Exhibit 10.3

LOGO [g33874g90y47.jpg]

Entropic Communications, Inc.

2009 Management Bonus Plan

Summary Description

PURPOSE

The purpose of the Entropic Communications, Inc. 2009 Management Bonus Plan, as
may be amended or supplemented from time to time (as amended or supplemented,
the “Plan”) is to align management’s interests with those of the stockholders of
Entropic Communications, Inc., a Delaware corporation (the “Company”), and to
financially reward and retain executive officers, vice presidents and designated
senior-level employees for their contributions to the achievement of the
Company’s objectives.

Under the Plan, bonuses will be earned based on the achievement of specified
corporate goals, as well as individual performance.

PLAN EFFECTIVE DATE

The Plan is effective for the period beginning January 1, 2009 and ending
December 31, 2009 (the “Plan Year”).

ELIGIBILITY

 

  •  

All members of Executive Management set forth on Appendix A attached hereto, as
may be amended from time to time (“Executive Management”), all vice presidents
and certain senior-level employees of the Company and its subsidiaries who are
designated by the Board of Directors of the Company (“Board”), Compensation
Committee of the Board (“Compensation Committee”) or Executive Management, as
applicable (the “Participants”), are eligible to participate under the Plan,
except for those eligible under another Company bonus plan. A Participant’s
eligibility to participate in the Plan may be terminated or suspended under
certain circumstances which are described in detail under the section titled
Plan Administration—Termination or Suspension of Eligibility;

 

  •  

A Participant must be employed with the Company or its subsidiaries on or before
September 30, 2009 and must be actively employed as of December 31, 2009 and on
the date any bonus payment is made to be eligible under the Plan. The Board,
Compensation Committee or Executive Management, as applicable, has the authority
to recommend and authorize individual employees for participation in the Plan;

 

  •  

A Participant will lose his or her eligibility to receive a bonus payment under
the Plan upon the occurrence of any of the following: (i) termination of such
Participant’s employment, whether voluntary or involuntary; (ii) such
Participant’s transfer to a position that is not eligible for a bonus payment
under the Plan; (iii) termination of the Plan by the Company; (iv) if Executive
Management determines, at its sole discretion, that such Participant’s
performance or behavior does not warrant any bonus payout; (v) during certain
Inactive Employment Periods (as defined below), and (v) for other reasons as
outlined under the section titled Plan Administration;

 

  •  

Contract employees, temporary employees and interns are not eligible to
participate in the Plan.

 

Page 1 of 9

--------------------------------------------------------------------------------

TARGET BONUS

 

  •  

The target bonus that each Participant is assigned (the “Target Bonus”) is the
annualized amount that would be paid to such Participant under the Plan if
Company Metrics (as defined below) are funded at 100% (i.e., the full amount of
the Target Bonus will be payable, subject to adjustment based on the
Participant’s performance during the Plan Year and other adjustments that may be
applicable as described elsewhere in the Plan), such Participant is assigned an
Individual Performance Multiplier (as defined below) of 1.0 (i.e., such
Participant’s individual performance meets expectations) and such Participant is
eligible to participate in the Plan throughout the entire Plan Year. Except as
described in the following paragraph, the Target Bonus is measured as a
percentage of a Participant’s base cash salary, or determined according to
another method established by the Compensation Committee. The percentages used
to calculate the Target Bonus of the individuals identified in Appendix B
attached hereto (the “Named Executive Officers”) are set forth next to such
individual’s name on Appendix B hereto.

 

  •  

The Target Bonus will be pro-rated based on the Participant’s dates of
employment, any Inactive Employment Period and other ineligible periods during
the Plan Year. If a Participant has any Inactive Employment Periods during the
Plan Year, or such Participant’s base salary was adjusted at any time after
June 30, 2009, the Target Bonus for such Participant will be determined as a
percentage of such Participant’s Actual Eligible Earnings, instead of such
Participant’s annual base salary. As used herein, “Actual Eligible Earnings”
means, with respect to each Participant, base salary earnings that are reported
on such Participant’s W-2 for the Plan Year.

