Exhibit 10.5
IRVINE SENSORS CORPORATION
SENIOR MANAGEMENT PERFORMANCE BONUS PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 Purpose. Pursuant to the authority granted under Section 6(d) of the Irvine
Sensors Corporation 2011 Omnibus Incentive Plan (the “Omnibus Plan”), the
Compensation Committee of Irvine Sensors Corporation (the “Company”) has adopted
this Senior Management Performance Bonus Plan (the “Plan”) effective as of
March 9, 2011. The Plan is intended to increase stockholder value and the
success of the Company by motivating senior management (a) to perform to the
best of their abilities, (b) to achieve the Company’s objectives and (c) to
refrain from voluntarily terminating their employment. The Plan’s goals are to
be achieved by providing such senior management with incentive awards based on
the achievement of goals relating to the performance of the Company and its
individual business units. The Plan is intended to permit the payment of bonuses
that qualify as performance-based compensation under Code Section 162(m).
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context. Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Omnibus Plan.
2.1 “Actual Award” means as to any Performance Period, the actual (if any) award
payable to a Participant for the Performance Period. Each Actual Award is
determined by the Payout Formula for the Performance Period.
2.2 “Affiliate” has the meaning set forth in Section 2(a) of the Omnibus Plan.
2.3 “Base Salary” means as to any Performance Period, 100% of the Participant’s
annualized salary rate on the last day of the Performance Period. Such Base
Salary shall be before both (a) deductions for taxes or benefits, and
(b) deferrals of compensation pursuant to Company-sponsored plans.
2.4 “Board” has the meaning set forth in Section 2(d) of the Omnibus Plan.
2.5 “Code” has the meaning set forth in Section 2(e) of the Omnibus Plan.
2.6 “Committee” has the meaning set forth in Section 2(f) of the Omnibus Plan.
2.7 “Determination Date” means the date that is not later than 90 days after the
beginning of each Performance Period.

 

 

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2.8 “EBITDA” means as to any Performance Period, Net Income before interest,
taxes, depreciation and amortization.
2.9 “Fiscal Year” means the fiscal year of the Company.
2.10 “Gross Margin” means as to any Performance Period, the difference between
revenue and related costs and expenses, excluding income derived from sources
other than regular activities and before income deductions.
2.11 “Intentional Misconduct” means a Participant’s deliberate engagement in any
one or more of the following: (a) fraud, misappropriation, embezzlement or any
other act or acts of similar gravity resulting or intended to result directly or
indirectly in substantial personal enrichment to the Participant at the expense
of the Company; (b) a material violation of a federal, state or local law or
regulation applicable to the Company’s business that has a significant negative
effect on the Company’s financial results; or (c) a material breach of the
Participant’s fiduciary duty owed to the Company that has a significant negative
effect on the Company’s financial results, in each case as determined in good
faith by the Board.
2.12 “Maximum Award” means as to any Participant for any Performance Period,
$1,500,000. The Maximum Award is the maximum amount of cash which may be paid to
a Participant for any Performance Period.
2.13 “Maximum Share Award” mean as to any Participant for any Performance
Period, 15,000,000 shares of common stock of the Company. The Maximum Share
Award is the maximum amount of shares of common stock of the Company which may
be paid to a Participant for any Performance Period.
2.14 “Net Income” means as to any Performance Period, the income after taxes for
the Performance Period, determined in accordance with generally accepted
accounting principles.
2.15 “New Orders” means as to any Performance Period, the firm orders for a
system, product, part, or service that are being recorded for the first time.
2.16 “Participant” means as to any Performance Period, an officer or other
member of senior management of the Company or of an Affiliate who has been
selected by the Committee for participation in the Plan for that Performance
Period.
2.17 “Payout Formula” means as to any Performance Period, the formula or payout
matrix established by the Committee pursuant to Section 3.4 in order to
determine the Actual Awards, if any, to be paid to Participants. The formula or
matrix may differ from Participant to Participant.
2.18 “Performance Goals” means the goal(s) (or combined goal(s)) determined by
the Committee, in its discretion, to be applicable to a Participant for a
Performance Period. As determined by the Committee, the Performance Goals
applicable to each Participant shall provide for a targeted level or levels of
achievement using one or more of the following measures: (a) Revenue for the
Company or any of its business units, (b) Gross Margin for the Company or any of
its business units, (c) EBITDA, (d) New Orders for any of the Company’s business
units, (e) Product Cost Reduction for any of the Company’s business units,
(f) New

 

 

