Document:

Exhibit 10.01

 

EMPLOYMENT AGREEMENT

 

 

This Agreement is made as of
the 31st day of December 2004, by and between Entercom Communications Corp., a
Pennsylvania corporation (hereinafter referred to as the “Company” or  “we”), and Stephen F. Fisher (hereinafter
referred to as “you”).

 

The
parties hereto agree to amend the terms of your employment with the Company as
follows:

 

1.    Term    The term of this Agreement shall commence
as of the date first written above and continue through February 29, 2008,
subject to termination as provided herein. 
This Agreement shall automatically renew from year to year thereafter,
unless either party gives at least 120 days prior written notice of its
election to either terminate or to renegotiate the terms of this Agreement at
the end of the original or any then current renewal term.

 

2.     Salary and Benefits     You will be paid a salary as follows:

 

(a)           For
the period of November 1, 2004 to February 28, 2006 you will be paid a
semi-monthly salary of $18,750 (annual rate of $450,000). This is a retroactive
salary adjustment and the retroactive adjustment amount shall be paid in the
next regularly scheduled payroll of the Company.

 

(b)           For the period from March 1, 2006 to February 28, 2007 you
will be paid a semi-monthly salary of $19,791.67 (annual rate of $475,000).

 

(c)           For the period from March 1, 2007 to February 29, 2008 you
will be paid a semi-monthly salary of $20,833.33 (annual rate of $500,000).

 

(d)           Commencing March 1, 2008 and each March 1, thereafter,
your salary shall be increased by the percentage increase in the Consumer Price
Index for all Urban Consumers (“CPI-U”) as published by the U.S. Department of
Labor for the immediately preceding January compared to the CPI-U for the month
of January one year earlier.

 

(e)           You will be paid a cash bonus of $100,000 in the first
regularly scheduled payroll of the Company in 2005, provided you continue to be
employed hereunder through that date.

 

Such
salary and any other compensation to be paid to you hereunder will be subject
to all payroll deductions or withholding authorized by you or required by
federal, state or local laws or regulations.

 

In
addition, you will be eligible to participate in the Company’s 401(k) Plan and
you will be provided with coverage under the Company’s life insurance and LTD
insurance plans and any other benefits generally available to officers of the
Company, and you and your dependents will be provided with coverage under the
Company’s major medical and dental insurance plans.

 

3.     Annual Incentive Bonus.  You will be eligible for an annual cash bonus
of up to: (i) $350,000 with respect to the 2005 and 2006 (payable in 2006 and
2007 respectively) fiscal years of the Company; (ii) $375,000 with respect to
the 2007 and 2008 (payable in 2008 and 2009

 

1

 

respectively) fiscal years of the Company;
and (iii) the amount of the immediately preceding year’s maximum bonus adjusted
by the percentage change in the CPI-U over the year for which the bonus is paid
with respect to 2009 and each fiscal year thereafter (payable in the year
following the year in question).  The
actual amount of such bonus will be determined in the sole discretion of the
Compensation Committee of the Board of Directors based on a review of the
Company’s performance and your performance during the fiscal year then
ended.  You must work through the end of
the fiscal year in question to be eligible for the bonus for that year and the
bonus will be determined and then paid after the completion of the financial
statements for the fiscal year in question.

 

4.     Stock Options.   In anticipation of the execution of this
agreement by December 31, 2004, you have been awarded options to purchase
200,000 shares of Class A common stock of the Company under the Entercom 1998
Equity Compensation Plan (the “Plan”) and such options shall not vest and are
forfeited if this Agreement is not executed by December 31, 2004.  Such options have a Grant Date of November 9,
2004, a strike price of $35.05, a ten-year term and will vest 25% per year at
the end of each of the first four years of full time employment following the
grant, except as provided herein.  If
your employment with the Company is terminated for Cause (as defined in the
Plan) all unexercised options will be forfeited in accordance with the terms of
the Plan.  If your employment is
terminated by the Company without Cause all option grants not then vested will
continue to vest as set forth in paragraphs 8 and 10(c) hereof; except that,
(i) if such termination is due to your death all unexercised options that you
then hold shall fully vest or (ii) if such termination is due to your
disability, the vesting of options shall be as provided in the Plan in effect
as of the date of this Agreement.  Any
vested options at the time of the termination of your employment by the Company
by reason of your death or disability may be exercised at any time within the
shorter of the expiration of the original ten (10) year term of the option on
question or two (2) years from the date of termination.  The foregoing notwithstanding, if you violate
any of the Restrictive Covenants contained in paragraph 11 hereof, all
unexercised options will be forfeited.   
Such options will contain such other terms as determined by the
Compensation Committee of the Board of Directors.  Any option grants hereunder shall be adjusted
for any dilution event as described in paragraph 3(b) of the Plan.  The foregoing grant of options to purchase
200,000 shares of Class A Stock is intended to be all of your option grants for
the years 2005, 2006 and 2007 and it is not anticipated that you will receive
any further option grants until 2008. 
Subject to the approval of the Compensation Committee of the Board of
Directors, commencing in 2008 you will be eligible for discretionary grants of
options to purchase Class A common stock of the Company under the Plan.  All existing option grants that you now hold
will be modified to provide for vesting and that they will be exercisable as
set forth above and in paragraphs 8 and 10(c).

