Chief Executive Officer Bonus Terms for FY06 Under the Section 162(m) Executive Officer Performance-BasedBonus Plan
Exhibit 10.2
Chief Executive Officer Bonus Terms for FY06 Under the
Section 162(m) Executive Officer Performance-Based Bonus Plan
Plan Objective
Suns Chief Executive Officer Bonus Terms for FY06 under its Section 162(m) Executive Officer Performance-Based Bonus Plan (the Plan) are designed to compensate the Chief Executive Officer (CEO) for contributions to Sun during the fiscal year. The Plan provides for quarterly cash compensation based on performance against the Plan measures.
Plan Year/Performance Periods
The Plan year is Suns fiscal year 2006. The Performance Periods (as such term is defined in the Plan) are each of Suns four fiscal quarters during that fiscal year.
Eligibility
These terms apply to the person serving as Suns CEO as of July 1, 2005. In order to receive a bonus payment with respect to any fiscal quarter, the participant must be serving as Suns CEO as of the last day of that fiscal quarter, except as provided below.
A participant who retires, becomes disabled, or dies during any fiscal quarter may receive a prorated bonus for the period of time during the fiscal quarter that the participant provided services to Sun. A participant who leaves Sun prior to the end of a fiscal quarter for any other reason, including but not limited to a reduction in force, voluntary resignation, or termination by Sun, will be ineligible for a bonus payment with respect to that fiscal quarter and any subsequent fiscal quarter during fiscal year 2006.
Bonus Target
The participants bonus target under the Plan is 2,500% of the participants Eligible Wages for fiscal year 2006, as determined below (the Bonus Target). The Bonus Target is divided between the four fiscal quarters of fiscal year 2006 as follows (each, a Quarterly Bonus Target):
Fiscal Quarter | Percentage | Quarterly Bonus Target | ||||
FY06 Q1 | 10 | % | 250 | % | ||
FY06 Q2 | 25 | % | 625 | % | ||
FY06 Q3 | 25 | % | 625 | % | ||
FY06 Q4 | 40 | % | 1,000 | % |
For example, for FY06 Q1, the Quarterly Bonus Target would be 2,500% multiplied by 10%, or 250% of Eligible Wages for that quarter.
Payouts under the Plan are capped at the lesser of 300% of the Bonus Target or $7.5 million for fiscal year 2006.
Eligible Wages
Eligible Wages with respect to any fiscal quarter in fiscal year 2006 (Eligible Wages) shall be determined based upon the participants annual base salary on the last day of such fiscal quarter (September 25, 2005 for FY06 Q1, December 25, 2005 for FY 06 Q2, March 26, 2006 for FY06 Q3, and June 30, 2006 for FY06 Q4).
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Chief Executive Officer Bonus Terms for FY06 Under the
Section 162(m) Executive Officer Performance-Based Bonus Plan
For example, for FY06 Q2, assuming the participants annual base salary on December 25, 2005 was $127,000, the participants Eligible Wages would be $127,000.
Eligible Wages exclude relocation allowances, expense reimbursements, tuition reimbursement, car/transportation allowances, expatriate allowances, long-term disability payments, or other commissions and bonuses paid during each quarter of FY06.
Company Performance Measures
The Plan is based on performance against the following measures:
1. FY06 Q1- quarterly Operating Income;
2. FY06 Q2 - quarterly Operating Income;
3. FY06 Q3 quarterly Operating Income; and
4. FY06 Q4- quarterly Operating Income, annual Free Cash Flow, and annual Revenue.
For FY06 Q4, quarterly Operating Income, annual Free Cash Flow, and annual Revenue are relatively weighted as follows: 50%, 25% and 25%.
Operating Income: Operating Income is defined as Operating Income, calculated on a GAAP basis, adjusted to exclude the impact of the following:
| Restructuring charges |
| In-process R & D charges |
| Intangible impairment charges |
| Stock compensation expense |
| FY06 bonus accrual |
Free Cash Flow: Free Cash Flow is defined as Cash Flow from Operations, calculated on a GAAP basis, less expenditures for Capital and Spares, adjusted to exclude cash flow associated with:
| Restructuring activity |
| Real estate transactions |
Revenue: Revenue is defined as net revenue as reported in Suns consolidated operations analysis.
Bonus Plan Funding Percentage
Attached hereto is a schedule (the Schedule), which provides percentages based upon Suns actual performance against the Companys goal(s) with respect to the Company Performance Measures for each quarter. The Bonus Plan Funding Percentage is determined for each fiscal quarter as follows:
1. With respect to the first three fiscal quarters: By referring to the Schedule, which provides a percentage based on Suns actual performance against its goal with respect to quarterly Operating Income.
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Chief Executive Officer Bonus Terms for FY06 Under the
Section 162(m) Executive Officer Performance-Based Bonus Plan
2. With respect to the fourth fiscal quarter: By referral to the Schedule, which provides percentages based on Suns actual performance against its goals with respect to quarterly Operating Income, annual Free Cash Flow and annual Revenue and then relatively weighting these percentages as described above under the heading Company Performance Measures.
With respect to each fiscal quarter, this percentage is referred to as the Bonus Plan Funding Percentage.
Bonus Calculation
The participants quarterly bonus payment for each fiscal quarter of fiscal year 2006 will be calculated as follows:
Quarterly Bonus Target
x Bonus Plan Funding Percentage
x Eligible Wages
= Actual Quarterly Bonus Payment*
1 | Example: In FY06 Q2, if Sun achieves 100% of its Operating Income goal, the participants actual quarterly bonus payment will be calculated as follows: |
Quarterly Bonus Target | 625 | % | ||||
Bonus Plan Funding Percentage | X | 100 | % | |||
Eligible Wages | X | $ | 127,000 | |||
Actual Quarterly Bonus Payment for FY06 Q2* | $ | 793,750 |
2 | Example: In FY06 Q4, if Sun achieves 100% of its quarterly Operating Income goal, 70% of its annual Free Cash Flow goal, and 90% of its Revenue goal, the actual participants quarterly bonus payment will be calculated as follows: |
Step One Determine Bonus Plan Funding Percentage:
Company Actual Performance for FY06 Q4 | Percentage from Schedule | Relative Weighting | ||||
Quarterly Operating Income 100% | 100 | % | 50 | % | ||
Annual Free Cash Flow 70% | 70 | % | 25 | % | ||
Annual Revenue 90% | 90 | % | 25 | % | ||
Bonus Plan Funding Percentage | 90 | % |
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Chief Executive Officer Bonus Terms for FY06 Under the
Section 162(m) Executive Officer Performance-Based Bonus Plan
Step Two Determine actual quarterly bonus payment:
Quarterly Bonus Target | 1,000 | % | ||||
Bonus Plan Funding Percentage | X | 90 | % | |||
Eligible Wages | X | $ | 127,000 | |||
Actual Quarterly Bonus Payment for FY06 Q4* | $ | 1,143,000 |
* | Before applicable taxes and other withholdings, if any. |
Bonus Payment
In the U.S., bonus awards are taxable income, and should be paid within two and one-half months after the close of each fiscal quarter. Bonuses are paid in accordance with local payroll schedules in countries outside the U.S and subject to local and regional tax provisions.
Communication of Results
With respect to any particular fiscal quarter during fiscal year 2006, results will be communicated as soon as possible after Suns quarterly financial results are publicly announced.
General
This Plan is in all respects subject to the terms, definitions and provisions of Suns Section 162(m) Executive Officer Performance-Based Bonus Plan, which is incorporated herein by reference.
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