternatively, the Superior Performance Objective, for the
Performance Period.

 

Section 3. Value of Performance Units.

 

The Performance Units granted hereunder shall have a cash payment value of:

 

U.S. $             per Performance Unit upon achievement of the Target
Performance Objective for the Performance Period, or alternatively, U.S.
$             per Performance Unit upon achievement of the Superior Performance
Objective for the Performance Period. Total value at Target shall be equal to
U.S. $            . Total value at Superior shall be equal to U.S.
$            .

 

Section 4. Payment of Performance Units.

 

Section 4.1. Payment Procedure. Subject to the terms and conditions set forth in
the Plan and this Award Agreement, and except as set forth in Sections 4.2 and
5.1 of this Award Agreement, the Performance Units shall be paid within a
reasonable time following the end of the Performance Period (but no sooner than
the date on which the Company’s financial results are publicly available for the
last fiscal year of the Performance Period) and only upon certification by the
Committee that the Target Performance Objective or, alternatively, the Superior
Performance Objective has been achieved. In reaching a certification decision,
the Committee may, in its sole discretion, engage an independent, third party
auditor to perform certain procedures to determine that the underlying financial
information of the Peer Group Companies has been appropriately accumulated and
that the computations supporting the

 

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determination of awards under the Plan have been appropriately calculated. In
reaching a certification decision, the Committee may also, in its sole
discretion and with information and assistance from the Company’s independent
auditor, consider extraordinary circumstances that may have positively or
negatively impacted the achievement of these Performance Objectives.

 

Section 4.2. Forfeiture Prior to Payment. Except as otherwise determined by the
Committee, or as specifically provided in this Award Agreement including
Section 5.2, all Performance Units credited to the Participant for the
Performance Period under this Award Agreement shall be forfeited upon the
Participant’s termination of employment, other than by reason of death,
permanent disability or retirement, with the Company or its Affiliates prior to
completion of such Performance Period.

 

Section 5. Special Provisions.

 

Section 5.1. Change in Control. Notwithstanding any other provision of the Plan
or this Award Agreement to the contrary, the Performance Units shall be paid to
the Participant immediately upon the occurrence of a Change in Control as if the
Target Performance Objective had been achieved; provided, however, that no
payment shall be made if the Performance Period has been completed as of the
date of the Change in Control and no Performance Objective has been achieved;
and provided, further, that any Performance Units paid pursuant to this
Section 5.1 be paid only on a pro-rata basis for that portion of the Performance
Period which transpired between the date of this Agreement and the date of the
Change in Control. Upon a Change in Control, except for the Company’s
obligations under this Section 5.1, the Performance Units shall be cancelled.

 

Section 5.2. Termination of Employment by Reason of Death, Disability or
Retirement. In the event that the Participant ceases to be employed by the
Company or its Affiliates due to death, permanent disability, normal retirement
at age 65 or older, or early retirement with the consent of the Committee, the
Participant shall be deemed to have remained a Participant as if employed by the
Company or its Affiliates through the Performance Period; provided, however,
that the value of the Performance Units shall be proportionally reduced by that
portion of the Performance Period for which the Participant was not employed by
the Company or its Affiliates.

 

Section 5.3. Leave of Absence. The Committee may make such provision as it deems
equitable respecting the Participant during an approved leave of absence.

 

Section 6. General Provisions.

 

Section 6.1. Interpretations. This Award Agreement is subject in all respects to
the terms of the Plan, the provisions of which are incorporated herein by this
reference. In the event that any provision of this Award Agreement is
inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any
question of administration or interpretation arising out of this Award Agreement
shall be determined by the Committee, and such determination shall be final,
conclusive and binding upon all parties in interest.

 

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Section 6.2. Income Tax Withholding. In order to comply with all applicable
income, social security, payroll or other tax laws or other regulations, the
Company may take such action as it deems appropriate to ensure that all
applicable income, social security, payroll or other taxes are withheld or
collected from the Participant.

 

Section 6.3. No Right to Employment. This Award Agreement shall not be construed
as giving the Participant the right to be retained in the employ of the Company
or any Affiliate. In addition, the Company or an Affiliate may at any time
dismiss the Participant from employment, free from any liability or any claim
under this Award Agreement or the Plan.

