Document:

EXHIBIT 10.1

 

	
  

  	
  Short-Term
  Incentive Plan (STI Plan)

  Terms and
  Conditions

  

 

Compensation
Philosophy

 

Cubist’s compensation
philosophy is to attract, motivate, retain and reward employees with base pay,
short-term and long-term incentives, and benefits that competitively target the
market.  Cubist’s compensation programs
provide employees with the opportunity to earn increased compensation — based
on Cubist’s and the employee’s achievement of pre-established performance
targets.

 

Plan Overview

 

Cubist’s Short-Term
Incentive Plan (“STI Plan”) is a bonus plan for all Cubist employees (“Participants”)
which is designed to reward them for their roles in the achievement of Cubist’s
annual goals, as established by the Company (“Annual Goals”).  STI Plan awards (“Plan Awards”) are
determined on an annual basis, based on whether and to what extent Cubist
achieves its Annual Goals and each Participant achieves the Participant’s
individual goals for the relevant calendar year (the “Performance Period”).

 

Plan Objective

 

The intent of the STI
Plan is to provide highly competitive total cash compensation through an annual
variable pay program that reflects Cubist’s performance and the Participant’s
performance against goals and objectives. 
The STI Plan is an important variable component of the total
compensation package for all employees.

 

Eligibility

 

All employees of Cubist
are eligible to participate in the STI Plan. 
Participation in the STI Plan in one year does not automatically
guarantee participation in a future year. 
Compliance with all Cubist policies, guidelines and all applicable laws  is a prerequisite to receiving an STI award. A
determination that an employee is not eligible to receive an STI award due to
his or her failure to demonstrate compliant behavior may be made by the CEO and
Chief Compliance Officer.

 

Performance Periods

 

Each calendar year,
beginning on January 1 of each year, constitutes a separate Performance
Period.

 

Financial Measures

 

Prior to the beginning of
each Performance Period, the Company will establish financial measures and
weightings for each of the Company’s Annual Goals. Cubist needs to achieve at
least 70% of its Annual Goals for any Participant to be eligible for a Plan
Award. For 2008, company achievement will be capped at a 200% payout.  In addition to achievement of Annual Goals,
Plan Awards are also determined on the basis of individual performance and
achievement of objectives.

 

Individual
Objectives

 

As part of Cubist’s
annual (or in the case of Participants who join the Company after the
commencement of a Performance Period, ongoing) goal setting process, each
Participant should propose individual objectives for his or her manager’s
approval. Each Participant will be measured by his or her manager against these
objectives, and the manager shall make a recommendation to the CEO as to
whether the Participant should receive a Plan Award, and, if so, the amount of
such Plan Award (assuming Cubist’s Annual Goals have been achieved to the
requisite level noted above).

 

 

 

Funding

 

After the end of each
Performance Period, the CEO shall determine the aggregate amount available for
Plan Awards (if any) based on the Company’s performance relative to the Annual
Goals (the “Pool”).  The Pool will be
funded based on the Company’s performance. 
Assuming the Company has achieved the requisite performance level, the
CEO shall then determine the award and amount of any Plan Awards to
Participants in accordance with the STI Target Percentages noted below;
provided that the Compensation Committee of the Company’s Board of Directors
shall make such determinations with respect to the CEO’s bonus and shall
approve the CEO’s recommendations with respect to the Executive Officers
bonuses.

 

Calculating the
Amount of Any Target Award

 

Each Participant is
eligible for Plan Awards at a target percentage of base salary (“Target
Percentage”) as listed in Figure 1 below. The “Target Award” is the Participant’s
target percentage, multiplied by his or her base salary for the Performance
Period. The Target Award will be pro-rated based on the portion of the
performance period worked by the Participant if the Participant (a) commenced
employment with Cubist after the commencement of the Performance Period, (b) worked
part-time during the Performance Period, or (c) took a leave of absence
during the Performance Period.  Examples
of calculations are included in Figure 2 below.