PERFORMANCE MEASURES

The bonus payment that a Participant is eligible to receive under the Plan
depends on the extent to which the Company achieves specific financial goals and
specific key milestones goals (such goals collectively, the “Company Metrics”),
and the rating assigned to each Participant for his or her individual
performance for the Plan Year. The Company Metrics, as approved by the
Compensation Committee, are the same for all Participants and are as follows:

 

Company Metrics   

Weighting (expressed as a

percentage of the

Target Bonus)

  

Minimum Threshold that

Must be Met for Payout

Achievement of revenue/operating profit goals

(“Revenue/Operating Profit Metric”)

   70%   

95.65% of 2009 AOP Revenue

Target and achievement of

Operating Profit Target as

shown in Table A

Achievement of non-financial

milestones (“Key Milestones Metric”)

   30%   

86.96% of 2009 AOP Revenue

Target

A. Revenue/Operating Profit Metric (weighted 70% of the Target Bonus). Whether
or not Revenue/Operating Profit Metric is met is based on the extent to which
the Company meets its target revenue (“2009 AOP Revenue Target”) and target
non-GAAP operating profit (“2009 Operating Profit Target”), in each case, as set
forth in the Company’s 2009 Annual Operating Plan (“AOP”) approved by the Board.
A minimum level of revenue and a minimum level of non-GAAP operating profit must
be achieved for the Plan to fund this metric. If such minimum levels of revenue
and non- GAAP operating profit are not achieved, the Revenue/Operating Profit

 

Page 2 of 9

--------------------------------------------------------------------------------

Metric will not be funded. If the specified minimum levels of revenue and
operating profit are both achieved, the Plan funds this metric according to
Table A – Revenue/Operating Profit Metric below.

TABLE A – Revenue/Operating Profit Metric

 

Extent to which 2009 AOP Revenue

Target is met

 

Extent to which 2009

Operating Profit Target is met

 

Target Payout

(as % of Revenue/Operating Profit

Metric weighting)

95.65% of 2009 AOP Revenue Target

(Threshold Revenue)

 

Operating profit >/ =

breakeven in the fourth quarter

of 2009

  40% of 70% 2009 AOP Revenue Target  

Operating profit >/ =

breakeven in the fourth quarter

of 2009

 

50% of 70%

Capped

 

2009 AOP Revenue Target

 

 

 

2009 Operating Profit Target

 

 

 

50% of 70%

 

 

113.04% of 2009 AOP Revenue Target

 

 

 

2009 Operating Profit Target

 

 

 

80% of 70%

 

 

121.74% of 2009 AOP Revenue Target

 

 

 

2009 Operating Profit Target

 

 

 

100% of 70%

 

 

  1) No bonus will be paid under the Revenue/Operating Profit Metric unless the
Company attains 95.65% of its 2009 AOP Revenue Target (or “Threshold Revenue”)
and breakeven non-GAAP operating profit in the fourth quarter of 2009.

 

  2) If the Company attains its Threshold Revenue and breakeven non-GAAP
operating profit in the fourth quarter of 2009, the Revenue/Operating Profit
Metric will begin to fund at 40% of this metric’s weighting, or 28% of the
Target Bonus (40% * 70%), and pay linearly between 40% and 50% for any revenue
that the Company achieves that ranges between the Threshold Revenue and the 2009
AOP Revenue Target.

 

  3) If the Company attains its 2009 AOP Revenue Target and does not achieve the
2009 Operating Profit Target, then, so long as the Company achieves breakeven
non-GAAP operating profit in the fourth quarter of 2009, the Revenue/Operating
Profit Metric will fund at 50% of this metric’s weighting, or 35% of the Target
Bonus (50% * 70%) and shall be capped at 50%.

 

  4) Based on the above table, assume for illustrative purposes that the Company
attains its 2009 AOP Revenue Target and exceeds its 2009 Operating Profit
Target. In this case, the Revenue/Operating Profit Metric will begin to fund at
50% of this metric’s weighting, or 35% of the Target Bonus (50% * 70%) and will
pay linearly for revenues above 113.04% of the 2009 AOP Revenue Target. That is,
for every 1% of revenue achieved above 113.04% of the 2009 AOP Revenue Target,
the Revenue/Operating Profit Metric would fund an additional .43%, or .30% of
the Target Bonus (.43% * 70%). For example, the Revenue/Operating Profit Metric
will fund at 80% of this metric’s weighting, or 56% of the Target Bonus (80% *
70%), at revenues at 113.04% of the 2009 AOP Revenue Target and will fund at
100% of this metric’s weighting, or 70% of the Target Bonus (100% * 70%), at
revenues at 121.74% of the 2009 AOP Revenue Target.

The Compensation Committee may adjust for the purposes of this Plan the 2009 AOP
Revenue Target and the 2009 Operating Profit Target in such manner as it shall
determine in its discretion in the event the Company acquires another company or
business during the Plan Year and/or to reflect other unusual events that occur
during the Plan Year.