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Equity Financing, (g) New Government Contracts and (h) Channel Development. Any
criteria used may be measured, as applicable, (i) in absolute terms, (ii) in
relative terms, including, but not limited to, the passage of time and/or
against other companies or financial metrics, (iii) on a per share and/or share
per capita basis, (iv) against the performance of the Company as a whole or
against particular segments or products of the Company and/or (v) on a pre-tax
or after-tax basis. In accordance with Section 2(w) of the Omnibus Plan, prior
to the Determination Date, the Committee shall determine whether any element(s)
shall be included in or excluded from the calculation of any Performance Goal
with respect to any Participants, whether or not such determinations result in
any Performance Goal being measured on a basis other than generally accepted
accounting principles.
2.19 “Performance Period” means any Fiscal Year or such other period longer than
a Fiscal Year but not in excess of two Fiscal Years, as determined by the
Committee in its sole discretion. With respect to any Participant, there shall
exist no more than four (4) Performance Periods at any one time.
2.20 “Permanent Disability” has the meaning set forth in Section 2(x) of the
Omnibus Plan.
2.21 “Revenue” means net sales for the Performance Period, determined in
accordance with generally accepted accounting principles.
2.22 “Section 16 Officer” means a person who is an officer of the Company within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.23 “Section 409A” means Section 409A of the Code and the regulations and
guidance thereunder, as they may be amended or modified from time to time.
2.24 “Target Award” means the target award payable under the Plan to a
Participant for the Performance Period, expressed as a percentage of his or her
Base Salary, as determined by the Committee in accordance with Section 3.3.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 Selection of Participants. On or prior to the Determination Date, the
Committee, in its sole discretion, shall select the officers and other members
of senior management of the Company who shall be Participants for the
Performance Period. Participation in the Plan is in the sole discretion of the
Committee, and on a Performance Period by Performance Period basis. Accordingly,
an individual who is a Participant for a given Performance Period in no way is
guaranteed or assured of being selected for participation in any subsequent
Performance Period or Periods.
3.2 Determination of Performance Goals. On or prior to the Determination Date,
the Committee, in its sole discretion, shall establish the Performance Goals for
each Participant for the Performance Period. Such Performance Goals shall be set
forth in writing.

 

 

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3.3 Determination of Target Awards. On or prior to the Determination Date, the
Committee, in its sole discretion, shall establish a Target Award for each
Participant. Each Participant’s Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in
writing.
3.4 Determination of Payout Formula or Formulae. On or prior to the
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula or Formulae for purposes of determining the Actual Award, if any,
payable to each Participant. Each Payout Formula shall (a) be in writing, (b) be
based on a comparison of actual performance to the Performance Goals,
(c) provide for the payment of a Participant’s Target Award if the Performance
Goals for the Performance Period are achieved, and (d) provide for an Actual
Award greater than or less than the Participant’s Target Award, depending upon
the extent to which actual performance exceeds or falls below the Performance
Goals. Notwithstanding the preceding, no Participant’s Actual Award under the
Plan may exceed his or her Maximum Award or Maximum Share Award, as applicable.
3.5 Determination of Actual Awards. After the end of each Performance Period,
the Committee shall certify in writing (for example, in its meeting minutes) the
extent to which the Performance Goals applicable to each Participant for the
Performance Period were achieved or exceeded, as determined by the Committee.
The Actual Award for each Participant shall be determined by applying the Payout
Formula to the level of actual performance that has been certified by the
Committee. Actual Awards are not earned until the date on which the Actual Award
is paid. Notwithstanding any contrary provision of the Plan, (a) if a
Participant terminates employment with the Company, prior to the determination
of the Actual Award being certified by the Committee, for a reason other than
Permanent Disability or death, he or she shall not be entitled to the payment of
an Actual Award for the Performance Period, and (b) the Board, in its sole
discretion, may require a Participant to forfeit, return or reimburse the
Company all or a portion of his or her Actual Award in accordance with
Section 4.5 below.
SECTION 4
PAYMENT OF AWARDS
4.1 Right to Receive Payment. Each Actual Award that may become payable under
the Plan shall be paid solely from the general assets of the Company. Nothing in
this Plan shall be construed to create a trust or to establish or evidence any
Participant’s claim of any right other than as an unsecured general creditor
with respect to any payment to which he or she may be entitled.
4.2 Timing of Payment. Subject to Section 6.7, payment of each Actual Award
shall be made after the end of the Performance Period during which the Actual
Award was earned but no later than the fifteen (15th) day of the third (3rd)
month after the end of the Fiscal Year in which such Performance Period ended.
In addition, subject to Section 6.7, if the relevant Performance Period exceeds
one Fiscal Year, the payment of each Actual Award for such Performance Period
shall be made within the time period set forth in the prior sentence, but in all
events after the end of the Performance Period but on or before December 31 of
the calendar year in which the Performance Period ends.