 

Figure 1: Target
Percentage by Level

 

	
  Eligibility Group

  	
   

  	
  2008 Target

  Percentage (as %

  of base salary)

  	
   

  
	
  CEO

  	
   

  	
  80

  	
  %

  
	
  Chief Financial Officer

  	
   

  	
  50

  	
  %

  
	
  Executive Vice President

  	
   

  	
  50

  	
  %

  
	
  Senior Vice President

  	
   

  	
  40

  	
  %

  
	
  Vice President, Sales & Marketing

  	
   

  	
  40

  	
  %

  
	
  Vice President

  	
   

  	
  35

  	
  %

  
	
  Executive Director

  	
   

  	
  25

  	
  %

  
	
  Senior Director, National Sales

  	
   

  	
  35

  	
  %

  
	
  Senior Director

  	
   

  	
  25

  	
  %

  
	
  Director

  	
   

  	
  20

  	
  %

  
	
  Senior Manager/ equivalent individual contributor

  	
   

  	
  15

  	
  %

  
	
  Manager/ equivalent individual contributor

  	
   

  	
  10

  	
  %

  
	
  Scientific Employee

  	
   

  	
  8.5

  	
  %

  
	
  Administrative Employee

  	
   

  	
  5

  	
  %

  

 

Figure
2: Target Award Calculation Examples

 

	
  Level

  	
   

  	
  Full-time or Part-Time

  	
   

  	
  Base Salary

  	
   

  	
  Target Percentage

  	
   

  	
  Pro-Ration Factor

  	
   

  	
  Target Award

  	
   

  
	
  Manager

  	
   

  	
  Part Time

  (20 hours/wk)

  	
   

  	
  $

  	
  75,000

  	
   

  	
  10

  	
  %

  	
  50

  	
  %

  	
  ($75,000 x 10% x 50%)=

  $3,750

  	
   

  
	
  Senior

  Manager

  	
   

  	
  Full Time

  	
   

  	
  $

  	
  90,000

  	
   

  	
  15

  	
  %

  	
  100

  	
  %

  	
  ($90,000 x 15% x 100%)=

  $13,500

  	
   

  
	
   

  

 

 

Calculating Actual
Awards

A Participant’s
Actual Award is calculated in two portions, which are then added to form the
Actual Award.  The first portion is tied
to company results, while the second portion is tied to the Participant’s
performance against goals as assessed by the participant’s Manager.  As the Participant’s level of responsibility
in the organization increases, the portion tied to company results increases
and the portion tied to individual results decreases, as listed in Figure 3
below.  Actual Awards are subject to approval
by the CEO.  In addition, Actual Awards
for Executive Officers are subject to approval by the Compensation Committee.

 

Calculation
of portion tied to company results:

The Participant’s
Target Award is multiplied by the portion (percentage) tied to company results
as listed in Figure 3 for the Participant’s eligibility group.  That number is then multiplied by Cubist’s
achievement against the Annual Goals.

 

Calculation
of portion tied to individual results:

The Participant’s
Target Award is multiplied by the portion (percentage) tied to individual
results as listed in Figure 3 for the participant’s eligibility group.  That number is then multiplied by the
percentage of individual goals met by the Participant as assessed by the
Participant’s Manager.

 

Calculation
of Actual Plan Award:

The Actual Award
is the sum of the portion tied to company results and the portion tied to
individual results.

 

Figure 3: Portions
Tied to Company and Individual Results

 

	
  Eligibility Group

  	
   

  	
  2008 Portion Tied

  to Company

  Results

  	
   

  	
  2008 Portion Tied

  to Individual

  Results

  	
   

  
	
  CEO

  	
   

  	
  100

  	
  %

  	
  Board discretion

  	
   

  
	
  Chief Financial Officer

  	
   

  	
  80

  	
  %

  	
  20

  	
  %

  
	
  Executive Vice President

  	
   

  	
  80

  	
  %

  	
  20

  	
  %

  
	
  Senior Vice President

  	
   

  	
  65

  	
  %

  	
  35

  	
  %

  
	
  Vice President, Sales & Marketing

  	
   

  	
  50

  	
  %

  	
  50

  	
  %

  
	
  Vice President

  	
   

  	
  50

  	
  %

  	
  50

  	
  %

  
	
  Executive Director

  	
   

  	
  40

  	
  %

  	
  60

  	
  %

  
	
  Senior Director, National Sales

  	
   

  	
  40

  	
  %

  	
  60

  	
  %

  
	
  Senior Director

  	
   

  	
  40

  	
  %

  	
  60

  	
  %

  
	
  Director

  	
   

  	
  30

  	
  %

  	
  70

  	
  %

  
	
  Senior Manager/ equivalent individual contributor

  	
   

  	
  30

  	
  %

  	
  70

  	
  %

  
	
