Exhibit 10.1

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ENTERASYS PERFORMANCE INCENTIVE PLAN (EPIP)

PURPOSE

Provide an outcome-based annual cash incentive to key employees for their
contributions to the success and profitability of Enterasys Networks. This Plan
is intended to provide participants with an opportunity to receive above average
incentive compensation for above average performance, with lower levels of
incentive compensation associated with lower levels of performance.

EFFECTIVE DATE

This plan is effective as of January 2, 2005, for the fiscal year ending
December 31, 2005.

ELIGIBILITY

Full-time executives, managers and key employees not participating in any other
cash incentive compensation plan unless such other plan expressly provides for
participation in EPIP. Non-exempt employees are not eligible to participate in
this plan.

INCENTIVE TARGETS

A participant’s target cash incentive compensation opportunity, which is set
individually within each Tier specified below, will range from 10% to 200% of
base salary, depending upon position and role (see guide chart below):

                      Tier     Position/Job Level     Incentive Target Range*  
 
I
    Executive Chairman
President / Chief Executive Officer     As determined by Compensation Committee
200%    
II
    Senior / Executive Vice President     60% - 100%    
III
    Director / Vice President     40% - 70%    
IV
    Manager / Key Employee     20% - 50%    
V
    Individual Contributors     10% - 20%    

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* Expressed as a percentage of Base Salary

 

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INCENTIVE PLAN ELEMENTS

EPIP has two elements: (i) overall funding of the EPIP on an aggregate basis,
and (ii) individual annual incentive awards (which, in the aggregate, may be
less than but may not exceed actual aggregate EPIP funding). Maximum aggregate
EPIP funding will be equal to the aggregate of individual participant target
bonus amounts, plus any funding based on the occurrence of a qualifying Business
Combination as set forth below.

EPIP FUNDING

•   Corporate Financial Performance Funding Factor: EPIP funding relative to
aggregate target levels will be based on the Company’s achievement of financial
performance objectives established by the Enterasys Networks, Inc. Board of
Directors. The financial performance objectives for 2005 will be based on
quarterly and year-to-date metrics for Revenue, Operating Profitability, and
Free Cash Flow. Achieving funding at aggregate target levels will require
financial performance substantially exceeding the Company’s base annual
operating plan objectives. Determination of achievement of specific corporate
financial performance metrics is subject to the sole and exclusive discretion of
the Board of Directors of Enterasys Networks, Inc.

•   Corporate Transaction Funding Factor: In addition to funding based on
achievement of the Company’s financial performance objectives, in the event of a
merger or consolidation involving the Company, or a sale or other disposition of
all or substantially all of the stock or assets of the Company (collectively, a
“Business Combination”) at any time during the fiscal year, provided that such
Business Combination is approved in advance by the Enterasys Networks, Inc.
Board of Directors and results in a transfer of ownership of more than 50% of
the equity or assets of the Company to an individual, entity, or group of
related individuals or entities, EPIP will be funded in an amount equal to 20%
of aggregate individual EPIP target amounts.

ALLOCATION OF AWARDS

•   Accrual of funding will occur based on achievement of corporate financial
performance targets and/or the occurrence of a qualifying Business Combination.
Accruals will not be reduced in subsequent periods based on failure to achieve
corporate financial targets in such subsequent periods.

•   Preliminary allocation of EPIP funding toward individual incentive awards
will accrue quarterly based on achievement of Board-approved corporate financial
performance objectives. For each quarter, funding (if any) will increase by an
amount equal to the lesser of (a) the funding amount determined based on the
results for such quarter, and (b) the difference (but not less than zero)
between (i) the aggregate funding for all prior quarters of the fiscal year and
(ii) the funding amount determined based on year-to-date results for the most
recently completed quarter.

•   Preliminary allocation of EPIP funding for corporate transaction incentive
awards will accrue upon closing of a qualifying Business Combination.

 

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INDIVIDUAL INCENTIVE AWARDS

  •   Actual EPIP incentive awards will be based on:

  ü Achievement of the Company’s financial performance objectives;     ü
Achievement of departmental Key Performance Indicators (“KPI’s”) and/or
individual goals and objectives;     ü The occurrence of a qualifying corporate
transaction;     ü Individual target bonus levels; and     ü Position/Job Level.

  •   Based on assigned Tier, and subject to funding criteria being met and
satisfaction of all other terms and conditions set forth in this plan, actual
incentive awards that are funded based on achievement of corporate financial
performance targets will be based on a combination of Company and Departmental
KPI’s/Individual performance.

