EXHIBIT 10.5
PLAN DOCUMENT
KEY EMPLOYEE QUARTERLY CASH PROFIT SHARING
INCENTIVE PROGRAM
FISCAL YEAR 1997
CONTENTS:
1. PURPOSE OF THE PROGRAM
2. PARTICIPATION
3. QUARTERLY BONUS AMOUNT
4. PAYMENT
5. DEFINITIONS
6. EXAMPLE
7. ADMINISTRATION
8. NO ALIENATION, ASSIGNMENT OR ENCUMBERMENT OF PAYMENTS
9. TERMINATION OR AMENDMENT OF THE PROGRAM
10. NO EMPLOYMENT CONTRACT
11. PLACE OF ADMINISTRATION; APPLICABLE LAWS
EXAR KEY EMPLOYEES QUARTERLY CASH PROFIT SHARING INCENTIVE PROGRAM
FOR FISCAL YEAR 1997
The Board, at its June 11, 1996 meeting, approved in concept an incentive
profit sharing program for those key employees of Exar Corporation who are not
eligible to participate in one of the other incentive compensation plans
sponsored by Exar Corporation.
This document formalizes the Fiscal Year 1997 Exar Key Employees Quarterly
Cash Profit Sharing Incentive Program under the following terms and conditions.
1. PURPOSE OF THE PROGRAM
The Fiscal Year 1997 Exar Key Employees Quarterly Cash Profit Sharing
Incentive Program (the "Program") is established effective April 1, 1996, to
create additional incentives for eligible employees of Exar Corporation ("Exar")
by awarding eligible employees a share of Exar's quarterly pre-tax profits under
the terms of the Program.
2. PARTICIPATION
Eligibility for this Program is determined by the recommendations of
senior management and the approval of the President and Board of Directors.
Participants in this program will not be eligible to participate in any other
cash incentive plan, including, but not limited to, the Sales Incentive Program
or the Employee Cash Profit Sharing Program, or the Executive Incentive
Compensation Program. The Board of Directors of Exar Corporation retains the
right, in its sole discretion, to determine eligibility under the Program.
To be eligible to participate in the Program for a specific Quarter, an
eligible employee must be on Exar's payroll as an active full-time employee
(i) for 45 calendar days preceding the first day of the Quarter, (ii) on the
first workday of the Quarter, (iii) on the last workday of the Quarter, and
(iv) on the date of payout. Eligible employees who are on an approved
disability or medical leave on any of the dates specified in (i), (ii), (iii) or
(iv), above, shall be deemed to be on the payroll on such date, provided,
however, that payments for a Quarter to eligible employees who are on such
approved medical or disability leave at any time during such Quarter shall be
subject to a pro rata reduction, as provided in Paragraph 3. If an employee who
is otherwise eligible to participate for a Quarter dies prior to the last
workday of the Quarter, the beneficiary or estate, as the case may be, of such
eligible employee shall be eligible to receive payments for the Quarter equal to
a pro rata portion of the payments to which the eligible employee otherwise
would have been entitled if he or she had not died. Such after-death pro rata
payments shall be calculated in a manner similar to the calculation of pro rata
payments for eligible employees on approved medical or disability leave.
3. QUARTERLY BONUS AMOUNT
The Program will be funded for a Quarter only if the pre-tax profits
for the Quarter exceed the target threshold amount for that Quarter. If such
target threshold amount is exceeded for the Quarter, a bonus pool for payments
will be established. The bonus pool for a Quarter shall be equal to a
designated percentage of the amount by which the pre-tax profits for the Quarter
(which includes the expense for the Program and other incentive plans sponsored
at least annually, but more frequently if the Board so determines, the target
threshold amount and the designated percentage applicable for each Quarter.
Each employee who is eligible to participate in the Program for a
Quarter shall receive a payment from the Program equal to such eligible
employee's pro rata share of the bonus pool determined for that Quarter. Each
eligible employee's pro rata share shall be determined by multiplying the bonus
pool by the ratio that such eligible employee's Salary for the Quarter bears to
the total Salary of all such eligible employees for the Quarter.
The Salary for any eligible employee who is on an approved medical or
disability leave for a portion of the Quarter shall be reduced pro rata for
calculating the amount of such eligible employee's payment from the Program, as
follows. The pro-rated Salary shall be equal to the eligible employee's
unreduced Salary for the Quarter multiplied by the ratio that the (i) number of
weeks in the Quarter reduced by the number of whole weeks the eligible employee
was on approved medical or disability leave for the Quarter bears to (ii) the
number of whole weeks in the Quarter. For this purpose, (i) three or more days
shall be treated as a whole week, (ii) fewer than three days shall not be
counted as a week, and (iii) each Quarter shall be deemed to have 13 weeks. It
is intended that an otherwise eligible employee who is on an approved medical or
disability leave for an entire Quarter will receive no payment under the Program
for such Quarter. It also is intended that if any eligible employee who dies
before the last workday of a Quarter also was on an approved medical or
disability leave prior to the date of death, such eligible employees reduced pro
rata Salary for the Quarter shall be calculated by taking into account both the
reduction as a result of the approved medical or disability leave and the death
of the eligible employee.
