LINEAR TECHNOLOGY CORPORATION
1996 SENIOR EXECUTIVE BONUS PLAN
AS OF JULY 2005
The Compensation Committee (the "Committee") of the Board of Directors
has approved the 1996 Senior Executive Bonus Plan (the "Plan") for fiscal 2005.
The Plan provides the Company's senior key executives with the opportunity to
earn incentive awards based on the achievement of goals relating to the
performance of the Company.
Background and Reasons for Adoption
The Company has a performance-based bonus plan similar to the Plan,
pursuant to which the Company rewards management for achieving certain
performance objectives. However, under section 162(m) of the Internal Revenue
Code, the federal income tax deductibility of compensation paid to the Company's
Chief Executive Officer and to each of its four other most highly compensated
executive officers may be limited to the extent that such compensation exceeds
$1 million in any one year. Under section 162(m), the Company may deduct
compensation in excess of that amount if it qualifies as "performance-based
compensation," as defined in section 162(m). The Plan is designed to qualify
payments thereunder as performance-based compensation, so that the Company may
continue to receive a federal income tax deduction for the payment of incentive
bonuses to its executives. The Company will continue to operate its current
bonus plan, as well, for the compensation of senior executives and other key
employees for whom section 162(m) is not an issue.
Description of the Plan
The following paragraphs provide a summary of the principal features of
the Plan and its operation.
Purpose of the Plan
The Plan is intended to increase stockholder value and the success of
the Company by aligning senior executive compensation with the Company's
business objectives and performance.
Administration of the Plan
The Plan will be administered by the Committee in accordance with (1)
the express provisions of the Plan and (2) the requirements of section 162(m).
Eligibility to Receive Awards
Participation in the Plan is determined annually in the discretion of
the Committee. In selecting participants for the Plan, the Committee will choose
officers of the Company who are likely to have a significant impact on Company
performance and be highly compensated. For fiscal 2005, the participants in the
Plan are Messrs. Swanson, Maier, Bell, Coghlan and Paulus. In fiscal future
fiscal years, the Plan will include the Chief Executive Officer and each of the
Company's four other most highly compensated executive officers.
Target Awards and Performance Goals
For each fiscal year, the Committee will establish: (1) a target award
for each participant, (2) the performance goals which must be achieved in order
for the participant to be paid the target award, and (3) a formula for
increasing or decreasing a participant's actual award depending upon how actual
performance compares to the pre-established performance goals.
Each participant's target award will be expressed as a percentage of his
or her base salary. Base salary under the Plan means the lesser of: (1) 125% of
the participant's annual salary rate on the first day of the fiscal year, or (2)
the participant's annual salary rate on the last day of the fiscal year.
There are several performance measures which the Committee may use in
setting the performance goals for any fiscal year. Specifically, the performance
goals applicable to any participant will provide for a targeted level of
achievement using one or more of the following measures: (1) annual revenue, and
(2) operating income expressed as a percent of sales.
For fiscal 2005, the Committee has established for the Plan participants
a combined performance goal with respect to: (1) operating profit return on
sales (i.e. fiscal 2005 operating profit as a percentage of revenue), and (2)
revenue growth from fiscal 2004 to fiscal 2005. The Committee has also
established a formula, with such measurements as variables, which will determine
Determination of Actual Awards
After the end of each fiscal year, the Committee must certify in writing
the extent to which the performance goals applicable to each participant were
achieved or exceeded. The actual award (if any) for each participant will be
determined by applying the formula to the level of actual performance which has
been certified by the Committee. However, the Committee retains discretion to
eliminate or reduce the actual award payable to any participant below that which
otherwise would be payable under the applicable formula. Also, no participant's
actual award under the Plan may exceed $5 million for any fiscal year.
The Plan contains a continuous employment requirement. If a participant
terminates employment with the Company prior the end of a fiscal year, he or she
generally will not be entitled to the payment of an award for the fiscal year.
However, if the participant's termination is due to retirement, disability or
death, the Committee will proportionately reduce (or eliminate) his or her
actual award based on the date of termination and such other considerations as
the Committee deems appropriate.
Awards under the Plan generally will be payable in cash after the end of
the fiscal year during which the award was earned.