B. Key Milestones Metric (weighted 30% of the Target Bonus). For the purposes of
the Plan, the Key Milestones Metric is comprised of six non-financial Company
objectives (the “Key Milestones”) approved by the Board. These Key Milestones
are deemed to be important to the Company’s strategy. For the Key Milestones
Metric to fund at all, the Company must attain a minimum revenue of 86.96% of
the 2009 AOP Revenue Target. Assuming that the Company achieves the minimum
revenue required to fund this metric, upon achievement of each Key Milestone, a
specified percentage of the Key Milestone Metric weighting attributable to such
Key Milestone will become payable, independent of whether other Key Milestones
have been achieved.

The Compensation Committee may adjust for the purposes of this Plan the Key
Milestones in such manner as it shall determine in its discretion in the event
the Company acquires another company or business during the Plan Year and/or to
reflect other unusual events that occur during the Plan Year.

 

Page 3 of 9

--------------------------------------------------------------------------------

C. Individual Performance Multiplier. Each Participant will be evaluated for his
or her performance during the Plan Year and will be assigned a performance
rating ranging from “1” (representing exceptional performance) to “4”
(representing performance that partially meets expectations). A Participant
whose performance fails to meet expectations will be given a “>4” rating. Each
Participant’s performance rating will be assigned by such Participant’s manager
(or, in the case of the Chief Executive Officer (“CEO”), by the Board or the
Compensation Committee) and approved by the Participant’s Vice President and the
CEO. Based on the Participant’s performance rating, an Individual Performance
Multiplier (“IPM”) will be assigned to such Participant as indicated in Table B
– IPM below. The IPM is used as a multiplier in the calculation of each
Participant’s bonus earned.

TABLE B – IPM

 

Performance Rating    IPM

 

1 = Individual Participant performance that is exceptional

 

  

 

1.2

 

2 = Individual Participant performance that exceeds expectation

 

  

 

1.1

 

3 = Individual Participant performance that meets expectations

 

  

 

1.0

 

4 = Individual Participant performance that partially meets expectations

 

  

 

.80

 

> 4

 

  

 

0

The Board, Compensation Committee or Executive Management, as applicable,
approves all performance ratings and reserves the right, at its discretion, to
modify any performance rating assigned to any Participant.

CALCULATION OF BONUS

The bonus payout earned by each Participant under the Plan will be a percentage
of the Participant’s Target Bonus (the “Participant Bonus Earned”), and such
percentage will be determined based on the extent to which the Company achieves
the Company Metrics and the performance rating that a Participant receives for
his or her performance during the Plan Year.

The Participant Bonus Earned is determined in the following manner. Following
the end of the Plan Year

 

  1. Evaluate and confirm Participant eligibility.

 

  2. Determine if the minimum levels of revenue and operating profit required to
fund the Revenue/Operating Profit Metric have been attained. If these minimum
levels have been attained:

 

  a. Determine the actual revenue and non-GAAP operating profit achieved by the
Company for the Plan Year (the “Actual Performance”). The Actual Performance
shall be based on non-GAAP measures as reported in the Company’s financial
statements. Based on this determination, calculate the percentage of the
Revenue/Operating Profit Metric weighting that applies (the “Revenue/Operating
Profit Percentage”).

 

  b. Determine the extent to which Key Milestones have been achieved. The
achievement of Key Milestones shall be determined by a qualitative evaluation
conducted by the CEO and approved by the Compensation Committee. Each Key
Milestone shall be evaluated for attainment independently and funded
accordingly. Based on this determination, calculate the percentage of the Key
Milestone Metric weighting that applies (the “Key Milestone Percentage”).

 

  3. Evaluate such Participant’s individual performance and assign an IPM in
accordance with Table B.

 

  4. The bonus payment that is payable to such Participant is determined by the
following formula:

(Revenue/Operating Profit Percentage + Key Milestone Percentage) * IPM * Target
Bonus

 

  5.

The exception is the Vice President, Worldwide Sales who shall be eligible for a
mid-year payout based on the extent to which the Company attains the
Revenue/Operating Profit Metric following the end of the second quarter of the
Plan Year. The payout may not exceed 70% of his mid-year bonus potential; in
other words, the Revenue/Operating Profit Metric shall be measured based on the
Company’s year-to-date results measured against the revenue targets and non-GAAP
operating targets set in the AOP for the same periods, provided that the
mid-year payment to the Vice President, Worldwide Sales shall not exceed 35% of
his Target Bonus (i.e., 70% of his mid-year bonus potential of 50% of Target
Bonus). The

 

Page 4 of 9

--------------------------------------------------------------------------------

 

Participant Bonus Earned by the Vice President, Worldwide Sales for the Plan
Year shall be calculated according to the same method as applied to all other
Participants and any mid-year payment received by him shall be deducted from the
final bonus payout.

