exv10w1



 






Exhibit 10.1




COVAD COMMUNICATIONS GROUP, INC.

2006 BONUS PLAN




	 	 	 
	Plan Objectives:






	 	•	 	Ensure market competitiveness and to attract, motivate, and retain talent
	 
	 	•	 	Reinforce our high-performing, results-oriented culture (first as a company, and
secondarily as individuals)
	 
	 	•	 	Drive employee behavior to work as one team to reach profitability goals




Eligibility:

All employees are eligible (except sales and marketing employees who are on a separate commission
incentive plan).



Plan Funding:

All amounts paid pursuant to the bonus plan are paid out of Covad general assets. There is no
account, fund, trust, or other set-aside of funds for payment of awards. Estimates of amounts that
may become payable under the plan are provided to the Finance Team by the Compensation Team in
Organizational Transformation each quarter.



Performance Measures:

For 2006, the bonus plan results will be based on the following measures:





	 	•	 	January 1-June 30: M-EBITDA
	 
	 	•	 	January 1-December 31: M-EBITDA and cash flow from operations




The
targets for M-EBITDA and cash flow from operations shall be based on the targets for those metrics that are set
forth in the Company’s Operating Plan, as approved by the Board of Directors and as may be changed
from time to time by the Board of Directors.



Form and Timing of Awards:

The annual target bonus percentage, which is based on level, is divided as follows:




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	January 1-	 	 	January 1-	 	 	Individual	 
	 	 	 	 	June 30	 	 	December 31	 	 	Performance	 
	 	Executive Officers/SVP/EVP

	 	 	 	40	%	 	 	 	60	%	 	 	 	N/A	 	 
	 	Other Employees

	 	 	 	40	%	 	 	 	40	%	 	 	 	20%	 	 
	 






	 	•	 	If the company misses the January 1-June 30 bonus target, there is no way to make up the
lost period’s bonus at year end.
	 
	 	•	 	For employees other than Executive Officers, the year-end payment is based on individual
performance for the entire year, subject to Compensation Team discretion and approval.






	 	•	 	Year-end individual bonuses are conditioned on continued employment, compliance
with Covad policies, and contribution to Company performance through the last day of
the payroll period prior to the payment date, as determined by the Compensation Team in
Organizational Transformation.





	 	 	 	 	 	 	 	 	 	 
	 	 	Measures for Year End Individual Bonus
	 	 	Weight	 	 
	 	 	Direct Manager Recommendation based on Individual Performance
compared to 2006 Accountability and Development Plan
	 	 	 	100	%	 	 
	 	 	For all people managers 30% of their Individual Bonus is
based on improvement in the Employee Satisfaction Index	 	 
	 	 	 





 









 





Award Opportunity (Targets):

Target bonus levels are determined annually and are based on our objectives for the coming year and
the external market (75th percentile). Employee target is based on role assignment
effective on the last day of the quarter or year for individual bonus. For role change to be
effective, Human Resources must have received an approved Change of Status by the last business day
of the quarter end. Below are target bonus amounts for 2006 based on level.




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
              	 
	 	The 2006 annual bonus targets and guidelines are as follows:
	 
	 	(as a % of actual earnings)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Individual Contributors

                	 	 	Managers
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	I1

	 	 	 	5	%	 	 	M1
	 	 	 	15	%	 
	 	I2

	 	 	 	8	%	 	 	M2
	 	 	 	20	%	 
	 	I3

	 	 	 	10	%	 	 	M3
	 	 	 	30	%	 
	 	I4

	 	 	 	15	%	 	 	M4 VP
	 	 	 	40	%	 
	 	I5

	 	 	 	20	%	 	 	M4 SVP
	 	 	 	50	%	 
	 	I6

	 	 	 	30	%	 	 	M5
	 	 	 	60	%	 
	 	 

	 	 	 	 	 	 	 	M6
	 	 	 	100	%	 
	 	 	 	 	 	 	 	 	 	 	 	 





Payout Calculation:





	 	•	 	January 1-June 30: The Company must meet a threshold of 100% of M-EBITDA. When
performance is between 80% and 100% a decelerator is applied according to the following
table:





	 	 	 	 	 	 
	 	Performance

	 	 	Decelerator	 
	 	99% to 90%

	 	 	-3.0% for each 1.0% of performance missed.	 
	 	89% to 80%

	 	 	-7.0% for each 1.0% of performance missed.	 
	 






	•	 	January 1-December 31: The Company must first meet a threshold of 100% of the cash flow
target. If the cash flow threshold is met, then the bonus shall be based on M-EBITDA
performance as follows:





	 	 	 	 	 	 
	 	M-EBITDA Performance

	 	 	Accelerator/Decelerator	 
	 	95% to 99%

	 	 	-10% for each 1% of performance missed	 
	 	100% to 119%

	 	 	100% of award opportunity	 
	 	120% and above

	 	 	+110% of award opportunity at 120% and +10% for each 10%
of performance above 120% up to a maximum of 200%	 
	 




Example: Exceeding EBIDTA target by 130% results in a bonus amount calculated at 120% achievement.



