Document:

Ex-10.3

 

Exhibit 10.3

KENNAMETAL INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended, January 1, 2004)

Section 1. Purpose and Effective Date.

	1.1	 	The purpose of this Supplemental Executive Retirement Plan is to ensure
the payment of a competitive level of retirement income, in order to
attract, retain, and motivate selected executives. The Plan is also
intended to provide eligible executives with a retirement benefit that
cannot be paid from the Company’s qualified Retirement Income Plan, due to
various limitations of the United States Internal Revenue Code.
	 
	1.2	 	This Plan was previously amended and adopted, effective April 21, 1995;
was later amended and adopted, effective July 26, 1999; and was most
recently amended and adopted, effective as of January 1, 2004. It will be
effective for each participant on the date he or she is designated as a
Participant and executes an Employment Agreement.
	 
	1.3	 	The terms of this Plan are applicable only to eligible executives who are
employed by the Company on or after April 21, 1995. Any executive who
retired or otherwise terminated employment prior to such date, shall not
be eligible to be designated a Participant under this Plan unless he or
she returns to service with the Company on or after April 21, 1995.

Section II. Definitions.

	2.1	 	Board of Directors means the Directors of the Company.
	 
	2.2	 	Bonus Award means the annual cash award, if any, received by a
Participant under the provisions of the Kennametal Inc. Management
Performance Bonus Plan of any given fiscal year. Only an award generated
by successful attainment of the Bonus Plan’s business objectives shall be
considered a “Bonus Award” for the purposes of this Plan, provided that a
Bonus Plan award of $0.00 to the Participant for a given fiscal year shall
be taken into account for purposes of this Plan. No other kind of bonus
award or grant will qualify as a “Bonus Award” for purposes of this Plan.
	 
	2.3	 	Change in Control shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the
date hereof (“1934 Act”), or if Item 6(e) is no longer in effect, any
regulations issued by the Securities and Exchange Commission pursuant to
the 1934 Act which serve similar purposes; provided that, without
limitation, such a change in control shall be deemed to have occurred if
(i) Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation or
other entity all of whose equity interests are owned by

 

 

	 	 	Kennametal immediately prior to the merger or consolidation, or (ii)
Kennametal shall sell all or substantially all of its operating
properties and assets to another person, group of associated persons, or
corporation; or (iii) any “person” (as such term is used in Sections
13(d) and 14(d) of the 1934 Act), is or becomes a beneficial owner,
directly or indirectly, of securities of Kennametal representing 25% or
more of the combined voting power of Kennametal’s then outstanding
securities coupled with or followed by the existence of a majority of the
board of directors of Kennametal consisting of persons other than persons
who either were directors of Kennametal immediately prior to or were
nominated by those persons who were directors of Kennametal immediately
prior to such person becoming a beneficial owner, directly or indirectly,
of securities of Kennametal representing 25% or more of the combined
voting power of Kennametal’s then outstanding securities.
	 
	2.4	 	Code means the Internal Revenue Code of 1986, as amended from time to
time. References in the Plan to a Code Section shall be deemed to refer
to any successor provision of the Code, as appropriate.
	 
	2.5	 	Committee means the Board of Directors Committee on Executive
Compensation, designated by the Board of Directors to administer the plan.
	 
	2.6	 	Company means Kennametal Inc., a Pennsylvania corporation, or any
successor bound by this Plan pursuant to Section 8.5.
	 
	2.7	 	Disability means such incapacity due to physical or mental illness or
injury, as causes the Participant to be absent from his principal office
at Kennametal’s offices for the entire portion of 180 consecutive business
days.
	 
	2.8	 	Employee means an employee of the Employer.
	 
	2.9	 	Employer means the Company and any subsidiary or affiliate of the Company
whose employees participate in the Plan.
	 
	2.10	 	Employment Agreement means an agreement between an Employer and an
Employee, which sets forth terms and conditions of employment and
specifically refers to this Plan.
	 
