Exhibit 10.31

 

REDBACK NETWORKS INC.

 

SENIOR MANAGEMENT BONUS PLAN

 

1) Purposes of the Plan. This Redback Networks Inc. Senior Management Bonus Plan
sets forth the plan for payment of cash bonuses to those senior managers of the
Company designated for participation and is intended to increase stockholder
value and the success of the Company by motivating senior managers to perform to
the best of their abilities and to achieve the Company’s objectives. The Plan’s
goals are to be achieved by providing such managers with incentive awards based
on the achievement of goals relating to the performance of the Company or upon
the achievement of determinable performance goals. The Plan is intended to
permit the payment of bonuses that may qualify as performance-based compensation
under Code section 162(m).

 

2) Definitions.

 

(a) “Award” means, with respect to each Participant, the award determined
pursuant to Section 7(a) below for a Performance Period. Each Award is
determined by a Payout Formula for a Performance Period, subject to the
Committee’s authority under Section 7(a) to eliminate or reduce the Award
otherwise payable.

 

(b) “Base Salary” means, as to any Performance Period, the Participant’s
annualized salary rate. Such Base Salary shall be before both (a) deductions for
taxes or benefits, and (b) deferrals of compensation pursuant to
Company-sponsored plans.

 

(c) “Code” means the Internal Revenue Code of 1986, as amended.

 

(d) “Committee” means the Compensation Committee of the Board of Directors of
the Company, or a sub-committee of the Compensation Committee.

 

(e) “Company” means Redback Networks Inc. or any of its subsidiaries (as such
term is defined in Code Section 424(f)).

 

(f) “Fiscal Quarter” means a fiscal quarter of the Company.

 

(g) “Maximum Award” means as to any Participant for any Performance Period, $1
million.

 

(h) “Participant” means an eligible senior manager or key employee of the
Company selected by the Plan Administration Committee, to participate in the
Plan for a Performance Period.

 

(i) “Payout Determination Date” means the date upon which the Plan
Administration Committee determines the amounts payable pursuant to the Plan and
in accordance with Section 7(a).

 

(j) “Payout Formula” means, as to any Plan Year, the formula or payout matrix
established by the Committee in order to determine the Awards (if any) to be
paid to Participants.

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(k) “Performance Goals” means the goal(s) (or combined goal(s)) determined by
the Committee (in its discretion) to be applicable with respect to an Award. As
determined by the Committee, the Performance Goals applicable to an Award may
provide for a targeted level or levels of achievement using one or more of the
following measures: (a) Quarterly Revenue and (b) Quarterly Net Income (Loss) or
such similar objectively determinable financial or other measures as may be
adopted by the Committee.

 

(l) “Performance Period” means any Fiscal Quarter during the Plan Year as
determined by the Committee in its sole discretion.

 

(m) “Plan” means this Redback Networks Inc. Senior Management Bonus Plan.

 

(n) “Plan Year” means the Company’s fiscal year.

 

(o) “Plan Administration Committee” means the committee comprised of the
Company’s Vice President of Human Resources, the Chief Executive Officer and the
Chief Financial Officer.

 

(p) “Quarterly Net Income (Loss)” means the income (loss) after taxes of the
Company for the applicable Fiscal Quarter determined in accordance with
generally accepted accounting principles.

 

(q) “Quarterly Revenue” means the Company’s net sales for the applicable Fiscal
Quarter, determined in accordance with generally accepted accounting principles.

 

(r) “Section 162(m)” means Section 162(m) of the Code, or any successor to
Section 162(m), as that Section may be interpreted from time to time by the
Internal Revenue Service, whether by regulation, notice or otherwise.

 

(s) “Target Award” means the target award payable under the Plan to a
Participant for the Performance Period, expressed as a percentage of his or her
Base Salary, as determined by the Committee.

 

3) Plan Administration.

 

(a) The Committee shall be responsible for the general administration and
interpretation of the Plan and for carrying out its provisions. The Committee
may delegate specific administrative tasks to the Plan Administration Committee
or others as appropriate for proper administration of the Plan. The Committee
shall have such powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following powers and duties, but
subject to the terms of the Plan:

 

i) discretionary authority to adopt Target Awards and Payout Formulae under this
Plan for a given Performance Period; and

 

ii) discretionary authority to construe and interpret the terms of the Plan, and
to determine eligibility, Awards and the amount, manner and time of payment of
any Awards hereunder.

 

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(b) Any rule or decision by the Committee that is not inconsistent with the
provisions of the Plan shall be conclusive and binding on all persons, and shall
be given the maximum deference permitted by law.

 

4) Eligibility. The employees eligible to participate in the Plan for a given
Performance Period shall be determined by the Committee, and are generally
expected to include senior managers and above of the Company and any other key
employees who are specifically designated by the Committee for participation in
the Plan in its sole discretion. Employees who earn sales commissions and
employees on an MBO or other variable compensation plan shall generally not
participate in the Plan. Unless specifically excepted, a Participant must be
actively employed on the last day of the Performance Period to be eligible to
receive a payment hereunder. No person shall be automatically entitled to
participate in the Plan.