Bonus payments are calculated based on an employee’s actual earnings and as a result are
automatically prorated to reflect time on the plan. Earnings include: regular earnings, overtime,
shift differential, jury leave pay, PTO, floating holidays and bereavement leave pay.

Bonus payments would typically occur within two to four weeks after Covad’s earnings announcement.




 









 




Employment:

Nothing in this plan shall be construed as a guarantee of continued employment. All Employees are
employed by the Company at will.



Plan Duration:

The Plan will be in effect from January 1, 2006 until December 31, 2006, unless otherwise modified
or terminated in writing by the CEO. This plan supercedes any previous bonus plan.



Leaves of Absence and Transfers to Other Incentive Plans:

Payments for employees who are granted an approved leave of absence (other than for military leave
under USERRA), disability leave of absence, or who are transferred to a commission plan will be
prorated based on actual earnings during the time on bonus plan. Payments for employees who are
granted an approved leave of absence for military leave under USERRA and who return within the
prescribed period for guaranteed reinstatement under USERRA will be determined in accordance with
USERRA.



Terminations:

Employees who voluntarily or involuntarily terminate their employment on or after the last business
day of the applicable period are eligible for the bonus, if any, for that period. Employees who
voluntarily or involuntarily terminate their employment after the last day of the payroll period
prior to the payment date for the individual performance bonus forgo their rights to payment of
such bonus.



Plan Administration:

The CEO has the authority to interpret the Plan and to create, amend, or nullify any rules and
procedures as necessary for the proper plan administration. Any determination of the CEO is final
and binding on all participants. The Compensation Committee of the Board of Directors has
authority to approve and modify the plan for participants who are Executive Officers of the
company. The plan will be administered by the Compensation Team in Organizational Transformation in
accordance with all provisions stipulated in this Plan.



Audit and Approval Procedure:

Bonus payments will be calculated by the Compensation Team. The Employee earnings report will be
provided to Compensation by the Payroll Team within two weeks of quarter close. The Senior Vice
President, Organizational Transformation reviews and authorizes payment for all Employees under the
Plan.



Problem Resolution:
Issues or questions regarding bonus payments should be sent in writing via email to bonus@covad.com
the Compensation Team within two weeks of bonus payment.
Employees who agree to this Plan hereby agree and understand that any and all disputes regarding
any alleged breach of this Plan shall be settled by final and binding arbitration. Please refer to
Exhibit A for the full text of this arbitration agreement.



Plan Changes or Modifications:

The Company has developed the Plan based upon its current services and personnel assignments. If
changes occur at the Company which effect these service assignments, or conditions, the Company, by
the Compensation Committee for changes that affect Executive Officers or by the Compensation
Committee or CEO for all other employees, may add, amend or discontinue any portion of the Plan at
any time.




 









 





COVAD COMMUNICATIONS GROUP, INC.

2006 BONUS PLAN




Exhibit A




     Employee hereby agrees and understands that any and all disputes regarding any alleged breach
of the 2006 Covad Bonus Plan shall be settled by final and binding arbitration before a single,
neutral arbitrator in the County of Santa Clara, California, or in the County where Employee
resides at the time the dispute arises, at Employee’s option, in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration Association, or its
successor, and judgment upon the award rendered may be entered in any court with jurisdiction.



     Employee understands that this arbitration clause applies to all claims, including claims
under federal or state employment or civil rights laws (other than claims for workers’ compensation
or unemployment insurance benefits). Unless another limitations period is expressly mandated by
statute, to be timely, any dispute must be referred to arbitration within twelve (12) months of the
incident or complaint giving rise to the dispute. Disputes not referred to arbitration within such
twelve (12) month period shall be deemed waived, and the arbitrator shall deny any untimely claims.



     Employee understands that the parties shall be entitled to discovery sufficient to adequately
arbitrate their claims, including access to essential documents and witnesses, as determined by the
arbitrator. In reaching a decision, the arbitrator shall adhere to relevant law and applicable
precedent, and shall have no power to vary therefrom. The arbitrator shall issue a written
decision making specific findings of fact and stating conclusions of law.



     Employee understands that each party retains the right to file, in a court of competent
jurisdiction, an application for provisional injunctive and/or equitable relief in connection with
a claim relating to this General Release, and shall not be required to post a bond or other
security in seeking such relief unless specifically required by law. Although a court may grant
provisional remedies, the arbitrator shall at all times retain the power to grant permanent
injunctive relief, or any other final remedy. Employee understands that the Company will pay the
costs of arbitration in excess of the costs Employee would incur to bring such claim in a civil
court.