	2.11	 	Final Base Salary means the Participant’s monthly base salary rate,
before any pre-tax reductions pursuant to the Participant’s elections
under IRC § § 125 or 402(e)(3), for the calendar month in which
Participant’s Termination of Employment occurs, without regard to any
limitations on compensation under the Code, including those under IRC §
401(a)(17).
	 
	2.12	 	IRC means the Code.
	 
	2.13	 	Normal Retirement means the first day of the month following the day on
which the Employee reaches the age of sixty-five (65).

2

 

	2.14	 	Participant means any Employee of an Employer who is entitled to
participate in the Plan in accordance with Section III. Where the context
so indicates, “Participant” shall also include a retired or deceased
Participant with respect to whom a SERP Benefit is payable.
	 
	2.15	 	Plan means the Company’s Supplemental Executive Retirement Plan (SERP),
as set forth herein and as amended and restated from time to time.
	 
	2.16	 	Primary Social Security Benefit means the monthly benefit, as provided by
the Federal Social Security Act, to which the Participant would be
entitled at age 65, based upon the assumption that such Participant will
continue to receive until reaching age 65 monthly earnings at the same
rate as he or she received such monthly earnings at the time of
retirement, termination of employment or death. (Note: This definition
is identical to that used under the Retirement Income Plan.)
	 
	2.17	 	Retirement Income Plan means the funded, tax-qualified Kennametal Inc.
Retirement Income Plan, as it may be amended and restated, from time to
time.
	 
	2.18	 	Retirement Income Plan Benefit means either (a) the monthly benefit that
would be payable as a single life annuity under the Retirement Income Plan
commencing upon a retirement at age 65, based on credited service and
average earnings as of the Participant’s termination of service,
calculated pursuant to the terms and provisions of the Retirement Income
Plan as such terms and provisions literally apply to the Participant
because the Participant is an active participant (accruing additional
benefits) in the Retirement Income Plan up to his or her termination of
service and will in fact be eligible to receive benefits reflecting
credited service and average earnings determined to his or her termination
of service; or (b) but for the amendment to the Retirement Income Plan
effective December 31, 2003 that excluded such Participant from further
active participation in such plan after such date, or in the case of a
Participant first hired after December 31, 2003, excluded such Participant
from any active participation in such plan, the monthly benefit that would
be payable as a single life annuity under the Retirement Income Plan
commencing upon a retirement at age 65, based on credited service and
average earnings as of the Participant’s termination of service calculated
pursuant to the terms and provisions of the Retirement Income Plan (other
than vesting provisions) as such terms and provisions theoretically would
have applied to the Participant if the Participant had not been excluded
from active participation, or from further active participation, in the
plan, but had instead been an active participant (accruing benefits) in
the Retirement Income Plan up to his or her termination of service, based
on his or her credited service and average earnings to such termination of
service. That is, the Retirement Income Plan Benefit determined hereunder
is either (a) the actual benefit that a Participant is eligible to receive
under such plan because he or she is active participant in the Retirement
Income Plan at termination of service, or (b) the theoretical benefit the
Participant would have been eligible to receive had he or she been
eligible to be an active participant in the Retirement 

3

 

	 	 	Income Plan up to termination of service (determined without regard to the vesting
provisions of the Retirement Income Plan).
	 
	2.19	 	SERP Benefit means the benefit, calculated pursuant to Section V and
Appendix A, that is payable to a Participant under the Plan.
	 
	2.20	 	Surviving Spouse means the individual to whom the Participant is legally
married at the time of his or her death.
	 
	2.21	 	Target Retirement Income means the monthly amount determined as the
“applicable percentage” of the total of (a) the Participant’s Final Base
Salary plus (b) 1/36th of the sum of the Participant’s last three Bonus
Awards. For this purpose, the applicable percentage is 60% at 30 Years of
Service, plus or minus 1% for each Year of Service greater than or less
than thirty.
	 
	2.22	 	Year of Service means each full twelve-month period beyond Employee’s
most recent hire date, as determined pursuant to the Company’s regular
personnel records and policies. (Note: This definition is not intended
to be coextensive with the definition of “Credited Service” as used in the
Retirement Income Plan.)