 

  6. The CEO shall have the responsibility to review and approve the Participant
Bonus Earned by each Participant prior to any payment under the Plan, except for
the CEO payment which must be reviewed and approved by the Compensation
Committee.

 

  7. Proration of Bonus. Assuming the Participant meets all eligibility
criteria, the Participant Bonus Earned will be prorated under the following
circumstances:

 

  a) The Participant becomes eligible under the Plan after the first day or the
Plan Year; in such case the Participant Bonus Earned will be prorated based on
the number of full months during which the Participant was eligible under the
Plan, unless described otherwise in writing in the Participant’s Offer Letter;

 

  b) The Participant has periods of inactive employment defined as any period of
employment during which a Participant has ceased to have the responsibility or
authority to perform the operational duties of the Participant’s position, but
Participant’s employment has not been terminated; this shall include any periods
of leave of absence or the period during which the Participant has been provided
notice of termination but is no longer actively providing substantial services
to the Company (the “Inactive Employment Period”); in such case the Participant
Bonus Earned shall be prorated by deducting the Inactive Employment Period from
period eligible under the Plan to determine the number of full months during
which the Participant was eligible under the Plan;

 

  c) The Participant transfers to a position that is not eligible under the Plan
or to another Company bonus plan; in such case the Participant Bonus Earned
under the Plan will be prorated based on the number of days (based on a 360 day
calendar year) the Participant was eligible under the Plan;

 

  d) The Participant is placed on the formal Performance Improvement or
Performance Development Plan (“Performance Plan”); in such case the Participant
shall be ineligible during the period under the Performance Plan and until such
time as the Participant’s performance level has returned to satisfactory level
as determined by the Participant’s department head (or, in the case of the CEO,
the Board). For Participants who are on a Performance Plan at any time during
the Plan Year or prior to the payment of any bonus under the Plan, it is at the
discretion of Executive Management, the Board or the Compensation Committee, as
applicable, if the Participant shall be eligible for a bonus under the Plan, and
if eligible, whether the Participant Bonus Earned shall be paid according to the
calculation set forth above or a lower amount.

PLAN ADMINISTRATION

 

  A. Termination or Suspension of Eligibility. Unless approved by the Board or
the Compensation Committee, a Participant’s eligibility to receive any payment
(whether in whole or in part) under the Plan terminates or is suspended upon the
occurrence of any of the following:

 

  1) The Participant is terminated for any reason or resigns voluntarily prior
to December 31, 2009. The exception is the Vice President, Worldwide Sales, who
shall be eligible for a mid-year payout if he remains employed and is otherwise
eligible for a bonus payout on June 30, 2009 and the mid-year payout date
applicable only to him;

 

  2) The Participant is not actively employed by the Company on December 31,
2009; or Participant is not actively employed on the bonus payout date, which is
generally within 75 days of the end of the Plan Year;

 

  3) Participant is on a formal Performance Plan;

 

  4) The Participant is not an active employee;

 

  5) The Participant seriously or egregiously violates any Company policies or
generally accepted standards of conduct or ethics.

All bonus payments suspended under this section will not be paid until (i) the
Board, Compensation Committee or Executive Management, as applicable, determines
that a Participant’s eligibility should be reinstated or (ii) until the
Participant otherwise returns to eligibility.

 

Page 5 of 9

--------------------------------------------------------------------------------

  B. Payment Deferrals.

 

  1) Leave of Absence. Participants on an approved personal or statutory leave
on the applicable bonus payout date will not receive payment until the
Participant returns to active employment in good standing. Any withheld bonus
payment will be made upon such Participant’s return to active employment and
will be made within 30 days following the return to active employment. Wages
earned during a leave of absence exceeding 30 days in duration will not be
considered in the calculation of the bonus payment.

 

 

2)

Performance Plans. Participants on a formal Performance Plan on the applicable
bonus payout date will not receive payment until the Participant returns to
satisfactory performance, as determined by the Participant’s department head,
for a minimum of 60 days. Any withheld bonus payment will be made within 30 days
following the end of the 60th day of satisfactory performance.

 

  C. Interim Payment of Bonus. The Company reserves the right to make an interim
or partial bonus payment to eligible Participants during the Plan Year. Any
interim or partial payment will be deducted from the total bonus payment due
under the Plan on the applicable bonus payout date. Participants must meet all
eligibility requirements to be eligible for an interim or partial bonus payment.
The decision to make of any partial payment will be at the sole discretion of
the Board, Compensation Committee or Executive Management, as applicable.