4. PAYMENT
Payments for each Quarter will be paid to each eligible employee for
that Quarter no later than the next payroll following thirty (30) days after the
end of the Quarter. Payments made under the Program are subject to all required
federal, state and local withholding.
If an eligible employee entitled to a payment from the Program dies
before receiving such payment, Exar shall make such payment to the eligible
employee's designated beneficiary, or to the eligible employee's estate if no
beneficiary is designated, on the date payments are made to other eligible
employees.
5. DEFINITIONS
For all purposes under the Program the following definitions shall
apply:
a. "Board" shall mean the Board of Directors of Exar Corporation or
the Compensation Committee of the Board, if so designated by the Board.
b. "Full-time employee" shall mean an employee regularly working 40
or more hours per week. "Full-time employee" shall exclude (i) employees
working on a part-time schedule of fewer than 40 hours per week; (ii) temporary
employees whose duration of employment will end on a predetermined date,
regardless of the number of hours worked per week; and (iii) individuals who
work on a contract or consultant basis.
c. "Quarter" shall mean each fiscal quarter in Exar's fiscal year.
The first day of each Quarter shall be April 1, July 1, October 1 and January 1.
d. "Salary" shall mean an eligible employee's compensation for
purposes of calculating payments under the Program and shall mean the base pay
of the eligible employee determined as of the first day of the relevant Quarter
and shall exclude any compensation in excess of base pay, such as overtime,
bonuses, lead or shift pay, or any other allowances.
6. EXAMPLE
a. Pool Funding
The operation of the Program is illustrated by the following example:
Assume for fiscal year 19XX that the Board has determined that the
annual pre-tax profit target threshold amount for the Program is $20 million, or
$5.0 million each Quarter. Further assume that the Board has determined that
the Key Employee Profit Sharing will commence funding with 96% of the first $50K
above the quarterly pre-tax profit threshold. This amounts to $48,000.
Additional funding of this pool will be made when quarterly pre-tax profit
exceeds the threshold plus $50,000. The additional funding will be 48% of pre-
tax profit plus the $50,000. Maximum funding of this pool will be determined
according to the percentage of pretax profit achievement within the rage of 85%
to 115% of the pre-tax profit from the approved, annual financial plan.
RESTATED:
FIRST POOL SECOND POOL
FUNDING FUNDING
Actual Performance $6,000,000 $6,000,000
First Pool Threshold (5,550,000)
Difference subject to Pool
Calculation 450,000
1st Pool Funding
96% of 1st 50 over threshold
(.96 X 50,000) (48,000)
Second Pool Threshold *($5,600,00)
Diff 400,000
Second Pool Funding
(48% of Second Pool Threshold)
(.48 X $400K) 192,000
Total Pool
(Not to Exceed Cap, see Table 240,000
on Max Pool Payout)
* Second Pool Funding Threshold is $50K
Greater than First Pool Funding Threshold
b. Individual Payout Calculation
Individuals selected and approved for participation in the Key
Employee Profit Sharing Program will participate at a pre-determined annual
level. This is referred to as the annual target award percentage and will be
either 15%, 20% or 25%. The annual target award dollar amount will be that
percentage times the individuals annual base salary as of March 31, prior to the
beginning of the plan year. For participating employees whose date of hire is
after March 31st, their starting annual base salary will be used, but any payout
will be on a pro-rated basis.
As an example of a quarterly payout calculation, assume that the
company met the quarterly financial plan for pre-tax profit at exactly 100%.
Further assume the participant's annual base salary was $100,000 and had a
target award of 20%. The quarterly payout would be $5,000
($100,000 x .20 / 4) annual salary x % target / 4 quarters.
As a second example, the company achieved 85% of the financial
plan. According to the table (see attachment), the pool will only be funded at
50%. Using the example in the above paragraph, the individual participant will
receive half the amount, $2,500 for the quarter, $100,000 x .20 / 4 quarters x %
pool funding.
7. ADMINISTRATION
The Program shall be administered by the President and Chief Financial
Officer of Exar. Any determination made by Exar in interpreting the Program
shall be final and binding upon all persons having an interest in the Program.
8. NO ALIENATION, ASSIGNMENT OR ENCUMBERMENT OF PAYMENTS
An eligible employee's interest in the program may not be eliminated,
assigned or encumbered, other than as provided in Paragraph 4 with respect to
payments to a beneficiary or an estate following the death of an eligible
employee.
9. TERMINATION OR AMENDMENT OF THE PROGRAM
The Board of Directors of Exar may terminate or amend the Program for
any purpose; provided, however, that no such termination or amendment shall be
effective for a Quarter which has ended prior to the time that the action to
terminate or amend the Program is taken.
10. NO EMPLOYMENT CONTRACT
The adoption and maintenance of the Program shall not be deemed to be a
contract of employment between Exar and any of its employees. Nothing in the
Program shall give any employee of Exar the right to be retained in Exar's
employ or to interfere with Exar's right to discharge any employee at any time.
11. PLACE OF ADMINISTRATION; APPLICABLE LAWS
The place of administration of the Program shall conclusively be deemed
to be within the State of California, and the Program and the provisions hereof
shall be governed by and construed in accordance with the substantive laws of
the State of California.