Section III. Eligibility.

	3.1	 	Each officer or key executive Employee of the Company approved by the
Committee, in its sole discretion, shall be eligible to participate in the
Plan. In the case of an officer, such participation shall be effective
upon the officer’s prompt execution of an Employment Agreement.
	 
	3.2	 	Any officer or key executive who becomes a Participant shall continue to
be a Participant until his or her termination of employment, or until a
date prior to such time, as determined by the Committee, in its sole
discretion.

Section IV. Vesting.

	4.1	 	A Participant shall become vested and entitled to receive a benefit under
the Plan, determined in accordance with Section V, only in accordance with
the following schedule:

	 	 	 	 	 
	Age of Participant at Termination
	 	Cumulative Vested Plan Benefit

	Less than age 56
	 	 	0	%
	56
	 	 	20	%
	57
	 	 	40	%
	58
	 	 	60	%
	59
	 	 	80	%
	60 or older
	 	 	100	%

4

 

	 	 	Notwithstanding the foregoing, a Participant who voluntarily leaves
employment, without Employer’s permission, or is involuntarily
terminated, with cause, prior to entitlement to receive a benefit
pursuant to Section 6.1, shall forfeit any entitlement to a benefit under
the Plan. In the event that Participant shall voluntarily or
involuntarily leave the employ of the Company before his or her retirement date, including involuntary
termination of employment because of death or disability, and the
Participant is not vested as to any portion of the SERP Benefit, the
obligations of the Company under Section 6 and 7 of the Plan shall be
null and void, and neither the Participant nor any other person shall in
any way be entitled to any payments hereunder.
	 
	4.2	 	Notwithstanding Section 4.1, each Participant’s Plan benefit
automatically shall become 100% vested upon a Change in Control of the
Company.

Section V. Amount of Benefit

	5.1	 	The amount of each Participant’s SERP Benefit shall initially be
calculated as the excess of the Target Retirement Income over the sum of
the Participant’s Retirement Income Plan Benefit plus the Participant’s
Primary Social Security Benefit.
	 
	5.2	 	The Target Retirement Income, the Retirement Income Plan Benefit, and the
Social Security Benefit, shall be calculated according to the methodology
described in Appendix A.
	 
	5.3	 	The Committee shall cause the formula calculation described in Section
5.1 to be done annually, or as otherwise required, for each Participant.
The Committee shall then be advised of the SERP Benefit amount for each
Participant, and shall direct that an official list of Participants and
their accrued SERP Benefit be prepared, which shall govern the payment of
a benefit under the Plan, pursuant to Section VI, until the next annual
review and redetermination of a SERP Benefit amount.

Section VI. Payment of Benefit.

	6.1	 	Payment of the Participant’s SERP Benefit shall commence on the first day
of the month following the month in which the Participant’s employment
with the Company terminates due to (1) Normal Retirement from employment
with the Company, (2) retirement from employment with the Company on any
date prior to Normal Retirement that has the prior approval of the
Company’s Board of Directors, (3) termination of employment prior to
Normal Retirement as a result of Disability, or (4) retirement from
employment with the Company following a Change In Control, unless the
Participant requests a later payment commencement date.

5

 

	6.2	 	A Participant’s Plan benefit shall be paid in equal monthly installments,
in the form of a single life annuity with no death or other survivor
benefit other than those described in Section VII.

Section VII. Surviving Spouse and other Death Benefit.

	7.1.	 	In the event of the death of a Participant prior to the commencement of
payment of a Plan benefit to the Participant, an amount equal to 50% of
the amount of the benefit calculated in accordance with the vesting
provisions of Section IV and the amount of the benefit of Section V which
would otherwise have been payable to the Participant, will instead be
payable to the Participant’s Surviving Spouse. Payments to such Surviving
Spouse shall be made from the month following the month in which the death
of the Participant occurred until the death of the Surviving Spouse.
	 
