COMPUTER PRODUCTS, INC.
EXECUTIVE ANNUAL INCENTIVE PLAN
TABLE OF CONTENTS
PAGE
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I. Purpose 2
II. Effective Date 2
III. Plan Year 2
IV. Plan Administration 3
V. Eligibility 3
VI. Company Performance Objectives 4
- Threshold 4
- Performance Measures and Weights 4
VII. Incentive Awards 5
- Payout Cap 5
- Performance Schedule 5
VIII. Individual Annual Incentive Awards 5
- Payment 6
- Stock Option Award 6
IX. Special Incentive Awards 6
X. Termination of Employment 6/7
XI. Miscellaneous 7
- Plan Accounting 7
- Payment From General Assets 7
- No Right of Employment 7
- Non-Assignment/Death Benefits 8
- Amendment and Termination of Plan 8
- Change of Control 8
XII. Definitions 8/9
I. PURPOSE
Computer Products, Inc. (`Company'' or ``CPI'') establishes the Executive
Annual Incentive Plan (`Plan'') to provide a financial incentive for
selected members of management. This Plan is designed to achieve several
objectives to include:
- Linking Company business objectives with key executives' compensation;
- Rewarding teamwork and individual performance for achieving annual
business results;
- Providing motivation to key executives to excel by offering
competitive incentive and total cash compensation;
- Promoting human resources goals to attract, hire and retain quality
talent; and;
- Balancing short and long term considerations through compensation for
achievement of 12 months goals that are consistent with long term
objectives.
II. EFFECTIVE DATE
The Plan shall be effective on the first day of fiscal 1996 and will remain
effective until amended or terminated by the Board of Directors.
III. PLAN YEAR
The Plan Year shall be the Company's fiscal year. The Plan automatically
shall be renewed for each fiscal year thereafter, unless otherwise
terminated by the Board of Directors.
IV. PLAN ADMINISTRATION
The Plan shall be administered by the Chief Executive Officer (Plan
Administrator). The Compensation Committee of the Board will approve
annually Corporate and Division Head performance measures, objectives,
award levels and funding amounts.
The Chief Executive Officer/Plan Administrator, with support from the
executive staff, determines eligibility, approves actual awards, recommends
Corporate and Division Head performance measures/weights, objectives, award
levels and funding amounts. The Chief Executive Officer is authorized to
interpret and administer Plan provisions. The Chief Executive Officer as
Plan Administrator shall have no authority to amend or modify any of the
terms of the Plan, such authority being fully reserved to the Board of
Directors.
V. ELIGIBILITY
The Chief Executive Officer shall select those key executives
(`Participants'') who will be eligible to receive an annual incentive
award for the Plan Year. In determining eligibility, the Chief Executive
Officer shall consider the executive's potential impact on profitability,
revenue growth and operating results, as well as reporting level of the
executive.
To be eligible to be selected as a Participant, the executive must:
- report directly to a Division President and/or be within two reporting
levels of the Chief Executive Officer; and
- must be an active employee at the end of the Plan Year, unless
specified differently in other contractual agreements.
An eligible executive must be a Participant for a minimum of six months to
be eligible for a prorata award. Participants shall receive a copy of the
Plan to serve as written notice from the Plan Administrator of their
eligibility to participate in the Plan and their contingent rights to an
annual incentive award.
VI. COMPANY PERFORMANCE OBJECTIVES
Threshold:
The threshold is defined as the level at which payment of objectives will
begin. Actual thresholds for each measure will be detailed on the
individual sheets.
Net Income thresholds for Division/Corporate must be achieved in order for
other objectives to be paid.
Maximum payout for each performance measure is 200%.
Note: There may be no incentive payout if the corporation is not
profitable.
Performance Measures and Weights:
Annually, the Chief Executive Officer, with support from executive staff,
will determine and recommend the appropriate performance measures and
weights. Taking into consideration the annual business plan, the Chief
Executive Officer will develop target and performance objectives.
Performance measures will utilize `formulas'' or objective measures as
much as possible; however, discretion may be required particularly in
developing individual objectives. The Compensation Committee annually
approves Corporate and Division Heads performance measures.
