exv10w1



 



Exhibit 10.1








ANNUAL INCENTIVE PLAN

FISCAL YEAR 2008

Effective April 1, 2007 — March 31, 2008









			
	
	 	






	 	 	 	 	 
	

	 	
	 	





July 11,
2007 final

 









 






Contents





	I.	 	Purpose of the Plan
	 
	II.	 	Eligibility
	 
	III.	 	Administration of Plan
	 
	IV.	 	Plan Design
	 
	V.	 	Financial Objectives
	 
	VI.	 	Individual Objectives
	 
	VII.	 	Incentive Payments
	 
	VIII.	 	Amendment, Suspension and Termination
	 
	IX.	 	Unfunded Plan
	 
	X.	 	Other Benefit and Compensation Programs
	 
	XI.	 	Governing Law





	 	 	 
	Exhibit I:

	 	FY2008 Incentive Plan Components
	 
	 	 
	Exhibit II:

	 	FY2008 Incentive Plan Payout Schedule
	 
	 	 
	Exhibit III:

	 	FY2008 Incentive Payout Calculation Examples





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	I.	 	Purpose of the Plan






The purpose of the Annual Incentive Plan is to align all participants with the business
objectives of Navarre Corporation and its subsidiaries (the “Company”) by motivating,
rewarding and recognizing participants for their achievements and impact on the Company’s
success.




	II.	 	Eligibility






All management-level employees of the Company 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, 2007 in order to be eligible for the FY08 incentive plan year which pays
out in the first quarter of FY09). 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.




	III.	 	Administration






The Plan is administered by the Compensation Committee of the Company’s Board of
Directors (the “Compensation Committee”). The Chief Executive Officer of the Company
(the “CEO”) will make recommendations to the Compensation Committee regarding
participation, level of awards, changes to the Plan, financial objectives, and other
aspects of the Plan’s administration. The Compensation Committee has the authority to
interpret the Plan, and, subject to the Plan’s provisions, to make and amend rules and to
make all other decisions necessary for the Plan’s administration. Any decision of the
Compensation Committee in the interpretation and administration of the Plan, shall lie
within its sole and absolute discretion and shall be final, conclusive and binding on all
parties concerned. Specifically, the Compensation Committee has the authority to approve
payout percentages and to approve individual awards, including discretionary awards, for
the executive officers. The CEO has the authority to approve individual awards,
including discretionary awards, for other participants consistent with the Plan.




	IV.	 	Plan Design






The Annual Incentive Plan has two components:




1. Financial Objectives

2. Individual Objectives




The potential bonus percentage based on these two components is determined by the
participant’s level and type of position. This is summarized in Exhibit I.



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	V.	 	Financial Objectives






Early each fiscal year the Compensation Committee will approve the Financial Objectives
for such fiscal year. The Financial Objectives will be based on attainment of specific
levels of performance of the Company (or of a subsidiary, division, or department
thereof) with reference to one or more of the following criteria: (i) consolidated
earnings before or after taxes; (ii) EBITDA (earnings before interest, taxes,
depreciation and amortization); (iii) net income; (iv) operating income; (v) earnings per
share; (vi) return on shareholders’ equity; (vii) expense management; (viii) return on
investment; (ix) improvements in capital structure; (x) net sales; (xi) maintenance or
improvements of profit margins; (xii) stock price; (xiii) market share; (xiv) cash flow;
(xv) working capital; (xviii) return on assets; (xv) asset turnover; (xvi) inventory
turnover; (xvii) economic value added (economic profit) and (xviii) total shareholder
return. Payment is made on each Financial Objective as indicated in the Annual Incentive
Plan Payout Schedule (Exhibit II).




For FY2008, the Compensation Committee has determined that the Financial Objectives are:




Consolidated Operating Income  — $24 million

Consolidated Net Sales  — Budgeted Net Sales

Business Unit Budgeted Operating Income (for subsidiary participants)

Business Unit Budgeted Net Sales (for subsidiary participants)




Threshold




The Compensation Committee may determine one or more threshold Financial Objectives which
must be attained in order for any bonus payout to be earned (other than a discretionary
pool payout).




For FY2008, the Compensation Committee has determined that the threshold Financial
Objective is Consolidated Operating Income of $19.2 million.




Growth Multiplier




For FY2008, subject to the maximum payment provision in Paragraph VII, the Compensation
Committee has determined that if Consolidated Operating Income exceeds the target, a
participant’s incentive payment will be increased by the same percentage that
Consolidated Operating Income exceeds the stated target (the Growth Multiplier). This
provides for an enhanced incentive payout which is totally funded by improvement in
Consolidated Operating Income. See III for a sample calculation.




Discretionary Pool




The Compensation Committee may also establish a discretionary pool to reward participants
in the plan with exemplary performance during the fiscal year be paid out whether or not
the threshold Financial Objectives are attained.


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The Compensation Committee has determined that the maximum discretionary pool for FY2008
is $500,000, which may be awarded in whole or in part in the discretion of the
Compensation Committee.




	VI.	 	Individual Objectives






To be eligible for a payout on Individual Objectives, written incentive objectives must
be approved and submitted to Human Resources in a timely manner.




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.




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




Plan participants and their managers will discuss the participant’s performance level on
their Individual Objectives and managers must submit the ratings to Human Resources for
approval in a timely manner. The Compensation Committee will rate the CEO’s individual
performance and review the ratings for the other executive officers.