	7.2.	 	In the event of the death of a Participant after the commencement of
payment of a Plan benefit to the Participant, an amount equal to 50% of
the amount of the Plan benefit then being paid to the Participant will
instead be payable to the Participant’s Surviving Spouse. Payments to
such Surviving Spouse shall be made from the month following the month in
which the death of the Participant occurred, until the death of the
Surviving Spouse.
	 
	7.3.	 	If the Surviving Spouse is five (5) or more years younger than the
Participant, the monthly payment to the Surviving Spouse pursuant to
paragraphs 7.1 and 7.2 shall be actuarially adjusted, so that it has the
same present actuarial value as the full 50% payment to a hypothetical
Surviving Spouse who is less than five (5) years younger than the
Participant. For this purpose, the Committee shall use a life expectancy
factor derived from the definition of “Actuarial Equivalent” under the
Retirement Income Plan as in effect as of the date of the calculation.
Effective as of January 1, 2004, the basis of Actuarial Equivalence under
the Retirement Income Plan is the 1983 Group Annuity Mortality Table for
Males, using 0%, with the Participant’s age set back two years and the
Surviving Spouse’s age set back four years. The life expectancy factors
derived therefrom are set forth in Appendix B of the Plan. The foregoing
actuarial adjustment shall be effected by dividing the life expectancy
factor for the hypothetical Surviving Spouse by the life expectancy for
the Surviving Spouse (calculated to four decimals). The quotient obtained
shall be multiplied by the Surviving Spouse’s 50% benefit pursuant to
paragraphs 7.1 and 7.2. An example of the method of actuarial adjustment
is shown in Appendix C of the Plan.
	 
	7.4.	 	In the event that the Participant and/or his or her Surviving Spouse
shall have been entitled to payments under Sections 6 and 7 of the Plan,
and upon the death of the Surviving Spouse, the aggregate amount of the
cumulative payments of the SERP Benefit shall have been less than $50,000,
the Company shall pay a lump sum amount, equal to $50,000 less the
aggregate amount of the cumulative payments of the SERP Benefit already
made, in the following order of preference: (1) to the person designated
by the Participant in a written notice filed with the Committee, or, if
the Participant has no such notice on file, or the person(s) designated in
such notice do(es) not exist at the relevant time, then (2) to the
executor or administrator of the Participant’s estate.

6

 

Section VIII. Miscellaneous Provisions.

	8.1	 	Administration. The Committee shall be responsible for all facets of
interpretation and administration of the Plan. The Committee may adopt
rules and regulations to assist it in the administration of the Plan. The
Board of Directors has also delegated to the Committee the right to modify
provisions of the Plan in individual cases.
	 
	8.2	 	Non-Competition. Receipt of the SERP Benefit is expressly conditioned
upon the non-competition of the retired Participant with the Company, for
so long as any payments are being made hereunder. Accordingly, unless the
Participant first secures the written consent of the Board of Directors or
the Committee, he shall not directly or indirectly, as an officer,
director, employee, consultant, agent, partner, joint venturer,
proprietor, or other, engage in or assist any business which is or may
become in direct or indirect competition with the Company or any of its
subsidiaries, other than as a mere investor holding not more than one
percent of the equity interest of any such competing enterprise. In the
event that the Committee makes a good-faith determination that a
Participant receiving a SERP Benefit is or may be violating the
non-competition provisions hereof, it shall immediately notify him or her
of such finding in writing and afford him or her a reasonable opportunity
(a period of not less than sixty days) to rebut such finding, or to desist
from such competitive activity. In the event that the Committee believes
that a violation of the non-competition provision continues uncorrected
following the sixty-day period, it may then cease making SERP Benefit
payments, and the retired Participant (and any Spouse or other beneficiary
claiming through the Participant) shall forfeit any right to future
payment of a SERP Benefit under the Plan.
	 
