NATIONAL SEMICONDUCTOR CORPORATION
2003 KEY EMPLOYEE INCENTIVE PLAN
1. Objective
The National Semiconductor Key Employee Incentive Plan ("the Plan") is
designed to retain executives and other selected employees and reward them for
making major contributions to the success and profitability of the Company.
These objectives are accomplished by making incentive awards under the Plan and
providing Participants with a proprietary interest in the growth and performance
of the Company.
2. Definitions
Whenever used in the Plan, unless otherwise indicated, the following terms
shall have the respective meanings set forth below:
Award
- -----
The amount to be paid to a Plan Participant at the end of the Plan
Period.
Award Date
- ----------
The date forty days after the Company makes its consolidated financial
statements for the fiscal year generally available to the press.
Annual Incentive
Base Salary
- -----------
Generally, the annualized base remuneration received by a Participant
from the Company at the end of the Plan Period. Extraordinary items,
including but not limited to prior awards, relocation expenses, car
allowances, international assignment allowances and tax adjustments,
sales incentives, amounts recognized as income from stock or stock
options, disability benefits (whether paid by the Company or a third
party), and other similar kinds of extra or additional remuneration
are excluded from the computation of Annual Incentive Base Salary.
Company
- -------
National Semiconductor Corporation ("NSC") and any corporation in
which NSC controls directly or indirectly fifty percent (50%) or more
of the combined voting power of voting securities, and which has
adopted this plan.
Committee
- ---------
The Stock Option and Compensation Committee of the Board of Directors
of the Company.
Disability
- ----------
Inability to perform any services for the Company and eligible to
receive disability benefits under the standards used by the Company's
disability benefit plans or any successor plan thereto.
Employee
- --------
An individual in the regular employ of the Company at any time during
the Plan Period.
Executive
Officer
- -------
An Employee of the Company who is subject to the reporting and
liability provisions of Section 16 of the Securities and Exchange Act
of 1934.
Extraordinary
Occurrence
- ----------
Events that, in the opinion of the Committee, are beyond the
significant influence of Plan Participants or the Company and cause a
significant unintended effect, positive or negative, on Company
operating and financial results.
Incentive
Levels
- ------
Percentage of Base Salary assigned to a Participant as a Target Award.
Participant
- -----------
An Employee who at the time shall be a Participant in accordance with
the provisions of Article 4.
Performance
Goal
- ----
Performance measures and factors considered and scored in calculating
a Participant's Award. Individual Performance Goals will be defined
with a Target level of performance, which shall mean expected
performance, reflecting a degree of difficulty which has a reasonable
probability of achievement.
Plan Period
- -----------
The fiscal year of the Company.
Retirement:
- -----------
Permanent termination of employment with the Company, and (a) age is
either sixty-five (65) or age is at least fifty-five (55) and age plus
years of service in the employ of the Company is sixty five (65) or
more, and (b) the terminating employee has confirmed to the Vice
President - Finance of the Company that he or she does not intend to
engage in a full time vocation.
Target Award:
- -------------
The Award, expressed as a percentage of Annual Incentive Base Salary
at the assigned Incentive Level, that is earned by a Participant for
achievement of the Target level of performance.
3. Effective Date
The Plan will be effective for the Company's fiscal year 2003.
4. Eligibility for Plan Participation
A. At the beginning of the Plan Period, management will recommend to the
President and CEO of the Company potential Participants for the Plan Period and
their Incentive Level. The President and CEO of the Company shall have the final
authority to designate Plan Participants and their Incentive Level for the Plan
Period. Executive Officers participating in the Executive Officer Incentive Plan
may not participate in the Plan.
B. Participants will be notified of their participation on or about the
beginning of the Plan Period. Continued participation will be re-evaluated at
the beginning of each Plan Period and there is no guarantee that a Participant
during one Plan Period will be a Participant in a subsequent Plan Period.
C. Newly hired Employees and newly promoted Employees may be added as
Participants to the Plan during the Plan Period. Participants who are added to
the Plan during the Plan Period will receive a prorated Award based on length of
time of participation in the Plan.