 

  D. Discretionary Bonus. The Company retains the right to award additional
incentive compensation outside the Plan without regard to the minimum
performance metrics or annual maximum limits set forth in the Plan. All payments
made pursuant to the Plan are made at the discretion of the Board, the
Compensation Committee or Executive Management, as applicable.

 

  E. Plan Changes. The Compensation Committee reserves the right, at its sole
discretion, with or without notice, to modify, suspend, amend or cancel the Plan
in total or in part and at any time. Any changes or exceptions to the Plan must
be approved in a written document approved by the CEO or the Compensation
Committee, as applicable.

 

  F. Management Judgment and Plan Interpretation. In all cases, the CEO, Board
and the Compensation Committee reserve the right to interpret the Plan terms,
conditions and documentation, and, at their discretion, may reduce, modify or
withhold payments based on individual performance or modifications to the Plan.
In the event of a dispute regarding the Plan by any Participant other than the
members of Executive Management, the CEO shall have the authority to adjudicate
disputes regarding the Plan and his decision shall be final and conclusive;
disputes by the members of Executive Management shall be adjudicated by the
Compensation Committee and their decision shall be final and conclusive.

 

  G. Chargeback Provision. The Company retains the right for a period of three
years or the length of the Participant’s employment, whichever is shorter, to
recover or charge back any bonus payment(s) made to Participants which are
subsequently found to be unearned for any reason, including restatement of
financial results, customer returns, overpayments and calculation errors. The
amount to be recovered shall be deducted from future bonus or salary payments at
the Company’s discretion.

 

  H. Claw Back Provision. The Company reserves the right to cancel or require
reimbursement of any bonus payments made to any Named Executive Officer if such
Named Executive Officer has engaged in misconduct that required the Company to
restate its financial results or if such individual’s incentive pay would have
been lower had the results been properly reported.

 

  I. Entire Agreement. This Plan is the entire agreement between the Company and
the Participants regarding the subject matter of this Plan and supersedes all
prior compensation or bonus plans or any written or verbal representations
regarding the subject matter of this Plan.

 

  J. Procedures and Practices. A copy of the Plan will be made available to all
eligible Participants.

 

  K. Employment at Will (US Participants Only). Neither the contents of this
Plan or any other Company policies, procedures or practices, whether written or
verbal, or the acceptance or continuance of employment constitutes a contract of
employment for or promise to employ any individual, nor do they create an
implied duty or contractual obligation between an employee and the Company.
Employment continues at the will of the Participant and the Company, and can be
terminated by either the Company or the Participant, for any reason or for no
reason, at any time. No Participant of the Company may enter into any contract
or agreement which is contrary to this condition of “at will” employment, except
by written approval of the CEO.

 

Page 6 of 9

--------------------------------------------------------------------------------

  L. Form of Payment; Tax Withholding. A Participant Bonus Earned, if any, shall
be paid in cash, unless otherwise specified by the Board or the Compensation
Committee. The Company shall have the authority and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount sufficient
to satisfy federal, state, local and foreign taxes required by law to be
withheld with respect to any taxable event concerning a Participant arising in
connection with a payment pursuant to this Plan.

 

Page 7 of 9

--------------------------------------------------------------------------------

APPENDIX A

MEMBERS OF EXECUTIVE MANAGEMENT

 

Executive Officer

  

Title

Patrick Henry

   Chief Executive Officer and President

David Lyle

   Chief Financial Officer

Vinay Gokhale

   Senior Vice President, Marketing and Business Development

Lance Bridges

   Vice President and General Counsel

Michael Economy

   Vice President, Worldwide Sales

Itzhak Gurantz

   Chief Technology Officer

Dale Hancock

   Vice President, Engineering

Anton Monk

   Vice President, Technology

Kurt Noyes

   Vice President, Finance and Chief Accounting Officer

Timothy Pappas

   Vice President, Operations

Suzanne Zoumaras

   Vice President, Human Resources

 

Page 8 of 9

--------------------------------------------------------------------------------

APPENDIX B

PERCENTAGES FOR CALCULATING TARGET BONUS OF NAMED EXECUTIVE OFFICERS

 

Executive Officer

  

Title

   Target

Patrick Henry

   Chief Executive Officer and President    55%

David Lyle

   Chief Financial Officer    35%

Itzhak Gurantz

   Chief Technology Officer    30%

Lance Bridges

   Vice President and General Counsel    35%

Michael Economy

   Vice President, Worldwide Sales    85%

Kurt Noyes

   Vice President, Finance and Chief Accounting Officer    25%

 

Page 9 of 9