	8.3	 	Source of Benefit Payments. This Plan is intended to be an unfunded plan
of deferred compensation for a select group of management or highly
compensated individuals, and it is intended that a SERP Benefit payable
hereunder will be paid from the general assets of the Company. However,
in the event of a Change in Control, amounts payable to a Participant or
the Surviving Spouse or estate, under Sections 6 and 7 of the Plan, may be
provided for in accordance with an Executive Deferred Compensation Trust
(a so-called “Rabbi” trust) between the Company and a trustee. The
Company shall inform the Participant of the identity of the trustee upon
the Participant’s request.
	 
	8.4	 	Non-Assignment, Alienation. Nothing in this Plan gives a Participant or
any person claiming payments for or through him or her, any right, title,
or interest in any asset held in the Company, prior to the payment
thereof, and that the right of a Participant to any payment hereunder is
strictly contractual and unsecured, unless a Change in Control causes the
funding of the Plan in the Company’s Executive Deferred Compensation
Trust. In addition, the benefit to be paid hereunder may not be
voluntarily or involuntarily sold, transferred, assigned, alienated, or
encumbered, and any such attempt shall be void.
	 
	8.5	 	Obligation of Successors. This Plan shall be binding upon the Company or
any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise), to all or substantially all of the business
and/or assets of the Company, or to any assignee 

7

 

	 	 	thereof. To the extent that the Company must take additional contractual or other
steps to make the Plan an enforceable contractual obligation of a
successor (e.g., a purchaser of assets), the Company shall take such
steps. This Plan and all rights of the Participant hereunder shall inure
to the benefit of and be enforceable by the Participant or the
Participant’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees.
	 
	8.6	 	Amendment, Termination. This Plan may be amended or terminated at any
time by action of the Board of Directors, provided that no such amendment
or termination shall reduce or eliminate the right of a Participant to the
payment of a Plan benefit earned prior to such amendment or termination.
	 
	8.7	 	Withholding. The Company may provide for the withholding, from any
benefit payable under this Plan, all Federal, state, city, or other taxes
as shall be appropriate pursuant to any law or governmental regulation or
ruling, and may delay the payment of any benefit until the Participant or
beneficiary provides payment to the Company of all applicable withholding
taxes.
	 
	8.8	 	Miscellaneous. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, to the
extent not governed by federal law. Section headings are for convenience
of reference only, and shall not affect the construction or interpretation
of any of the provisions hereof.

8

 

APPENDIX A

	w	 	Calculation begins with current monthly base salary and years of
service, up to the present date.
	 
	w	 	Target Retirement Income equals a percent of (a) Final Base Salary
plus (b) the monthly average (i.e., 1/36) of the sum of the last three
Bonus Awards. The percentage is calculated as 60% for 30 years of
service, plus or minus 1% for each year of service greater than or
less than thirty. For example:

	 	 	 	 	 
	Years of Service
	 	Retirement Target

	Newly hired
	 	 	30	%
	5
	 	 	35	%
	10
	 	 	40	%
	15
	 	 	45	%
	20
	 	 	50	%
	25
	 	 	55	%
	30
	 	 	60	%
	35
	 	 	65	%
	40
	 	 	70	%
	45
	 	 	75	%

	w	 	Calculate the Retirement Income Plan Benefit, based on current years
of service and pensionable earnings, to date, and including current
statutory limitations (IRC §§ 415 and 401A(17)), but not actuarially
reduced for age less than 65. This calculation is made on the
assumption (whether or not true) that the Participant is an active
participant in the RIP and is currently eligible to accrue additional
benefits thereunder. (Thus, the calculation is made even if the
Participant is excluded from active participation under the terms of
the RIP, as amended effective December 31, 2003.)
	 
	w	 	Calculate the Primary Social Security Benefit, based on earnings to
date and assuming that current level of earnings will continue through
age 65.
	 
	w	 	The SERP Benefit equals the Target Retirement Income (above) minus the
sum of (a) the Retirement Income Plan Benefit plus (b) the Primary
Social Security Benefit.
	 
	w	 	The SERP Benefit is then adjusted, if applicable, under the vesting schedule in Section 4.1.