  Manager/ equivalent individual contributor

  	
   

  	
  30

  	
  %

  	
  70

  	
  %

  
	
  Scientific Employee

  	
   

  	
  30

  	
  %

  	
  70

  	
  %

  
	
  Administrative Employee

  	
   

  	
  30

  	
  %

  	
  70

  	
  %

  

 

Figure 4: Actual
STI Plan Award Calculation Examples

 

	
  Level

  	
   

  	
  Target

  Award from

  Figure 2

  	
   

  	
  Company

  Results

  	
   

  	
  Individual

  Results

  	
   

  	
  Portion tied to

  Company Results

  	
   

  	
  Portion tied to

  Individual Results

  	
   

  	
  Actual STI Plan

  Award

  	
   

  
	
  Manager

  	
   

  	
  $

  	
  3,750

  	
   

  	
  100% of target

  	
   

  	
  100% of goals
  met

  	
   

  	
  $3,750 x 30% x

  100% = $1,125

  	
   

  	
  $3,750 x 70% x

  100% of goal = $2,625

  	
   

  	
  $1,125 + $2,625 

  =$3,750

  	
   

  
	
  Senior

  Manager

  	
   

  	
  $

  	
  13,500

  	
   

  	
  125% of target

  	
   

  	
  100% of goals
  met

  	
   

  	
  $13,500 x 30% x

  125% = $5,062.50

  	
   

  	
  $ 13,500 x 70% x

  100% of goal = $9,450

  	
   

  	
  $5,062.50 +
  $9,450

  =$14,512.50

  	
   

  

 

 

Employment Changes

 

·                  New Hires:

·                  If a Participant is hired during a
Performance Period, his or her award will be pro-rated to reflect the portion
of the year actually worked with Cubist, subject to the pro-ration guidelines
as described below

 

·                  Changes in Eligibility:

·                  If a Participant changes from one
eligibility group to another, the amount of any Plan Award will be determined
by calculating the amount of time worked in each eligible position—subject to
the pro rata guidelines noted below.

 

·                  Part-time:

·                  If a Participant is not a full-time employee, any Plan
Award to the Participant shall be pro-rated based on the Participant’s regular
scheduled work hours or percentage of time worked. If a Participant has a
change in regular scheduled work hours during a Performance Period, the
Participant’s Plan Award shall be pro-rated in accordance with the pro rata
guidelines below.

 

·                  Pro-rata Guidelines:

·                  All pro-rata adjustments occur on a whole
calendar month basis

·                  Changes occurring prior to the 16th
of the month will be effective on the first day of the month

·                  Changes occurring on or after the 16th
of the month will be effective on the first day of the following month

 

·                  Departure or Termination:

·                  If a Participant’s employment terminates
prior to the end of a Performance Period, the Participant shall not be entitled
to a Plan Award unless such termination is as a result of Participant’s death
or retirement, or a Participant becomes disabled, in which case the
Participant, or the Participant’s estate (as the case may be) shall be eligible
for a pro-rated Plan Award payable on the standard payment date for the
Performance Period (as opposed to an earlier date).

·                  If a Participant’s employment terminates
after the completion of the Performance Period but prior to the date that Plan
Award payments are made (the “Payment Date”), a Participant shall be eligible
for a Plan Award, unless such termination is as a result of an involuntary
termination for cause or misconduct.

 

STI award Payout
Process

 

STI Plan Awards
are paid out following the end of the Performance Period and after the
measurement of Cubist’s achievement of Annual Goals has been completed.  Plan Awards will generally be paid out in the
first quarter following the end of the relevant Performance Period. Applicable
taxes other withholdings will be deducted from the Plan Award, as appropriate
for each jurisdiction. In the United States, individual contributions to the
401(k) Plan as well as applicable taxes will be deducted from the award
payment.

 

Glossary of Key
Terms

 

Actual Award: the Plan Award based on the sum of the portion of the
Plan Award tied to company results and the portion tied to individual results

 

Payment Date: the
date that payments, if any, will be made to Participants under the STI Plan

 

Performance Period: 
the twelve month period beginning on January 1 of each calendar
year

 

Target Award: 
the
Participant’s Target Percentage multiplied by his or her base salary for the
Performance Period

 

Target
Percentage: the
maximum amount of a Participant’s Plan Award eligibility expressed as a
percentage of such Participant’s base salary

 

 

All payouts under the Plan are subject to the review and approval
of the Company’s Board of Directors. Nothwithstanding anything else in this
Plan to the contrary, the Board retains the discretion to reduce, increase or
eliminate the funding for this plan in accordance with the Board’s assessment
of corporate goal achievement.