                                              Incentive Target Distribution  
Metric   Tier I     Tier II     Tier III     Tier IV     Tier V  
Company Performance
     100 %     90 %     80 %     75 %     70 %  
Dept KPI / Individual Performance
     0 %     10 %     20 %     25 %     30 %  
Total
    100 %     100 %     100 %     100 %     100 %

    Example: a Software Engineer Manager in Tier IV might have an incentive of
30% of base salary, of which 75% depends on Company performance and 25% depends
on Departmental KPI’s/Individual Performance.

PRORATION FACTORS

•   Individual annual incentive awards will be prorated for partial years in the
following situations:

ü      Employees who were hired during the plan’s year and who have at least
60 days of active service in an eligible position.

ü      Employees who were transferred from ineligible to eligible positions
during the plan’s year and who have at least 60 days of active service in the
eligible position within year.

ü      Employees who transferred between positions for which the incentive plans
are different, and who have at least 60 days of active service in an eligible
position within the year, will have their bonuses prorated based on length of
time in each eligible position.

 

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ü      Employees who were eligible for the plan, terminated their employment,
and were rehired into plan-eligible positions during the plan year.

•   Incentive awards will be prorated on a weekly basis, not on working days
during any given performance measurement period.

PAYMENT SCHEDULE

•   Payment of annual incentive awards, if any, which are funded based on
achievement of corporate financial performance objectives, will be made
following the end of the defined plan year and the Company’s announcement of
financial results for the full year, determination by the Board of Directors of
the achievement of established metrics and funding of the plan, and
determination by management of the degree to which Departmental KPI’s and
individual goals have been achieved, but in any event no later than March 15 of
the following year.

•   Payment of incentive awards funded based on closing of a qualifying Business
Combination will be made to participants (who were participants on the date said
Business Combination was consummated) on the earliest of (i) the date that
annual EPIP payments are made based on corporate financial performance
(ii) March 15 of the next calendar year after the transaction, and (iii) within
five business days of the date the Participant’s employment with the Company is
terminated, other than voluntarily by the Participant or for cause by the
Company.

ADDITIONAL TERMS AND CONDITIONS – 2005 EPIP

•   Base Salary: A Participant’s base salary in effect on the last Friday of the
fiscal year will be used for the purpose of EPIP calculations.

•   Incentive Target: a participant’s target incentive bonus, expressed as a
percentage of base salary, in effect on the last Friday of the fiscal year will
be used for the purpose of award calculations.

•   Eligibility: Employees become eligible to participate in this plan on the
date they become actively employed in an eligible position. Eligible positions
are specifically identified by HR and may change from time to time in Enterasys’
sole discretion. Employee must be a plan participant for a minimum of 60 days to
be eligible to receive an award.

•   Performance Notice: Plan participants placed on a Performance Improvement
Notice during the plan year are not guaranteed to receive an award under any
circumstance.

•   Termination : Plan participants who terminate employment voluntarily or
involuntarily prior to payment date will not receive an EPIP award based on
corporate financial performance or departmental/individual performance.
Participants who terminate employment voluntarily or whose employment is
terminated by the company for cause are not eligible for any awards under this
Plan.

 

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•   Leave of Absence: Awards will be prorated based on number of weeks worked
during the plan year and paid upon return for those Plan participants on Leave
of Absence.

•   Funding: All payments are from funds made available to the plan as
prescribed by this document and any addendum hereto and in accordance with
performance against pre-established goals and objectives.

•   Discretionary Awards: Awards are not guaranteed compensation and employees
eligible to participate in the plan are not guaranteed to receive any award.

•   Tax Related Liabilities: Participants are responsible for determining the
tax consequences for incentive awards, which will be subject to appropriate
withholding by the Company.

•   Payment Disputes: Plan participants agree that payment disputes, including
but not limited to disputes relating to promotions, demotions, changes in
positions, prorating of payment, must be submitted within 30 days of the earlier
of (i) notice of the amount of any earned award, and (ii) check receipt.

•   Acknowledgement of Receipt: Plan participants shall receive access to a copy
of the plan document or a communication outlining plan criteria and guidelines.

•   No Contract of Employment: Participation in this plan does not constitute a
guarantee of employment in any way, for any given performance period or other
time period.

•   Plan Changes: The Company reserves the right to revise or terminate this
plan, with or without notice, at any time for any reason it deems appropriate,
provided however that Plan provisions relating to incentive awards based on
qualifying Business Combination may not be amended from and after the
consummation of such a Business Combination.