9

 

	w	 	However, the minimum SERP Benefit is 10% of current Base Salary.
	 
	w	 	If the prior SERP benefit (as last calculated under the above described method and posted to the official list of
Participants and their SERP Benefit) is greater than the new SERP Benefit, use the prior SERP Benefit.
	 
	w	 	Therefore, SERP Benefit is the greatest of:

	 	•	 	Target Retirement Income minus sum of (a) Retirement Income
Plan Benefit plus (b) the Primary Social Security Benefit.
	 
	 	•	 	10% of Current Base Salary, or
	 
	 	•	 	Prior SERP Benefit.

10

 

APPENDIX B

LIFE EXPECTANCIES FROM THE
1983 GROUP ANNUITY TABLE FOR MALES

(Set back 2 years for Participants and 4 years for Joint Annuitants)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Age
	 	Joint Annuitant
	 	Age
	 	Joint Annuitant

	20
	 	 	61.8209	 	 	 	65	 	 	 	20.733104	 
	21
	 	 	60.8413	 	 	 	66	 	 	 	19.922360	 
	22
	 	 	59.8620	 	 	 	67	 	 	 	19.126492	 
	23
	 	 	58.8830	 	 	 	68	 	 	 	18.344112	 
	24
	 	 	57.9043	 	 	 	69	 	 	 	17.572161	 
	25
	 	 	56.9259	 	 	 	70	 	 	 	16.808107	 
	26
	 	 	55.9480	 	 	 	71	 	 	 	16.051847	 
	27
	 	 	54.9706	 	 	 	72	 	 	 	15.305311	 
	28
	 	 	53.9937	 	 	 	70	 	 	 	14.572070	 
	29
	 	 	53.0174	 	 	 	74	 	 	 	13.854374	 
	30
	 	 	52.0418	 	 	 	75	 	 	 	13.152659	 
	31
	 	 	51.0670	 	 	 	76	 	 	 	12.467970	 
	32
	 	 	50.0929	 	 	 	77	 	 	 	11.801827	 
	33
	 	 	49.1198	 	 	 	78	 	 	 	11.156078	 
	34
	 	 	48.1476	 	 	 	79	 	 	 	10.530978	 
	35
	 	 	47.1765	 	 	 	80	 	 	 	9.925826	 
	36
	 	 	46.2066	 	 	 	81	 	 	 	9.340932	 
	37
	 	 	45.2380	 	 	 	82	 	 	 	8.777414	 
	38
	 	 	44.2708	 	 	 	83	 	 	 	8.236987	 
	39
	 	 	43.3052	 	 	 	84	 	 	 	7.719357	 
	40
	 	 	42.3420	 	 	 	85	 	 	 	7.223015	 
	41
	 	 	41.3799	 	 	 	86	 	 	 	6.747887	 
	42
	 	 	40.4194	 	 	 	87	 	 	 	6.295031	 
	43
	 	 	39.4609	 	 	 	88	 	 	 	5.866464	 
	44
	 	 	38.5048	 	 	 	89	 	 	 	5.463912	 
	45
	 	 	37.5519	 	 	 	90	 	 	 	5.087653	 
	46
	 	 	36.6027	 	 	 	91	 	 	 	4.737174	 
	47
	 	 	35.6578	 	 	 	92	 	 	 	4.411342	 
	48
	 	 	34.7181	 	 	 	93	 	 	 	4.108517	 
	49
	 	 	33.7843	 	 	 	94	 	 	 	3.827037	 
	50
	 	 	32.8570	 	 	 	95	 	 	 	3.565508	 
	51
	 	 	31.9371	 	 	 	96	 	 	 	3.322551	 
	52
	 	 	31.0249	 	 	 	97	 	 	 	3.096798	 
	53
	 	 	30.1209	 	 	 	98	 	 	 	2.886902	 
	54
	 	 	29.2251	 	 	 	99	 	 	 	2.692192	 
	55
	 	 	28.3377	 	 	 	100	 	 	 	2.512150	 
	56
	 	 	27.4584	 	 	 	101	 	 	 	2.345559	 
	57
	 	 	26.5870	 	 	 	102	 	 	 	2.190383	 
	58
	 	 	25.7232	 	 	 	103	 	 	 	2.043361	 
	59
	 	 	24.8665	 	 	 	104	 	 	 	1.904998	 
	60
	 	 	24.0165	 	 	 	105	 	 	 	1.776622	 
	61
	 	 	23.1729	 	 	 	106	 	 	 	1.653351	 
	62
	 	 	22.3357	 	 	 	107	 	 	 	1.520196	 
	63
	 	 	21.5052	 	 	 	108	 	 	 	1.343162	 
	64
	 	 	20.6824	 	 	 	109	 	 	 	1.058194	 

