exv10w1



 







Exhibit 10.1









ANNUAL INCENTIVE PLAN

Fiscal Year 2007

Effective April 1, 2006 — March 30, 2007




	 	 	 	 	 
	

	 	
	 	








 









 








Contents





	I.	 	Purpose of the Plan
	 
	II.	 	Eligibility
	 
	III.	 	Payout Formula
	 
	IV.	 	Incentive Payments
	 
	V.	 	Goals
	 
	VI.	 	Communication
	 
	VII.	 	Plan Modifications





	 	 	 
	Exhibit I:

	 	Incentive Plan Components
	 
	 	 
	Exhibit II:

	 	Annual Incentive Plan Payout Schedule
	 
	 	 
	Exhibit III:

	 	Incentive Payout Calculation Example






 









 






Purpose of the Plan





The purpose of the Annual Incentive Plan is to align all participants with the goals of
the company by motivating, rewarding and recognizing participants for their achievement.



Eligibility





All management-level employees of Navarre are normally eligible to participate in the
Plan. New hires must be employed prior to January 1st to be eligible for a pro-rata
incentive payment for that fiscal year (example: you must be employed by December
31st, 2006 in order to be eligible for the FY07 incentive plan year which pays
out in the first quarter of FY08). Participants who terminate from the company, for any
reason, prior to the date of the incentive payment, will lose their eligibility to
receive an incentive payment.



Payout Formula





Circuit Breaker




In order to receive any portion of the incentive payment, Navarre must achieve at least
80% of the budgeted Consolidated Operating Income target for the fiscal year.




Incentive Factors




Once the budgeted Consolidated Operating Income target is achieved, participants are eligible
for an incentive payout based on the factors associated with their position level in the
organization as listed in Exhibit I. The performance threshold for each factor is 80% of the
budgeted target.




Incentive Payout Schedule




Incentive Payouts for the financial measurement factors will be made as indicated in the Annual
Incentive Plan Payout Schedule (Exhibit II). Payout for the Individual Objective factor will be
made as a direct percentage of results achieved. Once the budgeted Consolidated Operating
Income target is achieved, payout for each factor of the incentive plan is calculated
independent of results on other factors and will range from 0% to 100% of the incentive target.
Incentive payment above 100% will occur if the Consolidated Operating Income budget is exceeded
through the Multiplier component (see following section).




Multiplier




Once the incentive is calculated for each financial measurement and the individual objectives
factor, a multiplier is applied to the total incentive payment equal to the results variance of
the Consolidated Operating Income factor. This provides for an incentive payout in direct
relation to our Consolidated Operating Income which is what funds the Annual Incentive Plan.




Payout Formula Example




For example, let’s say that the Company achieves 90% of the budgeted Consolidated Operating
Income target. That, along with the other financial factors plus the employee’s individual
objectives achievement results in an incentive total of $10,000 based on the Incentive Payout
Schedule. A multiplier is then applied to the bonus payment in an amount equal to the
Consolidated Operating Income variance to budget. In this case it was -10% (90% of budget) so
the incentive payment would be reduced by 10% for a total of $9,000. More detailed examples are
included in Exhibit III.



 









 





     Incentive Payments




Incentive payments will normally be paid within 45 days of the annual audit.
Payment will be made for the number of full months that the participant held a qualifying
position during the plan year. Incentive checks will be taxed in compliance with
Internal Revenue Service guidelines for bonuses. Checks will normally be hand delivered
in one-on-one meetings by the participant’s manager.



Goals





Goal Setting




Plan participants and their managers will share accountability for establishing
annual specific goals for the Individual Objectives factor of the incentive plan.
Generally participants will have three to five specific and measurable goals
which may be weighted or prioritized. Joint agreement on goals will be confirmed with
signatures of the participant, their manager and their functional Vice President.
Operating Income and Sales goals are finalized each year prior to the beginning of the
fiscal year (April 1st).




Goal Monitoring




Participants will normally meet with their managers at least quarterly to review progress
on specific goals. This review may include specific discussion of the participant’s
year-to-date performance rating on goals. Progress on specific goals of all participants will
then be reviewed and discussed at quarterly off-site meetings of the Senior Management Team.




Goal Modification




Goals may be modified during the plan year if the business or the individual’s
position requires the change. The Senior Management Team will normally be consulted for
input before any changes are made.




Goal Measurement




Incentive payments for Company and Division financial goal attainment will be
calculated within 45 days of the annual audit. Plan participants and their manager will
discuss the participant’s performance level on their specific goals and managers’ rating
will be submitted to the Board for approval.



Communication





After year-end closing, managers should meet individually with each participant to
finalize rating on specific goals and communicate the final incentive payment amount.
Human Resources will prepare a communication document to assist managers to effectively
communicate this information. To ensure consistent communication throughout the
organization, this document will include an outline of all information that should be
included in the meeting.



 









 





Plan Modifications





The Annual Incentive Plan may be amended from time-to-time following review and
recommendation by the Senior Management Team and approval by the Chief Executive Officer.




Furthermore, the Board of Directors reserves the right to change, suspend, or discontinue the
Plan at any time without prior notice. Nothing in the Plan shall be construed as a contractual
payment obligation or guarantee of employment for any participant.