 

The Company reserves the right to amend or
discontinue the Plan at any time without prior notice. In no event does this STI
Plan alter the “employment-at-will” relationship between Cubist and its
employees. Cubist and its employees are free to terminate the employment
relationship at any time, without cause or notice.Exhibit 10.1

 

DEBENTURE REDEMPTION
AGREEMENT

 

This Debenture
Redemption Agreement (“Agreement”)
is entered into as of February 11, 2008 by and among Potomac Capital
Partners, LP and Potomac Capital International Ltd. (together, “Potomac”) and Iteris, Inc. (“Iteris” or the “Company”).

 

RECITALS

 

WHEREAS, the
Company and Potomac are parties to that certain Debenture and Warrant Purchase
Agreement dated May 19, 2004 pursuant to which the Company issued 6%
Convertible Debentures to Potomac;

 

WHEREAS,
Potomac Capital Partners, LP holds a 6% Convertible Debenture dated May 19,
2004, issued by the Company, in the principal amount of $800,000 (the “Potomac Capital Partners Debenture”)
and Potomac Capital International Ltd holds a 6% Convertible Debenture dated May 19,
2004, issued by the Company, in the principal amount of $300,000 (the “Potomac Capital International Debenture”);
and

 

WHEREAS, the
parties hereto have reached certain agreements with respect to the redemption
of the above-described debentures.

 

NOW, THEREFORE,
in consideration of the foregoing and the mutual promises and agreements
contained herein, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:

 

1.             Debenture
Redemption.

 

1.1.          The Company agrees to redeem from Potomac,
and Potomac agrees to sell back to the Company, the Potomac Capital Partners
Debenture and the Potomac Capital International Debenture (together, the “Potomac Debentures”) for an
aggregate payment of $935,000 (the “Aggregate Redemption Price”).  In addition to the payment of the Aggregate
Redemption Price, the Company shall pay at the Closing (as defined below) all
accrued but unpaid interest on such debentures as of the date of Closing.

 

1.2.          The redemption of the Potomac
Debentures (the “Redemption”) shall take place
at the offices of Dorsey & Whitney LLP, 38 Technology Drive, Irvine,
California 92618, at 1:00 P.M. Pacific Time on February 11, 2008, or
at such other time and place as the Company and Potomac mutually agree orally
or in writing (which time and place are designated as the “Closing”).  At the Closing, Potomac shall deliver to the
Company the originals of the Potomac Debentures against payment by the Company
of the amounts set forth in Section 1.1 by check, wire transfer or
any combination thereof.  Notwithstanding
the foregoing, Potomac acknowledges and agrees that, upon and as of the payment
by the Company of the amounts set forth in Section 1.1, whether or
not Potomac has delivered and surrendered the originals of the Potomac
Debentures to the Company, the Potomac Debentures shall be deemed null and void
and cancelled in their entirety and Potomac shall have no further rights with
respect to or under the Potomac Debentures, whether such rights shall have
accrued prior to or after the date hereof.

 

 

2.             Representations
and Warranties.  Potomac hereby
represents, warrants and acknowledges as follows:

 

2.1.          As of the date hereof, the total
outstanding under the Potomac Debentures (principal and accrued but unpaid
interest) is One Million One Hundred Seven Thousand Four Hundred Thirteen
Dollars and Seventy Cents ($1,107,413.70).

 

2.2.          Potomac is
the sole record and beneficial owner of the Potomac Debentures.  Upon payment of the amounts set forth in Section 1.1,
the Company will acquire good and valid title to the Potomac Debentures, free and
clear of all liens, security interests, pledges, claims and encumbrances
of every kind, nature and description incurred or created by Potomac.

 

2.3.          Potomac has the full right and power
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.  The execution, delivery and performance of
this Agreement by Potomac, and the consummation of the transactions contemplated
hereby, (i) have been duly authorized by all requisite organizational
action of Potomac and (ii) do not and will not conflict with any law
applicable to Potomac or any of its properties or assets or any provisions of
Potomac’s organizational documents or contracts, agreements or other instrument
to which Potomac is a party or by which any of its properties or assets may be
bound..