	VII.	 	Incentive Payments






Results and Adjustments




Actual business results for the fiscal year will be provided by the Chief Financial
Officer and approved by the Compensation Committee. The Compensation Committee may
approve adjustments to actual business results to reflect organizational, operational, or
other changes which have occurred during the year,



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e.g., acquisitions, dispositions,
expansions, contractions, material non-recurring items of income or loss, extraordinary
items, effects of accounting changes or other events which might create unwarranted
hardships or windfalls to participants.




Payments




Payments under the Plan 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 and 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.




Maximum Payment




Notwithstanding anything to the contrary provided in this Plan, the Compensation
Committee may establish a maximum pay-out to any one participant for any fiscal year.




For FY2008, the Compensation Committee has determined that the total payment to any
participant under this Plan shall not exceed 150% of the participant’s base salary.




Communication




After year-end closing, managers should meet individually with each participant to
communicate the final rating on specific goals and the 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.




	VIII.	 	Amendment, Suspension and Termination






The Compensation Committee or the Board of Directors may at any time, and without prior
notice, terminate, suspend, amend or modify the Plan or any incentive payments under the
Plan not yet paid. No incentive payment will be made during any suspension of the Plan
or after its termination.




	IX.	 	Unfunded Plan






The Plan shall be unfunded and the Company shall not be required to segregate any assets
for incentive payments under the Plan.



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	X.	 	Other Benefit and Compensation Programs






Payments received by a participant under this Plan shall not be deemed a part of a
participant’s regular, recurring compensation for purposes of the termination, indemnity
or severance pay law of any state and shall not be included in, nor have any effect on,
the determination of benefits under any other employee benefit plan, contract or similar
arrangement provided by the Company unless expressly so provided by such other plan,
contract or arrangement. Nothing in the Plan shall be construed as a contractual payment
obligation or guarantee of employment for any participant.




	XI.	 	Governing Law






To the extent that Federal laws do not otherwise control, the Plan and all determinations
made and actions taken pursuant to the Plan shall be governed by the laws of Minnesota
and construed accordingly.



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Exhibit I




FY2008 Annual Incentive Plan Components:




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





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EXHIBIT II




Annual Incentive Plan

FY2008 Payout Schedule for Financial Objectives




	 	 	 	 	 	 	 	 	 
	 	 	Percent of	 	Payout
	 	 	Objective	 	%
	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 bonus
opportunity, up to a maximum of 150% of base salary, if Consolidated Operating Income exceeds
budget. This is accomplished through the use of the Growth Multiplier which increases the final
incentive payment by the same percentage that Consolidated Operating Income exceeds the stated
objective. Please see example two in Exhibit III for details.




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EXHIBIT III




FY2008 Incentive Payout Calculation Examples



Example One: Financial Objectives are set for the fiscal year for Operating Income and Net
Sales. Navarre achieves 80% of Operating Income, both Consolidated and Subsidiary, 100% of Net
Sales, both Consolidated and Subsidiary, and participant achieves 80% of their individual
objectives.




Subsidiary VP ($100,000 base salary with a Bonus opportunity of 40%)




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Consolidated	 	Subsidiary	 	Consolidated	 	 	 	 	 	Individual
	Operating Income	 	Operating Income	 	Sales	 	Subsidiary 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	 
	Subsidiary Op Income
	 	 	80	%	 	 	50	%	 	 	.50 x .16 x  $100,000	 	 	$	8,000	 
	Consolidated Sales
	 	 	100	%	 	 	100	%	 	 	1.0 x 0 x  $100,000	 	 	$	0	 
	Subsidiary Sales
	 	 	100	%	 	 	100	%	 	 	1.0 x .08 x $100,000	 	 	$	8,000	 
	Individual Objectives
	 	 	80	%	 	 	80	%	 	 	.80 x .08 x $100,000	 	 	$	6,400	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	26,400	 





Example Two: Financial Objectives are set for the fiscal year for Operating Income and Net Sales.
Navarre achieves 150% of Operating Income, both Consolidated and Subsidiary, 90% of Net Sales, both
Consolidated and Subsidiary, and participant achieves 95% of their individual objectives.




Subsidiary VP ($100,000 base salary with a Bonus opportunity of 40%)




	 	 	 	 	 	 	 	 	 	 	 
	Consolidated	 	Subsidiary	 	Consolidated	 	 	 	Individual
	Operating Income	 	Operating Income	 	Sales	 	Subsidiary 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
	 	 	150	%	 	 	100	%	 	 	1.0 x .08 x  $100,000	 	 	$	8,000	 
	Subsidiary Op Income
	 	 	150	%	 	 	100	%	 	 	1.0 x .16 x  $100,000	 	 	$	16,000	 
	Consolidated Sales
	 	 	90	%	 	 	75	%	 	 	.75 x 0 x  $100,000	 	 	$	0	 
	Subsidiary Sales
	 	 	90	%	 	 	75	%	 	 	.75 x .08 x $100,000	 	 	$	6,000	 
	Individual Objectives
	 	 	95	%	 	 	95	%	 	 	.95 x .08 x $100,000	 	 	$	7,600	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	37,600	 
	Growth Multiplier
	 	 	150	%	 	 	 	 	 	 	150% x 37,600	 	 	$	56,400	 







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