Upon approval by the Compensation Committee, performance objectives/weights
will be communicated in writing to all Plan Participants at the beginning
of the Plan Year.
VII. INCENTIVE AWARDS
Payout Cap
Tax effected executive annual incentive awards shall be limited to no more
than 10% of the company's net income before the total after tax cost of the
executive annual incentive payout, unless otherwise approved by the
Compensation Committee and Board of Directors. (See Section XII for
definition of NI.) Should calculated payout at the end of the year exceed
this amount, the payouts may be reduced on a pro rata basis.
The Compensation Committee shall have discretion to interpret the effect of
`windfall'' events on the Plan. Examples of ``windfall'' events include
income/ (loss) from the sale of an asset, discontinued operations, effect
of changes in accounting principles, extraordinary credits, etc.
Performance Schedule
The award levels shall be based on the levels of financial performance
attained. Each Performance Measure will either be paid on a straight line
interpolation with a minimum payout at threshold and a maximum payout at
200% or on a calculation based on minimum payout at a predetermined
threshold up to a maximum of 200%. Actual thresholds and payment formulas
will be detailed on each participants individual plan documents.
VIII. INDIVIDUAL ANNUAL INCENTIVE AWARDS
As determined by the Chief Executive Officer/Plan Administrator, the annual
incentive award for a Participant shall be based on the individual
Participant's group level and achievement of mutually agreed to goals which
shall be set forth in writing in advance for the Plan Year.
Payment
The award level shall be expressed as a percent of base salary (See Section
XII for definition of base salary.) and shall be payable in cash within
seventy-five (75) days following the Plan Year. Awards shall be subject to
normal rules and regulations regarding the withholding of taxes.
As described in the Executive Equity Ownership Plan, the employee's EIP
payouts in whole or part will be made in common stock until the participant
has achieved the year end minimum ownership target. The number of common
shares will be determined by dividing the eligible compensation by the
common stock closing price as listed in the Wall Street Journal at the date
of award. Any resulting fractional shares will be paid in cash.
IX. SPECIAL INCENTIVE AWARDS
In the years when the Company is profitable overall, but individual
divisions achieve less than the minimum NI, the Chief Executive
Officer/Plan Administrator may recommend special incentive;
discretionary awards for high achievers in the Company and/or Divisions
that are profitable. For these discretionary awards, the Compensation
Committee has the authority to fund from 0-50% of the total participants
target award level.
X. TERMINATION OF EMPLOYMENT
In the event of death, extended disability or retirement, Plan Participants
will normally be entitled to receive prorated awards based upon the number
of months in which they have participated in the Plan for the applicable
Plan Year. (See Section XII for definitions.)
In the event of voluntary termination of a Plan Participant during the Plan
Year, the Participant will typically forfeit his award for the Plan Year.
In the event of involuntary termination of a Plan Participant through no
fault of his/her own during the Plan Year, the Participant may be entitled
to a prorated award. Such decisions regarding prorated awards will be
reviewed by the Compensation Committee.
In the event of termination for cause such as misconduct, fraud, or other
acts injurious to the Company, the Participant will not be entitled to any
award, whether prorated or not, for the Plan Year.
XI. MISCELLANEOUS
Plan Accounting
The Plan shall be funded by accrual during the Plan Year.
Payment from General Assets
The payment of an award under the Plan shall be from the general assets of
the Company, and a Participant under the Plan shall have no greater rights
to payment than other general creditors of the Company. There shall be no
separate trust for the payment of awards hereunder.
No Right of Employment
----------------------
Nothing in the Plan, including the employee's eligibility for participation
in the Plan, will infer any right of employment by the Company to such
employee. The Plan does not affect the terms of any employment agreements
that may exist between the Company and any Participant. The Company
retains all its rights to discipline or discharge employees who
participate in the Plan.
Non-Assignment/Death Benefits
-----------------------------
An award or the right to a payment of an award granted under this Plan
shall not be assignable or transferable by a Participant except by will or
the laws of descent and distribution. Each Participant may designate, on a
form approved by the Plan Administrator, a beneficiary or beneficiaries to
receive payment of any Plan death benefits that may be payable with respect
to the Participant. During the lifetime of a Participant, only the
Participant may receive payment of an award granted hereunder. No transfer
of an award shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and a copy of the will or
such evidence as the Company may deem necessary to establish the validity
of the transfer.
