EX-10.2







	 	 	 	 	 



Exhibit 10.2




Executive Annual Incentive Plan




Fiscal Year 2009



Plan Name: PLATO Learning FY 2009 Executive Annual Incentive Plan (“the Plan”).



Plan Effective Date: The plan will be effective for the fiscal year beginning November 1,
2008.



Plan Structure: Eligible Participants will be provided an opportunity to earn a total
incentive, expressed as a percent of salary. Part of the total opportunity will be payable in cash
(the “Cash Incentive”) and Performance Shares (the “Performance Share Incentive”) based on the
achievement of predetermined financial goals as specified in this plan, and the remainder is
payable in the form of a time-vested stock option grant. The Plan also provides for a payout
modifier at the discretion of the Compensation Committee.



Eligibility and Incentive Targets: Listed in the table below are the executives eligible to
participate in the Plan (each a “Participant”) and their respective target incentive opportunities
expressed as a percentage of the Participant’s annual base salary as of October 31, 2009.




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Target Cash	 	Target Stock	 	Target	 	 
	 	 	Incentive (% of	 	Incentive (% of	 	Performance	 	Stock
	Executive Job Title	 	Base Salary)	 	Base Salary)	 	Shares (1)	 	Options(2)
	President & CEO
	 	 	60	%	 	 	90	%	 	 	102,000	 	 	 	255,000	 
	Chief Financial Officer
	 	 	40	%	 	 	60	%	 	 	45,700	 	 	 	114,200	 
	Chief Technology Officer
	 	 	40	%	 	 	60	%	 	 	44,000	 	 	 	109,900	 
	Vice President,
Customer Experience
	 	 	30	%	 	 	40	%	 	 	23,300	 	 	 	58,100	 
	Vice President, Human
Resources
	 	 	30	%	 	 	40	%	 	 	22,700	 	 	 	56,700	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	 	 	 	 	 	 	 	 	237,700	 	 	 	593,900	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





Total Target Stock Incentive is split between performance shares and stock options, and calculated as follows:







	 	 	 
	(1)	 	target performance shares are equal to the dollar value of the Target Stock Incentive times 50% divided by $1.72 (average market
price last 10 days of FY08) and (2) stock options are equal to performance shares times a conversion ratio of 2.5 stock options per 1
performance share and rounded to the nearest 00




Performance Measures: The actual amount of Cash and Performance Share Incentive awards
will be determined based upon company achievement of the following four performance measures:





	 	•	 	Free Cash Flow
	 
	 	•	 	Revenue
	 
	 	•	 	Operating Income (or Loss)
	 
	 	•	 	PLE Customer Renewal Rate




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Total Incentive Components:




	 	 	 	 	 	 	 
	1.

	 	Cash Incentive Goal:
	 	•
	 	50% Free Cash Flow (FCF)
	 
	 

	 	 	 	•
	 	50% Revenue Achievement





The pre-adjustment value of the Cash Incentive will be determined from two equally weighted
performance measures described as follows:





	 	A.	 	Free Cash Flow (50%): One half of the computed Cash Incentive is based on the
percentage of achievement of the pre-established quarterly and annual FCF goals, weighted
across the quarterly and annual periods as shown in the first table below. The minimum,
target and maximum levels of these measures and the corresponding percentage of Target Cash
Incentive is as follows:





(Dollars in Thousands)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Percent of One Half of Target
	Qtr 1	 	Qtr 2	 	Qtr3	 	Qtr 4	 	Fiscal Year	 	Cash Incentive
	Weight 

25%
	 	Weight

25%
	 	Weight

15%
	 	Weight

15%
	 	Weight

20%	 	 
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	 25%
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	100%
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	200%







	 	B.	 	Revenue Achievement (50%): The other half of the computed Cash Incentive will
be based on the achievement of revenue as indicated in the following table:





	 	 	 
	Achievement of 2009	 	Percent of One Half of
	Revenue	 	Target Cash Incentive
	$X
	 	 25%
	$X
	 	100%
	$X
	 	200%





The entire bonus earned under this Plan, if any, will be paid in a single payment in December 2009.



Straight-line interpolation will be applied to award payouts between achievement thresholds.




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	2.

	 	Stock Incentive Goal:
	 	•
	 	50% Operating Income (or Loss)
	 
	 

	 	 	 	•
	 	50% PLE Customer Renewal Rate





The pre-adjustment value of the Performance Share Incentive will be computed from two
equally-weighted performance measures, described as follows:



A. Operating Income (Loss)(50%): One half of the computed Performance Share incentive will
be based on the achievement of fiscal year 2009 Operating Income (Loss) weighted across the
quarterly and annual periods as shown in the first table below. The minimum, target and maximum
levels of these measures and the corresponding percentage of the target Performance Share Incentive
will be as follows:




(Dollars in Thousands)




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Percent of One Half of Target
	Qtr 1	 	Qtr 2	 	Qtr3	 	Qtr 4	 	Fiscal Year	 	Stock Incentive
	Weight 

20%
	 	Weight

20%
	 	Weight

20%
	 	Weight

20%
	 	Weight

20%	 	 
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	 25%
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	100%
	$X
	 	$X
	 	$X
	 	$X
	 	$X
	 	200%





B. PLE Customer Renewal Rate (50%): The other half of the computed Performance Share
Incentive will be based on the PLE Customer Renewal Rate in fiscal year 2009.