 

2.4.          Potomac is an experienced and
sophisticated investor, having such knowledge and experience in business and
financial matters and investing as to be able to protect its own interests and
assess the risks and merits of the Redemption. 
Potomac has independently determined the advisability of entering into
this Agreement and is entering into this Agreement of its own volition, and is
not relying on any representations or statements of the Company or its
officers, directors, shareholders, employees, agents, attorneys and
representatives except for those representations and statements expressly set
forth herein.

 

2.5.          Potomac has had the opportunity to
consult with counsel of its choice regarding the meaning and legal effect of
this Agreement, and regarding the advisability of making the agreements
provided for herein, and fully understands the same.

 

3.             Release.  The following release shall be effective upon
the Company’s payment of the amounts set forth in Section 1.1.

 

3.1.          Other than the obligations, covenants,
representations and warranties provided for in this Agreement, Potomac, for
itself and its predecessors, successors, agents and assigns (individually and
collectively, the “Potomac Releasing Parties”),
hereby waives, releases, and forever discharges Iteris and its predecessors,
successors, assigns, officers, directors, shareholders, employees, agents,
attorneys and representatives, past and present, (collectively, the “Iteris Released Parties”) of and
from any and all rights, claims, debts, liabilities, demands, obligations,
promises, damages, causes of action and claims for relief of any kind, manner,
nature and description, known or unknown, which any of the Potomac Releasing
Parties have, may have had, might have asserted, may now have or assert, or may
hereafter have or assert against the Iteris Released Parties, or any of them,
related to or arising under the Redemption and Potomac’s purchase and ownership
of the Potomac Debentures.  Potomac
represents and warrants that it has not filed any claims, charges, complaints
or actions against the Company and has not assigned or transferred to any
person or entity any of the claims Potomac is releasing in this Agreement.

 

2

 

3.2.          The Potomac Releasing Parties
acknowledge and agree that the foregoing release includes in its effect all
claims that they do not know or suspect to exist in their favor as of the date
hereof, and the Potomac Releasing Parties expressly waive any statute, legal
doctrine or other similar limitation upon the effect of general releases.  In particular, the Potomac Releasing Parties
waive any and all rights and benefits conferred upon them by Section 1542
of the California Civil Code, which states as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.

 

4.             Governing Law.  This
Agreement shall in all respects be interpreted, enforced, and governed by and
under the internal laws of the State of Delaware, without giving effect to any
choice of law or conflict of law principles.

 

5.             Entire Agreement.  This Agreement constitutes the entire
agreement between the parties with respect to the subject matter and supersedes
all prior oral or written communications, understandings and agreements with
respect thereto.

 

6.             Headings.  The use of headings in this
Agreement is merely for convenience and such headings shall not be used in
construing any provisions of this Agreement.

 

7.             Interpretation.  Each party has had the opportunity to
negotiate modifications to the language of this Agreement and agrees that, in
any dispute regarding the interpretation or construction of this Agreement, no
presumption shall operate in favor of or against any party by virtue of its
role in drafting or not drafting the terms and conditions set forth herein..

 

8.             Severability.  If any part, term or provision of this
Agreement is held by a court to be void or voidable, illegal, unenforceable,
invalid or otherwise in conflict with law, (i) the remaining provisions or
applications of this Agreement shall not be affected and the rights and
obligations of the parties shall be construed and enforced as if this Agreement
did not contain the particular term or provision held to be invalid and (ii) such
provision shall be amended to conform as nearly as possible, and only to the
extent required, to applicable law.

 

9.             Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all such
counterparts together shall constitute but one and the same instrument.  A photocopy or facsimile signature may be
used as an original.

 

[Signature Page Follows]

 

3

 

IN WITNESS WHEREOF, the undersigned have and executed this Agreement to
be effective as of the date first indicated above.

 

	
  Iteris, Inc.  

  	
  Potomac Capital Partners, LP  

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ James S.
  Miele 

  	
   

  	
  By:

  	
  /s/ Paul J.
  Solit

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    James
  S. Miele 

  	
   

  	
  Name:

  	
  Paul J.
  Solit

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  CFO

  	
   

  	
  Title:

  	
      Managing
  Member of the General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Potomac Capital International Ltd.  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J.
  Solit

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Paul J.
  Solit

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
      President
  of the Investment Mgr.

  	
   

  
																

 

4

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