							
	Assumptions:
	 	Mortality Table = gam83m

Interest = 0.00%
	 	Participant -2 setback

Continuation Percentage = 50%
	 	Joint Annuitant -4 setback

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APPENDIX C

Example:

A Participant receiving a SERP Benefit in the amount of $10,000 dies at age 74.
His or her Surviving Spouse is age 65. The benefit payable to the Surviving
Spouse would be calculated as follows.

	1.	 	Life expectancy set forth on the Group Annuity Mortality Table of a hypothetical Surviving Spouse who is age 69 =16.7345
	 
	2.	 	Life expectancy set forth on the Group Annuity Mortality Table of the Surviving
Spouse who is age 65 = 19.8686
	 
	3.	 	Quotient obtained by dividing 1 above by 2 above (16.7345 ÷ 19.8686) = 0.8423
	 
	4.	 	Yearly benefit payable to Surviving Spouse = $10,000 x 50% x 0.8423 = $4,211.50

12exv10w1

 

Exhibit 10.1

2004 Weatherford

Variable Compensation Plan

		
	I. 	PURPOSE

The Weatherford 2004 Variable Compensation Plan (the “Plan”) has been designed
to motivate and reward employees whose efforts impact the performance of
Weatherford International Ltd. and its subsidiaries and affiliates (the
“Company”) through the achievement of pre-established financial objectives.
The term “Corporate” for the purposes of this plan refers to Weatherford
International Ltd.

Performance under the Plan is measured on the Company’s fiscal (calendar) year
and any declared payments under the Plan are made after the end of the fiscal
year.

		
	II. 	ELIGIBILITY

Officers and key management employees of the Company are eligible to
participate in the Plan upon designation by the Chief Executive Officer of
Weatherford. An employee who is eligible to participate in a sales commission
plan of the Company is not eligible to participate in the Plan. Eligibility of
employees on day rates, per diems and special pay programs will be determined
by Division Presidents for their Divisions. Participation in the Plan is not
automatic and only those eligible employees who have been designated by the
Chief Executive Officer shall actually participate in the Plan. Employees must
have six months of employment to be eligible for the plan. Bonus payments for
employees not employed for a full year will be prorated.

		
	III. 	AWARD CRITERIA

The Compensation Committee of the Board and the Chief Executive Officer of
Weatherford are responsible for approving the Company performance objectives
that are used to determine awards paid for Company objectives under this Plan.
Performance objectives for operating units below the corporate level will be
established by the appropriate manager subject to overall approval of the Chief
Executive Officer. For 2004, performance under the Plan will be determined
based on:

EBIT (in absolute $ terms)

Working Capital Ratios

       percent (      %) of the Year 2004 bonus payout will be based on EBIT and
       percent (      %) on working capital ratios. The Company reserves the right
on a Company-wide or case-by-case basis to adjust the original EBIT and/or
Working Capital targets of the Divisions or Corporate to reflect the impact of
acquisitions, changes in our industry, changes in our financial performance and
any other circumstances at the sole discretion of the Company’s Chief Executive
Officer.

1

 

Divisions for the purpose of this plan are Completions and Production Systems,
Drilling and Well Services and Corporate.

		
	IV. 	AWARD CATEGORIES

A participant may have Corporate Objectives and/or Division Objectives and/or
Group Objectives, depending on where employed.

		
	V. 	TARGET AWARDS

A target award percentage is established for each position eligible to
participate in the Plan. Target awards (TA’s) may vary depending on the
participant’s position and base pay.