	 	 	 
	Achievement of 2009	 	Percent of One Half of
	Renewal Rate	 	Target Cash Incentive
	X%
	 	 25%
	X%
	 	100%
	X%
	 	200%





Straight-line interpolation will be applied to award payouts between achievement thresholds.





	3.	 	Payout Modifier:          Discretionary




The computed Cash and Performance Share Incentive payment may be further increased or decreased up
to 20% of the Participant’s target based on the Compensation Committee’s assessment of performance
relative to the achievement of strategic goals but not to exceed the maximum payable under this
plan. The modifiers for the Cash Incentive and Performance Share Incentives may be different.




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APPENDIX




Terms and Conditions




Payment & Eligibility:



The Performance Share Incentive will be awarded in performance shares and, if earned, will be
granted on December 17, 2009 and vest one-third on December 17, 2009, one-third on December 17,
2010 and one-third on December 17, 2011. To be eligible to receive the Performance Share grant,
Participants must be employed by the Company on the date of grant.



The stock options are granted based on the Participant’s employment with the Company and will be
granted December 11, 2008. To be eligible to receive the stock option grant, Participants must be
employed by the Company on the date of grant. The options are time based and will vest one-third
in December 2009, one-third in December 2010 and one-third in December 2011.



All performance share and stock option grants, including vesting provisions, are subject to the
terms of the applicable stock grant agreements.




Definitions:



Free Cash Flow:  “Free Cash Flow” is defined as The Company’s cash flow from operations
less internal product development less capital expenditures all as reflected in the Company’s
Consolidated Statement of Cash Flows prepared in accordance with GAAP.



Operating Income (Loss): “Operating Income (Loss)” is defined as Operating Income (Loss)
per the Company’s Consolidated Statement of Operations prepared in accordance with GAAP adjusted
for restructuring and impairment charges, if any, net of any current year benefit/expense
associated with such charges.



PLE Customer Renewal Rate: ”PLE Customer Renewal Rate” is defined as the sum of the
trailing 12 month dollar value renewal opportunities divided by the total trailing 12 month dollar
value renewal orders.



Cause, Good Reason and Change in Control: These terms have the meaning ascribed to them in
the stock option agreements associated with the stock options granted under this Plan.




General Provisions:





	The obligations of the Company, as set forth in this document shall be subject to modification in
such manner and to such extent as the CEO and the Compensation Committee of the Board of Directors
deems necessary by agreement, or as may be necessary to comply with any law, regulation or
governmental order pertaining to compensation
	 
	Termination: A Participant shall be removed from the Plan in the event of termination of
employment with the company. Upon termination, the Participant’s rights with respect to performance
share and stock option awards under the Plan are governed by the applicable performance share and
stock option grant agreement. Rights with respect to the Cash Incentive are as follows:






	•	 	Death or Disability. If a Participant dies or becomes disabled before October 31,
2009, his/her Cash Incentive payment amount will be prorated to include only the quarterly
achievements for the time period for which the Participant was an active PLATO employee.




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	 	 	For the purposes of this Plan “Disability” means that as a result of physical or mental incapacity
the Participant is unable for a period of 120 consecutive days during any consecutive 180-day
period to perform his duties hereunder on a full-time basis. In the case of death, the
payment amount will be given to the Participant’s estate according to current law and
established guidelines and practices.
	 
	•	 	Voluntary or Involuntary Termination without Cause. In the event a Participant’s
employment with the Company is terminated Voluntarily or Involuntarily without Cause after
November 1, 2008 and before the Plan end date (October 31, 2009) his/her Cash Incentive
payment amount will be prorated to include only the quarterly achievements for the time period
for which the Participant was an active PLATO employee.
	 
	•	 	Involuntary Termination with Cause. In the event a Participant’s employment with
the Company is terminated for cause after November 1, 2008 and before the Plan end date
(October 31, 2009) the Participant will not be eligible for any cash payment under the terms
of this plan.
	 
	•	 	Change in Control. In the event of a Change in Control and the new company does
not continue the Plan, the Cash Incentive payment will be pro-rated through the effective date
of the Change in Control and must be paid no later than 2-1/2 months following the end of the
calendar year or the Company’s tax year.




Paid or Unpaid Leave of Absence. If a Participant is on a paid or unpaid leave of absence
anytime between November 1, 2008 and October 31, 2009 his/her Cash Incentive payment and
Performance Share Incentive will be prorated to exclude the time he/she was on such leave.



Participation for New Hire or Promotion. The Compensation Committee of the Board of
Directors may decide, in its sole discretion, those individuals who are hired or promoted within
the first six months of a performance period who will be eligible for a prorated award within the
confines of the Plan.



Plan Administration. The plan will be administered by PLATO Learning, which reserves the
right to, at any time, amend, interpret, or terminate the Plan, in whole or in part.





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