D. Participants may be removed from the Plan during the Plan Period at the
discretion of management. Participants so removed will receive a prorated Award
based on length of time of participation in the Plan.
E. To receive an Award, a Participant must be an Employee on the last
working day of the Plan Period.
5. Target Awards and Incentive Levels
A. Each Participant will be assigned an Incentive Level with an associated
Target Award expressed as a percentage of the Participant's Annual Incentive
Base Salary.
B. In the event that a Participant changes positions during the Plan Period
and the change results in a change in Incentive Level, whether due to promotion
or demotion, the Incentive Level will be prorated to reflect the time spent in
each position.
6. Plan Performance Goals
A. Management will determine corporate financial Performance Goals at the
start of the Plan Period. Corporate financial Performance Goals will determine
overall levels of incentive pools.
B. Individual and group Performance Goals and associated weights will be
established at the start of each Plan Period for each Participant. Participants
in defined business or corporate groups may have the same Performance Goals or
they may have different Performance Goals, as determined by management. Each
Performance Goal will have a defined Target level of performance. Performance
Goals and their associated weights may change from one Plan Period to another
Plan Period to reflect the Company's operational and strategic goals.
C. Weights for all Performance Goals will be established at the beginning
of the Plan Period.
D. Awards may range between 0% and 200% of Target, based on performance as
scored by management at the end of the Plan Period. The sum of the scoring on
the Performance Goals will determine the total performance level. For individual
and group Performance Goals, management judgment will be used to determine
scores for performance above or below the Target Level of performance. As a
general rule, the minimum level of 50% must be achieved in order for any Award
to be paid, but management has the authority, in its sole judgment, to pay
Awards even if the minimum level of performance is not met.
E. Under exceptional circumstances, revisions to Performance Goals may be
proposed at the midpoint of the Plan Period if the business environment or key
planning assumptions change significantly from conditions assumed at the start
of the Plan Period. Such revisions are subject to approval by the President and
CEO of the Company.
F. Performance Goals, performance scales and Awards may be adjusted in the
event the Committee or the President and CEO of the Company determine there has
been an Extraordinary Occurrence during the Plan Period that (i) affects one or
more Performance Goals; (ii) unreasonably distorts Award calculations; or (iii)
results in undue benefit or detriment to the Plan Participants. Such adjustments
will be made solely for the purpose of neutralizing the effect of the
Extraordinary Occurrence.
7. Calculation and Payment of Awards
A. The Company shall set incentive pools for groups, which shall constitute
a maximum limit on Awards to all Participants for the Plan Period. Subject to
this limitation set by the incentive pool, a Participant's Award will be
calculated as a percentage of Annual Incentive Base Salary as follows:
1) The Participant's Target Award is determined at the beginning of
the Plan Period, based on the Participant's Incentive Level and
Annual Incentive Base Salary as reflected by the Company's human
resources information systems.
2) The performance of the group on group Performance Goals and
individuals on individual Performance Goals is scored at the end
of the Plan Period.
3) The group's overall performance score and the corporate financial
performance score creates an incentive pool for the group.
4) The group's incentive pool is divided among the Participants
within the group based generally on each Participant's individual
performance score. Management has discretion to adjust Awards
based on individual contributions toward the group's overall
performance score. Without the approval of the Company's
President and CEO, no one individual Award may exceed 200% of the
Participant's Target Award amount.
5) Total Awards for each group may not exceed the maximum limit set
for that group's incentive pool. As a result, Award amounts may
be adjusted to ensure conformance with the incentive pool limit
set for the business group.
B. Measurement of performance on Performance Goals for Participants will be
scored by the Company.
C. Awards will be paid in cash on or about the Award Date.
D. Awards will reflect the Participant's Annual Incentive Base Salary in
effect at the end of the Plan Period. Participants who take a leave of absence
during the Plan Period will have their Awards reduced on a prorata basis to
reflect the leave of absence.
