Description of Short-term Compensation Plan

        As part of the total compensation package for the nine top executive officers who are members of the Company’s Senior Leadership Team and other executives (the “Executives”), the Management Continuity and Compensation Committee (“MCC”) of the Board of Directors sets consolidated annual earnings per share (“EPS”) and specific business unit operating profits targets for the Company, usually in the month of February for a given year. The MCC then grants contingent award values to the Executives pursuant to the Bandag, Incorporated Stock Grant and Awards Plan. The award values are typically based on a percentage of the target compensations for the Executives set by the MCC. The awards are payable in restricted shares of Class A Common Stock if the EPS and/or business unit operating profits targets are met. The EPS and business unit operating profits are determined after the release of financial results for the year in which the contingent awards were made. For example, contingent awards made in February 2005 will be based on financial results for the year ended December 31, 2005 and, if the targets are met, restricted stock will be granted in February 2006 in satisfaction of the contingent awards.

        The MCC sets the EPS and business unit operating profits targets and award values to the Executives as follows: the first is a Threshold EPS and a Threshold business unit operating profits number, below which no restricted stock grants are made and, if met, provides for the lowest award value; the second is a Target EPS and a Target business unit operating profits number, which provides for a higher award value if the Target EPS is met; and the third is a superior EPS and a Superior business unit operating profits number, which provides for the highes