 









 





EXHIBIT I




Annual Incentive Plan Components:




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Consolidated	 	Division	 	 	 	 	 	 
	 	 	Operating	 	Operating	 	Consolidated	 	Division	 	Individual
	Job Level	 	Income	 	Income	 	Sales	 	Sales	 	Objectives
	CFO and COO
	 	 	60	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	20	%
	Division Presidents
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Division GM’s
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Corporate VP’s
	 	 	60	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	20	%
	Division VP’s
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Corporate Directors
	 	 	40	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	40	%
	Division Directors
	 	 	20	%	 	 	20	%	 	 	 	 	 	 	20	%	 	 	40	%
	Corporate Managers
	 	 	40	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	40	%
	Division Managers
	 	 	20	%	 	 	20	%	 	 	 	 	 	 	20	%	 	 	40	%







 










 







EXHIBIT II




Annual Incentive Plan




FY07 Payout Schedule for Financial Measurements




	 	 	 	 	 	 	 	 	 
	 	 	Percent of	 	Payout
	 	 	Target / Budget	 	%
	Target
	 	 	100	%	 	 	100	%
	 
	 	 	99	%	 	 	97.5	%
	 
	 	 	98	%	 	 	95.0	%
	 
	 	 	97	%	 	 	92.5	%
	 
	 	 	96	%	 	 	90.0	%
	 
	 	 	95	%	 	 	87.5	%
	 
	 	 	94	%	 	 	85.0	%
	 
	 	 	93	%	 	 	82.5	%
	 
	 	 	92	%	 	 	80.0	%
	 
	 	 	91	%	 	 	77.5	%
	 
	 	 	90	%	 	 	75.0	%
	 
	 	 	89	%	 	 	72.5	%
	 
	 	 	88	%	 	 	70.0	%
	 
	 	 	87	%	 	 	67.5	%
	 
	 	 	86	%	 	 	65.0	%
	 
	 	 	85	%	 	 	62.5	%
	 
	 	 	84	%	 	 	60.0	%
	 
	 	 	83	%	 	 	57.5	%
	 
	 	 	82	%	 	 	55.0	%
	 
	 	 	81	%	 	 	52.5	%
	Minimum
	 	 	80	%	 	 	50	%
	 
	 	Below 80%	 	0% Payout





Incentive Plan Upside Potential: Incentive Payments may exceed 100% of the targeted amount if
Consolidated Operating Income exceeds budget. This is accomplished through the use of an Incentive
Plan Multiplier which adjusts the final incentive payment by the same percentage that Consolidated
Operating Income exceeds the stated budget. Please see the examples in Exhibit III for details.




 









 





EXHIBIT III




Incentive Payout Calculation Examples



Example One: Company achieves 80% of Operating Income budget and 105% of Sales. In this
scenario, the bonus would be calculated as follows per the Payout Schedule and then adjusted for
the Consolidated Operating Income performance (-20%).




Division VP ($100,000 with a Bonus opportunity of 40%)




	 	 	 	 	 	 	 	 	 
	Consolidated	 	Division	 	Consolidated	 	 	 	Individual
	Operating Income	 	Operating Income	 	 Sales	 	Division Sales	 	 Objectives
	8% (20% of total)
	 	16% (40% of total)	 	0%	 	8% (20% of total)	 	8% (20% of total)






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Incentive Component	 	% Attained	 	 	Payout %	 	 	Calculation	 	 	Payout	 
	Consolidated Op Income
	 	 	80	%	 	 	50	%	 	 	.50 x .08 x  $100,000	 	 	$	4,000	 
	Division Op Income
	 	 	80	%	 	 	50	%	 	 	.50 x .16 x  $100,000	 	 	$	8,000	 
	Consolidated Sales
	 	 	105	%	 	 	100	%	 	 	1.0 x .0 x  $100,000	 	 	$	0	 
	Division Sales
	 	 	105	%	 	 	100	%	 	 	1.0 x .08 x $100,000	 	 	$	8,000	 
	Individual Objectives
	 	 	80	%	 	 	80	%	 	 	.80 x .08 x $100,000	 	 	$	6,400	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	26,400	 
	 
	 	 	 	 	 	 	 	 	 	Multiplier of -20%	 	–	$5,280	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	21,120	 





Example Two: Company achieves 105% of Operating Income budget and 80% of Sales. In this
scenario, the bonus would be calculated as follows per the Payout Schedule and then adjusted for
the Consolidated Operating Income performance (+5%).




Division VP ($100,000 with a Bonus opportunity of 40%)




	 	 	 	 	 	 	 	 	 
	Consolidated	 	Division	 	Consolidated	 	 	 	Individual
	Operating Income	 	Operating Income	 	Sales	 	Division Sales	 	Objectives
	8% (20% of total)
	 	16% (40% of total)	 	0%	 	8% (20% of total)	 	8% (20% of total)






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Incentive Component	 	% Attained	 	 	Payout %	 	 	Calculation	 	 	Payout	 
	Consolidated Op Income
	 	 	105	%	 	 	100	%	 	 	1.0 x .08 x  $100,000	 	 	$	8,000	 
	Division Op Income
	 	 	105	%	 	 	100	%	 	 	1.0 x .16 x  $100,000	 	 	$	16,000	 
	Consolidated Sales
	 	 	80	%	 	 	50	%	 	 	.50 x .0 x  $100,000	 	 	$	0	 
	Division Sales
	 	 	80	%	 	 	50	%	 	 	.50 x .08 x $100,000	 	 	$	4,000	 
	Individual Objectives
	 	 	80	%	 	 	80	%	 	 	.80 x .08 x $100,000	 	 	$	4,800	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	32,800	 
	 
	 	 	 	 	 	 	 	 	 	Multiplier of + 5%	 	+	$1,640	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	34,440