Generally, the participating employee receives the TA when performance under
the Plan meets, but does not exceed, the pre-established performance
objectives.

		
	VI. 	PERFORMANCE MEASUREMENT

	 	 	 
	Minimum

	 	This is the lowest level of performance
for which an award will be generated. There
will be no payment for performance below the
minimum level of performance.
	 
	 	 
	Target Performance

	 	This is the expected, or budgeted, level of performance and the award
paid for target performance is the Target Award
(TA).
	 
	 	 
	Maximum

	 	This is the performance level for which
the maximum award under the plan will be paid.
This is paid for a performance level at or above
the maximum threshold.

		
	VII. 	AWARD CALCULATION

Attainment of the financial objectives of the Plan is measured based on actual
results versus Plan targets, with performance above or below Plan targets
prorated up/down to the maximum/minimum levels established for each financial
objective. The cost of the bonus payouts must be included in the results to be
measured.

		
	VIII. 	ALTERNATIVE CALCULATIONS

There may be circumstances under which the financial performance of the Company
does not generate an award under the Plan. The nature and scope of the
Company’s operations are such that at times unanticipated economic and market
conditions may render pre-established financial objectives unattainable in any
given Plan year. If, in the opinion of the Chief Executive Officer, such
circumstances should arise, an alternative bonus calculation may be performed.

2

 

		
	IX. 	MODIFICATIONS

If, during a Plan year, there has occurred or should occur, in the opinion of
the Company’s Chief Executive Officer, a significant beneficial or adverse
change in economic conditions, the indicators of growth or recession in the
Company’s business segments, the nature of the operations of the Company, or
applicable laws, regulations or accounting practices, or other matters which
were not anticipated by the Company when it approved Corporate, and Division or
Group Objectives for the Plan year and which, in Management’s judgment, had or
have or are expected to have a positive or negative effect on the Company, the
Chief Executive Officer may modify or revise the Objectives for the Plan year
in such manner as he deems appropriate in his sole judgment. By way of
illustration, and not limitation, such significant changes might result from
sales of assets, or mergers, acquisitions, divestiture, or spin-offs.

Notwithstanding the above, the Plan is subject to suspension or termination at
any time (even if the financial objectives of the Plan have been achieved) by
the Chief Executive Officer of the Company, if, in his sole judgment,
conditions or circumstance exist or may exist that had, have or are expected to
have a negative effect on the Company.

		
	X. 	PAYMENT

It is anticipated that any Plan awards earned and declared will be paid in
February/March 2005.

Employees terminating prior to the date on which awards are paid are not
eligible for payment of any award under this Plan unless termination is due to
death or retirement. In such cases, any bonus payments will be prorated to the
date of termination and determined on the basis of bonuses actually paid to
similarly situated employees.

3

 

Annual Incentive Plan Structure — Year 2004

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Group
	 	Bonus as Percent of Base
	 	Financial Objective Weighting

	 	 	Min.
	 	Target
	 	Max.
	 	 	 	 	 	 
	Corporate
CEO
	 	 	60%	 	 	 	120%	 	 	 	180%	 	 	      % EBIT and       % Working
Capital
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.	 	 	Corporate employees based 100% on Corporate results
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Division
Presidents
Corporate Sr. VP’s

	 	 	50%	 	 	 	95%	 	 	 	145%	 	 	 	2.	 	 	Division Presidents -
Bonus is based 80% on
Division results and 20% on
Corporate results
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Corporate VP’s

	 	 	40%	 	 	 	80%	 	 	 	120%	 	 	 	3.	 	 	All others based on Division results or group results as determined by Division Presidents
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

4

 

FORM OF AWARD LETTER

                    , 200    

	 	 	 
	Re:

	 	Variable Compensation Plan Award

Dear Weatherford Employee:

We are pleased to advise you that your award under the Weatherford Variable
Compensation Plan for 2004 will be $                    . Thank you for your hard work
and efforts during 2004 on Weatherford’s behalf.

Sincerely,

Weatherford International Ltd.

5

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