 

 

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4.3 Form of Payment. Each Actual Award normally shall be paid in cash (or its
equivalent) in a single lump sum up to the Maximum Award. However, the
Committee, in its sole discretion, may declare any Actual Award, in whole or in
part, payable in restricted stock granted under the Omnibus Plan up to the
Maximum Share Award. The number of shares granted shall be determined by
dividing the cash amount foregone by the fair market value of a share on the
date that the cash payment otherwise would have been made. For this purpose,
“fair market value” shall mean the closing price of the Company’s common stock
on the principal trading market for such stock for the day in question. Any
restricted stock so awarded shall vest over a period of not more than four
years, subject to acceleration in certain circumstances as determined by the
Committee in its sole discretion.
4.4 Payment in the Event of Death. If a Participant dies prior to the payment of
an Actual Award earned by him or her prior to death for a prior Performance
Period, the Actual Award shall be paid to his or her estate.
4.5 Clawback of Actual Awards. The Board, in its sole discretion, may require a
Participant, who is or was a Section 16 Officer during the applicable
Performance Period, to forfeit, return or reimburse the Company all or a portion
of his or her Actual Award if necessary or appropriate under Section 304 of the
Sarbanes-Oxley Act of 2002, as amended from time to time (and rules or
regulations promulgated thereunder). In addition to the foregoing, Actual Awards
shall be subject to any clawback policy of the Company, as adopted by the
Company in accordance with the Dodd-Frank Act of 2010, as amended from time to
time (and rules or regulations promulgated thereunder).
SECTION 5
ADMINISTRATION
5.1 Committee Authority. The Plan shall be administered by the Committee. It
shall be the duty of the Committee to administer the Plan in accordance with the
Plan’s provisions. The Committee shall have all powers and discretion necessary
or appropriate to administer the Plan and to control its operation, including,
but not limited to, the power to (a) determine which officers or other members
of senior management shall be granted awards, (b) prescribe the terms and
conditions of awards, (c) interpret the Plan and the awards, (d) adopt such
procedures and subplans as are necessary or appropriate to permit participation
in the Plan by officers and other members of senior management who are foreign
nationals or employed outside of the United States, (e) adopt rules for the
administration, interpretation and application of the Plan as are consistent
therewith, and (f) interpret, amend or revoke any such rules.
5.2 Decisions Binding. All determinations and decisions made by the Committee,
the Board, and any delegate of the Committee pursuant to the provisions of the
Plan shall be final, conclusive, and binding on all persons, and shall be given
the maximum deference permitted by law.
5.3 Tax Withholding. The Company shall withhold all applicable taxes from any
payment that the Company, in its sole discretion, deems necessary or advisable,
including any federal, FICA, state, and local taxes.

 

 

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SECTION 6
GENERAL PROVISIONS
6.1 No Effect on Employment. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or an Affiliate, as applicable, to terminate
any Participant’s employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a termination of employment. Employment with the Company and its
Affiliates is on an at-will basis only. The Company expressly reserves the
right, which may be exercised at any time and without regard to when during or
after a Performance Period such exercise occurs, to terminate any individual’s
employment with or without cause, and to treat him or her without regard to the
effect which such treatment might have upon him or her as a Participant.
6.2 Section 409A. It is intended that all bonuses payable under this Plan will
be exempt from the requirements of Section 409A pursuant to the “short-term
deferral” exemption or, in the alternative, to comply with the requirements of
Section 409A so that none of the payments and benefits to be provided under this
Plan will be subject to the additional tax imposed under Section 409A, and any
ambiguities herein shall be interpreted to so comply or be exempt. Each payment
and benefit payable under this Plan is intended to constitute a separate payment
for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. The Company
may, in good faith and without the consent of any Participant, make any
amendments to this Plan and take such reasonable actions which it deems
necessary, appropriate or desirable to avoid imposition of any additional tax or
income recognition under Section 409A prior to actual payment to the
Participant.
6.3 Participation. No Employee shall have the right to be selected to receive an
award under this Plan, or, having been so selected, to be selected to receive a
future award.
6.4 Successors. All obligations of the Company and any Affiliate under the Plan,
with respect to awards granted hereunder, shall be binding on any successor to
the Company and/or such Affiliate, whether the existence of such successor is
the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business or assets of the Company
or such Affiliate.
6.5 Nonassignability. A Participant shall have no right to assign or transfer
any interest under this Plan.
6.6 Nontransferability of Awards. No award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will, by the laws of descent and distribution. All rights with respect
to an award granted to a Participant shall be available during his or her
lifetime only to the Participant.
6.7 Deferrals. The Committee, in its sole discretion, may permit a Participant
to defer receipt of the payment of cash that would otherwise be delivered to a
Participant under the Plan. Any such deferral elections shall be subject to such
rules and procedures as shall be determined by the Committee in its sole
discretion, but which shall comply with Section 409A.

 

 

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6.8 Conflict in Terms. To the extent that any of the terms set forth in this
Plan conflict with the terms of any employment agreement between the Participant
and the Company, the terms of the employment agreement shall control the
interpretation of this Plan.
6.9 Governing Law. The Plan and all award agreements shall be construed in
accordance with and governed by the laws of the State of California, excluding
its conflicts of laws provisions.
SECTION 7
AMENDMENT AND TERMINATION
7.1 Amendment and Termination. The Board may amend or terminate the Plan at any
time and for any reason; provided, however, that if and to the extent required
to ensure the Plan’s qualification under Code Section 162(m), any such amendment
shall be subject to stockholder approval.