 

Section 6.4. Severability. If any provision of this Award Agreement is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be so
construed or deemed amended without, in the determination of the Committee,
materially altering the purpose or intent of this Award Agreement, such
provision shall be stricken as to such jurisdiction and the remainder of this
Award Agreement shall remain in full force and effect.

 

Section 6.5. No Trust or Fund Created. Neither the Plan nor this Award Agreement
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and the Participant
or any other person. To the extent that any person acquires a right to receive
payments from the Company or any Affiliate pursuant to this Award Agreement,
such right shall be no greater than the right of any unsecured general creditor
of the Company or any Affiliate.

 

Section 6.6. Headings. Headings are given to the sections and subsections of
this Award Agreement solely as a convenience to facilitate a reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of this Award Agreement or any provisions hereof.

 

Section 6.7. Governing Law. The internal law, and not the law of conflicts, of
the State of Minnesota will govern all questions concerning the validity,
construction and effect of this Award Agreement and any rules or regulations
relating to this Award Agreement.

 

Section 6.8. Performance Units Not Transferable. Performance Units shall not be
transferable by the Participant other than by will or by the laws of descent and
distribution. Performance Units may not be pledged, alienated, attached or
otherwise encumbered, and any purported pledge, alienation, attachment or
encumbrance thereof shall be void and unenforceable against the Company or any
Affiliate.

 

Section 6.9. Acknowledgment and Agreement. The Participant understands and
agrees that the Plan is implemented solely in the discretion of the Company and
the Plan may then be amended, altered, suspended, discontinued or terminated at
any time and for any reason at the option of the Company, and that the
Participant has no expectation or right to the continued existence of the Plan;
provided, however, that any such amendment or termination of the Plan, and any
amendment to this Award Agreement, shall not adversely affect the rights of
theParticipant under this Award Agreement without the written consent of the
Participant or holder or beneficiary hereof.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement to be
effective as of the date first set forth above.

 

H.B. FULLER COMPANY By:  

 

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Its:  

Chairman of the Board, President

and Chief Executive Officer

     

 

 

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Social Security Number

 

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EXHIBIT A

 

CONCEPT DISCUSSION

 

Performance Unit payment will be based on H.B. Fuller Company’s relative
increase/decrease in Return On Invested Capital (ROIC) versus 19 Peer Group
Companies (See Exhibit B). The Committee will be comparing average performance
in fiscal years 2004-2006 versus average performance in fiscal years 2001-2003.

 

After the close of fiscal year 2006, the Committee will review H.B. Fuller
Company’s average ROIC Improvement for fiscal years 2004 - 2006 versus the
Company’s average ROIC for 2001 – 2003. The increase/decrease in H.B. Fuller
Company’s ROIC will be compared to the increase/decrease in ROIC of the 19 Peer
Group Companies over the same period of time. The ROIC increase/decrease for
each company, including H.B. Fuller Company will be ranked from 1 to 20, highest
to lowest. If H.B. Fuller Company falls within the first quartile of ranking
(positions 1-5) the Performance Units will be paid at the Superior Performance
level. If H.B. Fuller Company falls within the second quartile of ranking
(positions 6-10), the Performance Units will be paid at the Target Performance
level. If H.B. Fuller Company falls within the third or fourth quartiles
(positions 11-20), the Performance Units will not be paid.

 

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EXHIBIT B

 

PEER GROUP COMPANIES

 

3M (MMM)

 

A Schulman (SHLM)

 

Air Products (APD)

 

Albemarle (ALB)

 

Arch Chemicals (ARJ)

 

Avery Dennison (AVY)

 

Bemis (BMS)

 

Ecolab (ECL)

 

Engelhard (EC)

 

Ferro (FOE)

 

Great Lakes Chemical (GLK)

 

H.B. Fuller (FUL)

 

Intertape (ITP)

 

Lubrizol (LZ)

 

OM Group (OMG)

 

PolyOne (POL)

 

Rohm & Haas (ROH)

 

RPM (RPM)

 

Solutia (SOI)

 

Valspar (VAL)

 

B-1