Amendment, Suspension, or Termination of the Plan
-------------------------------------------------
The Board of Directors, upon recommendation of the Compensation Committee,
may at any time elect to amend, suspend, or terminate the Plan.
Change of Control
-----------------
In the event of a sale, merger, consolidation, combination or
reorganization involving the Company and any other entity or corporation,
the Chief Executive Officer and Board of Directors shall not agree to such
merger, consolidation, combination or reorganization unless and until the
succeeding or continuing business entity shall expressly assume the
obligations of the Company under this Plan.
XII. DEFINITIONS
----------------
For purposes of this document and the Plan, the terms listed below are
defined as follows:
(1) BASE SALARY means all regular salary amounts actually paid to the
Participant during the Plan Year and shall not include commissions,
bonuses, options and/or any amounts received in connection with any fringe
benefit, retirement or welfare employee benefit program.
(2) NET INCOME (NI) Defined as net income (loss) before extraordinary
items, cumulative effect of changes in accounting principles and
discontinued operations, as reported by the company in its audited
consolidated statement of operations.
(3) MANAGEMENT NET INCOME (MNI) Defined as management net income as
calculated strictly according to the company's accounting policies and
contained in the company's management reporting system.
(4) CASH FLOW defined as operating cash flow (excluding intercompany
account activity) minus investing cash flow.
(5) DISABILITY A Participant's incapacity to engage in any substantial
gainful activity because of a medically determinable physical or mental
impairment which can be expected to result in death, or to be of long,
continued and indefinite duration. Such determination of disability shall
be made by the Plan Administrator with the advice of competent medical
authority. All Participants in similar circumstances will be treated alike.
(6) RETIREMENT Termination of a Participant's employment at a specific
age determined by CPI, when Participant chooses to withdraw from their
position or occupation. Normal retirement age is age 65 or, if later, the
fifth anniversary of the Participant's employment date.
(7) TERMINATION FOR CAUSE `Cause'' shall mean such actions by
Participant involving dishonesty, fraud, the commission of a felony, gross
negligence, or willful misconduct, which resort in material harm to the
business and/or reputation of CPI as reasonably determined by CPI's Board
of Directors.
Attachment 1
PERFORMANCE WEIGHTS
MEASURES
CORPORATE:
CEO, CFO
NET INCOME 75%
REVENUE GROWTH 25%
OTHER CORPORATE MANAGEMENT:
NET INCOME 75%
REVENUE GROWTH* 25%
EFFECTIVE TAX RATE* 25%
COMPANY CASH FLOW* 25%
*MEASUREMENT APPLIED TO RELEVANT CORPORATE POSITION
DIVISIONS: (EXCEPT PCAP)
MANAGEMENT NET INCOME
REVENUE GROWTH
CASH FLOW
(% WILL VARY BY DIVISION BASED ON THE IMPORTANCE OF THIS
FACTOR TO THE INDIVIDUAL DIVISION PERFORMANCE)
PCAP
GROSS PROFIT MARGIN
OVERHEAD SPENDING
G&A SPENDING
CASH FLOW
HONG KONG DIRECT LABOR HEADCOUNT
(% WILL VARY BY DIVISION BASED ON THE SIGNIFICANCE OF THE
INDIVIDUAL'S IMPACT ON THESE MEASURES)
Attachment 2
PERFORMANCE SCHEDULE
PERCENT (%) OF PERCENT (%) OF
FINANCIAL PERFORMANCE TARGET INCENTIVE
TARGET ACHIEVED AWARD EARNED
--------------- ------------
Less than 70% Discretionary
70% 70%
75% 75%
80% 80%
85% 85%
90% 90%
95% 95%
100% 100%
105% 105%
110% 110% PAYOUT RATIO = 1 : 1
115% 115%
120% 120%
125% 125%
130% 130%
135% 135%
140% 140%
145% 145%
150% 150%
200% 200%
For levels of financial performance attained which are between
the increments cited in the Performance Schedule above, the
percent of target award earned is based upon straight-line
interpolation.