QAD (QADI)

Cash Compensation

        The base salaries of the executive officers are generally set at the time of their initial hiring, subject to possible changes in future periods at the discretion of QAD.

        As stated above, the compensation of executive officers is also based in part upon corporate performance, individual performance and comparative industry compensation levels. Each year, management establishes a performance plan with the Compensation Committee. Generally, all bonus plans include a portion based upon the individual employee's performance according to the employee's duties and responsibilities. In addition, the annual bonus plan for many employees includes a portion based upon overall corporate performance and sets forth overall goals that must be achieved by QAD in order for the employee or executive to receive this portion of their bonus.

        For fiscal year 2005, the Compensation Committee set the overall corporate goals for the corporate portion of the bonus plan to focus on QAD's financial performance. The financial performance criteria for this portion of the bonus plan and the proportional weighting associated with each of the criteria are set forth below. The bonus is paid on a sliding scale with minimum and maximum calculation targets. The board established goals associated with each of the criteria. The criteria and associated weighting were:

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Revenue—40%;



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Contribution margin—40%; and



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Accounts Receivable Days' Sales Outstanding—20%.

        The principal components of cash compensation for the Chairman and the Chief Executive Officer for fiscal 2005 included base salary and bonus. Ms. Lopker and Mr. Lopker, the Company's Chairman and Chief Executive Officer, each received a salary of $300,000 during fiscal 2005 and were eligible for an annual on target bonus of 100% of their salary based on a review of performance against objectives for the year. As the leaders of the Company, they are focused on building long-term success, and as majority shareholders in the Company, their personal wealth is tied directly to sustained increases in the Company's value. Ms. Lopker and Mr. Lopker's bonuses were determined based on both company performance and individual strategic goals. Company performance included achievement of revenue, net income, and return on assets targets. Individual strategic goals primarily included objectives related to product development, regional performance, and development of senior leadership.

        For fiscal 2005, Ms. Lopker and Mr. Lopker each received a bonus of $83,659 for their Company performance bonus and $54,000 for their individual strategic goals bonus with combined bonuses totaling $137,659 each.

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