Momentive Performance Materials Holdings LLC 2013 INCENTIVE COMPENSATION PLAN (the Plan)

 

The Plan is sponsored by Momentive Performance Materials Holdings LLC (“Parent” or “Momentive”) to reward associates of Momentive Specialty Chemicals Inc. (MSC) and Momentive Performance Materials Inc. (MPM) and their subsidiaries for delivering increased value by profitably growing the business and controlling costs. The Plan is designed to link rewards with critical financial metrics for the purposes of promoting actions which are the most beneficial to the company's short-term and long-term value creation.

 

 

1 January 2013 - 31 December 2013

 

 

Participation is based on each individual associate's scope of responsibility and contribution within the organization, as well as the market prevalence for incentive in the country where they are employed. Each participant is assigned to participate at either the corporate, division or sector, business unit or regional plan level.

 

The Plan targets are based on three performance criteria: EBITDA, EH&S and Cash Flow.

EBITDA (sometimes also referred to as Segment EBITDA): Earnings before Interest, Taxes, Depreciation and Amortization, adjusted to exclude certain non-cash, certain other income and expenses and discontinued operations.

 

The achievement of EBITDA targets is the critical measure on which the investment community and future shareholders will evaluate Momentive's performance in 2013. As a result, the participants should be focused and incentivized to manage the business to achieve targets in EBITDA.

Segment EBITDA will be measured for the Parent (“Momentive EBITDA”), for each of the Epoxy, Phenolic and Coating Resins and Forest Products Divisions of MSC and the Silicones & Quartz Division of MPM (each a “Division”) and for specified MSC and MPM Business Units/Regions.

Associates participating at the corporate, Division, Sector or Business Unit plan level have a total of 60% of their incentive target based on the achievement of the EBITDA targets.

 

EH&S: Measures the environmental, health and safety measure referred to as 1) OIIR, or the occupational illness and injury rate. OIIR will be measured for the Parent, for each Division and for specified Business Units/Regions, and 2) ERI, or Environmental Reportable Incidents. 5% of each participant's incentive target will be based on the achievement of the applicable OIIR goal and 5% of each participant's incentive target will be based on the achievement of the applicable ERI goal.

 

Cash Flow: Represents the amount of cash generated by business operations. Cash flow is defined as Segment EBITDA, net trading capital improvement and/or usage, capital spending and interest paid along with other operating cash flow items such as income taxes paid and pension contributions. The purpose of this component is to focus on cost control and cost reduction actions to preserve an adequate amount of liquidity to fund operations and capital expenditures, service debt and ultimately sustain the business through difficult economic cycles. Cash Flow will be measured for the Parent and for each Division at the end of the Plan Year, and may exclude certain unusual, non-recurring items at the discretion of the Compensation Committee of the Board of Managers. All participants have 30% of their incentive target based on the achievement of the applicable Parent or Division Cash Flow target.

 

Each eligible participant will have a target incentive opportunity expressed as a percent of his or her base salary. Targets and plan assignment levels are determined by the associate's country/region of employment, and the scope of his or her role and contributions within the organization.

The following table depicts the structure described above.

 

The EBITDA measure will have a range of minimum, lower- middle, target, upper-middle and maximum targets for determining incentive award payout as approved by the Compensation Committee. Incentive payout will range from 30% of target to a maximum of either 175% or 200% of the target incentive award depending on the participant's position in the organization. Each of the performance targets is measured independently such that a payout for achieving one is not dependent upon the achievement of the others, including the achievement of the EBITDA target.

For actual performance between the minimum, lower middle, target, upper middle and maximum targets, a straight line calculation will be made, rounded to the nearest 1/10th percent. There is no additional payment made for performance above the maximum. The final financial award will be determined when the 2013 audited financial performance results are available.

 

 

Financial Results: Incentive payments will be based on audited and approved financial results. No incentive payment will be made until formal results have been approved by the Momentive Audit and Compensation Committees of its Board of Managers.

 

Limitations: All incentive payments must be self-funded from funds generated at the corporate, divisional, or business unit / regional level. The Compensation Committee of the Board of Managers may elect to modify the calculation of the annual targets based on acquisitions, divestitures or other unusual, non-recurring events or transactions that occur during the calendar year. Momentive has the right to amend or terminate this Plan at any time.

 

Employment Requirement: Associates must be employed in an incentive-eligible position for at least three consecutive full months during the Plan Year and must be actively employed by MSC or MPM on the final day of the Plan Year and on the incentive payment date, in order to receive an incentive payment. Plan participants are also eligible to receive an incentive payment if they are employed on the final day of the Plan Year, but prior to the incentive payment date their employment is: (i) involuntarily terminated without cause, (ii) terminated due to the participant's death or disability, or (iii) terminated due to retirement with the participant having reached age 60 and completed at least three years of service prior to retirement.

Plan Assignment Levels: Any change in a participant's plan assignment level that is not related to a job transfer, must be approved by an appropriate division or functional Vice President and the Vice President of Total Rewards.

Payments: Incentive payments are subject to applicable taxes and garnishment/wage orders. 

Proration of Payments: Proration of payments will be made on a whole-month basis. Associate changes on or before the 15^th of any month will be considered to have a full month's service for that month. Associate changes after the 15^th of any month will be considered to have started on the 1^st of the next month. A participant's incentive payment will be prorated for any of the following conditions:

 

 

 

 

 

Timing of Payments: Typically, financial results are announced in March following the end of the Plan Year and any earned incentive payments are made in April. In no event shall payments be made prior to the final audited year-end financial results are available and the subsequent Incentive Compensation Plan payout approval by the Compensation Committee of the Board of Managers.

 

The Plan remains at the total discretion of the Parent. Momentive retains the right to amend or adapt the design and rules of the Plan. Local laws will prevail where necessary.