E. Any Awards that are prorated for any reason under the terms of this Plan
will be prorated based on the effective date of the change that resulted in the
proration and will be calculated based on data contained in the Company's human
resource information systems.
8. Termination of Employment
A. To be eligible to receive an Award, the Participant must be employed by
the Company on the last working day of the Plan Period. A Participant who
terminates employment prior to the last working day of the Plan Period for any
reason other than Disability, Retirement or death will forfeit all rights to an
Award.
B. If a Participant's employment is terminated during the Plan Period by
Disability, Retirement or death, the Participant will receive an Award prorated
to reflect the Participant's actual period of employment during the Plan Period.
C. Unless local law or regulation provides otherwise, payments of Awards
made upon termination of employment by death shall be made on the Award Date to:
(i) beneficiaries designated by the Participant; if none, then (ii) to a legal
representative of the Participant; if none, then (iii) to the persons entitled
thereto as determined by a court of competent jurisdiction.
D. Awards paid to Participants who have taken a leave of absence during the
Plan Period will be prorated to reflect the actual period of time spent on the
leave of absence. Participants on leaves of absence on the Award Date who are
otherwise eligible to receive an Award will receive the Award at the time all
other Participants receive their Awards.
E. Notwithstanding any other provisions of the Plan to the contrary, the
right of any Participant to receive an Award under this Plan shall be forfeited
if the Participant's employment is terminated because of or the Participant is
discovered to have engaged in fraud, embezzlement, dishonesty against the
Company, obtaining funds or property under false pretenses, assisting a
competitor without permission, or interfering with the relationship of the
Company with a customer. A Participant's Award, including any Award that may
have been previously deferred, will be forfeited for any of the above reasons
regardless of whether such act is discovered prior to or subsequent to the
Participant's termination of employment or payment of an award. If an Award has
been paid, such payment shall be repaid to the Company by the Participant.
9. Deferral of Awards
Participants who are eligible under the National Semiconductor Corporation
Deferred Compensation Plan (the "Deferred Compensation Plan") may elect to make
an irrevocable election to defer receipt of all or any portion of any Award
pursuant to and in accordance with the terms of the Deferred Compensation Plan.
10. Interpretations and Rule-Making
The Company shall have the right and power to: (i) interpret the provisions
of the Plan, and resolve questions thereunder, which interpretations and
resolutions shall be final and conclusive; (ii) adopt such rules and regulations
with regard to the administration of the Plan as it deems necessary in its
discretion, and (iii) generally take all action to equitably administer the
operation of the Plan. The President and CEO of the Company may delegate his
rights and duties under this Plan, including administration of the Plan, to
other management of the Company.
11. Declaration of Incentives, Amendment, or Discontinuance
The President and CEO of the Company acting within his sole discretion may
on or before the Award Date: (i) determine not to make any Awards to any or all
Participants for any Plan Period; (ii) make any modification or amendment to the
Plan for any or all Participants; or (iii) discontinue the Plan for any or all
Participants.
12. Miscellaneous
A. Except as provided in the Deferred Compensation Plan, no right or
interest in the Plan is transferable or assignable except by will or the laws of
descent and distribution.
B. Participation in this Plan does not guarantee any right to continued
employment and management reserves the right to dismiss Participants for any
reason whatsoever. Participation in one Plan Period does not guarantee the
Participant the right to participation in any subsequent Plan Period.
C. The Company reserves the right to deduct from all Awards under this Plan
any taxes or other amounts required by law to be withheld with respect to Award
payments.
D. Maintenance of financial information relevant to measuring performance
during the Plan Period will be the responsibility of the Chief Financial Officer
of the Company.
E. The provisions of the Plan shall not limit, or restrict, the right or
power of the Company's Board of Directors to adopt such other plans or programs,
or to make salary, bonus, incentive, or other payments, with respect to
compensation of officers or Employees, as in its sole judgment it may deem
proper.
F. No member of the Company's Board of Directors or any officer, employee,
or agent of the Company shall have any liability to any person, firm or
corporation based on or arising out of this Plan.