 

5) Performance Goal Determination. The Committee, in its sole discretion, shall
establish the Performance Goals.

 

6) Determination of Payout Formula. The Committee, in its sole discretion, shall
establish a Payout Formula for purposes of determining the Award (if any)
payable to each Participant. Each Payout Formula (a) shall provide for the
payment of a Participant’s Award if the Performance Goals for the Performance
Period are achieved, and (b) may provide for an Award payment greater than or
less than the Participant’s Target Award, depending upon the extent to which the
Performance Goals are achieved. Notwithstanding the preceding, in no event shall
a Participant’s Award for any Performance Period exceed the Maximum Award.

 

7) Payout Determination; Award Payment.

 

(a) Payout Determination and Certification. Prior to the Payout Determination
Date, the Committee shall certify in writing (which may be by unanimous written
consent) the Awards to each Participant. The Award for each Participant shall be
determined by applying the Payout Formula to the level of actual performance.
Notwithstanding any contrary provision of the Plan, the Committee, or the Plan
Administration Committee if so delegated, may eliminate or reduce the Award
payable to any Participant below that which otherwise would be payable under the
Payout Formula.

 

(b) Right to Receive Payment. Each Award under the Plan shall be paid solely
from the general assets of the Company. Nothing in this Plan shall be construed
to create a trust or to establish or evidence any Participant’s claim of any
right to payment of an Award other than as an unsecured general creditor with
respect to any payment to which he or she may be entitled.

 

(c) Form of Distributions. The Company shall distribute all Awards to the
Participant in cash.

 

(d) Timing of Distributions. Subject to Section 7(e) below, the Company shall
distribute amounts payable to Participants as soon as is practicable following
the determination and written certification of the Award for a Performance
Period, but in no event later than 2 ½ months after the end of the applicable
Performance Period.

 

(e) Deferral. The Committee may defer payment of Awards, or any portion thereof,
to Participants as the Committee, in its discretion, determines to be necessary
or desirable to preserve

 

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the deductibility of such amounts under Section 162(m). In addition, the
Committee, in its sole discretion, may permit a Participant to defer receipt of
the payment of cash that would otherwise be delivered to a Participant under the
Plan. Any such deferral elections shall be subject to such rules and procedures
as shall be determined by the Committee in its sole discretion.

 

9) Term of Plan. The Plan shall first apply to the Company’s fiscal year 2005
Plan Year. The Plan shall stay in effect with respect to the fiscal 2005 Plan
Year and all subsequent Plan Years until terminated under Section 10 of the
Plan.

 

10) Amendment and Termination of the Plan. The Committee may amend, modify,
suspend or terminate the Plan, in whole or in part, at any time, including
adopting amendments deemed necessary or desirable to correct any defect or to
supply omitted data or to reconcile any inconsistency in the Plan or in any
Award granted hereunder; provided, however, that no amendment, alteration,
suspension or discontinuation shall be made which would impair any payments to
Participants made prior to such amendment, modification, suspension or
termination, unless the Committee has made a determination that such amendment
or modification is in the best interests of all persons to whom Awards have
theretofore been granted; provided further, however, that in no event may such
an amendment or modification result in an increase in the amount of compensation
payable pursuant to such Award. At no time before the actual distribution of
funds to Participants under the Plan shall any Participant accrue any vested
interest or right whatsoever under the Plan except as otherwise stated in this
Plan.

 

11) Withholding. Distributions pursuant to this Plan shall be subject to all
applicable federal and state tax and withholding requirements.

 

12) At-Will Employment. No statement in this Plan should be construed to grant
any employee an employment contract of fixed duration or any other contractual
rights, nor should this Plan be interpreted as creating an implied or an
expressed contract of employment or any other contractual rights between the
Company and its employees. The employment relationship between the Company and
its employees is terminable at-will. This means that an employee of the Company
may terminate the employment relationship at any time and for any reason or no
reason.

 

13) Successors. All obligations of the Company under the Plan, with respect to
awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.

 

14) Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board of Directors of the Company, shall be indemnified and
held harmless by the Company against and from (a) any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan or any award, and (b) from
any and all amounts paid by him or her in settlement thereof, with the Company’s
approval, or paid by him or her in satisfaction of any judgment in any such
claim, action, suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he or she undertakes to handle and defend it on his or her own
behalf. The foregoing right of indemnification

 

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shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company’s Certificate of Incorporation or
Bylaws, by contract, as a matter of law, or otherwise, or under any power that
the Company may have to indemnify them or hold them harmless.

 

15) Nonassignment. The rights of a Participant under this Plan shall not be
assignable or transferable by the Participant except by will or the laws of
intestacy.

 

16) Governing Law. The Plan shall be governed by the laws of the State of
California.

 

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