 

5.     Restricted Stock     Upon approval by the Board of Directors of
additional shares for grant under the Plan, you will be granted 30,000 shares
of Restricted Stock under the Plan effective on the date of such approval by
the Board of Directors. Any such grant shall be subject to approval of the
availability for grant of such shares by the shareholders of the Company at the
2005 Annual Meeting of Shareholders and if such shareholder approval is not
obtained these Restricted Shares shall not vest and shall be forfeited.  If such 30,000 shares of Restricted Stock are
not granted, subject to shareholder approval, to you by January 31, 2005, then
the date after which you may terminate this Agreement set forth in the first
sentence of paragraph 10(b) of this Agreement shall be changed to February 1,
2005.   Otherwise, 5,000 of these shares
of Restricted Stock will vest (i.e. the restrictions will be removed) and the
unrestricted shares will be issued to you on January 1, 2007 and the remaining
25,000 of these shares of Restricted Stock will vest and the unrestricted
shares will be issued to you on February 29, 2008.

 

In
addition, and provided (i) you remain employed hereunder through the applicable
date and (ii) the Board of Directors and the Shareholders approve the
additional shares for grant under

 

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the Plan, you will be granted additional
shares of Restricted Stock as follows: 
4,000 shares in 2006, 4,500 shares in 2007 and 5,000 shares in
2008.  Such shares of Restricted Stock
will be granted on the same day as annual grants to other senior officers as
determined by the Compensation Committee but in no event later than February 28th
of each year in question.  Such shares
will vest (i.e. the restrictions will be removed) and the unrestricted shares
will be issued to you in a manner to be determined by the Compensation
Committee; however such vesting shall be in a manner that is similar to the
vesting for Restricted Stock granted to other senior executives of the Company
as annual grants for the same year.

 

If
your employment with the Company is terminated for Cause (as defined in the
Plan), all unvested Restricted Stock grants will be forfeited.   Except in the case of a termination without
Cause or due to a Constructive Termination within the one year period following
such Change of Control, which terminations will be governed by paragraph 8
hereof, if your employment is terminated by the Company without Cause, all Restricted
Stock grants not then vested will continue to vest as set forth in paragraphs
10(c) hereof; except that, (i) if such termination is due to your death all
unvested shares of Restricted Stock that you then hold shall fully vest or (ii)
if such termination is due to your disability, the vesting of Restricted Stock
(except as provided in the next sentence) shall be as provided in the Plan in
effect as of the date of this Agreement. 
In the event of your disability, as defined in the Plan, the 30,000
shares of Restricted Stock granted pursuant to the first paragraph of this
Section 5 will vest (i.e. the restrictions will be removed) and the
unrestricted shares will be issued to you. 
The foregoing notwithstanding, if you violate any of the Restrictive
Covenants contained in paragraph 11 hereof any unvested Restricted Stock grants
and undelivered shares of unrestricted stock will be forfeited.    Such Restricted Stock grants will be in the
form of previous grants except as modified by the terms of this Agreement.  Any Restricted Stock grants hereunder shall
be adjusted for any dilution event as described in paragraph 3(b) of the Plan.

 

6.     Car Allowance     You will receive a monthly car allowance
of $1,500 per month for each month that this Agreement is in effect.

 

7.     Duties     As Executive Vice President and Chief
Financial Officer of the Company you will be responsible for the general
management and supervision of the fiscal affairs of the Company and discharge
such other duties as may from time to time be assigned by the Board of
Directors, the CEO or the President of the Company.  As part of such duties and responsibilities,
you shall see that a full and accurate accounting of all financial transactions
of the Company is made, oversee the investment and reinvestment of the capital
funds of the Company, cooperate in the conduct of the annual audit of the
Corporation’s financial records and manage the relationships with the Company’s
lenders and investors.  You agree that
you will devote your full time and best efforts to the Company’s business and
will not accept any outside employment without the prior written consent of the
Company.

 

8.     Change of Control     If there is a “Change of Control” of
the Company (as defined in the Plan), the following shall apply:

 

(a)           If
the Surviving Entity (as defined below) is an entity whose stock is publicly
traded and your employment with the Company or its successor is terminated
without Cause or due to a Constructive Termination within the one year period
following that Change of Control then:

 

(i)            You
will be entitled to Salary Continuation, as defined below; and

 

(ii)           The
Aggregate Value (as defined below) is guaranteed to be at least $5,000,000 as
of the date of the Change of Control and to the extent such Aggregate

 

3

 

Value
is less than $5,000,000 you will be paid such shortfall as additional severance
in connection with the termination of your employment; and

 

(iii)          All
options and Restricted Stock that you then hold will fully vest as of the date
of such termination of employment and such options may be exercised at any time
within the shorter of the expiration of the original ten year term of the
option in question or two (2) years from the date of such termination.

 

(b)           If
the Surviving Entity is an entity whose stock is not publicly traded, then:

 

(i)            The
Aggregate Value (as defined below) is guaranteed to be at least $5,000,000 as
of the date of the Change of Control and to the extent such Aggregate Value is
less than $5,000,000 you will be paid such shortfall as additional compensation
within 30 days of the date of the Change of Control. For purposes of this
Section 8(b)(i), such Aggregate Value shall be computed by including Salary
Continuation as if your employment terminated as of the date of the Change of
Control and as if you were entitled to Salary Continuation as of that date even
though your employment with the Surviving Entity may continue and regardless of
whether or not you will be entitled to Salary Continuation if your employment
is terminated by the Surviving Entity; and

 

(ii)           All
options and Restricted Stock that you then hold will fully vest as of the date
of such Change of Control.

 

(iii)          In
the event your employment with the Company or its successor is terminated
without Cause or due to a Constructive Termination within the one year period
following that Change of Control then you will be entitled to Salary
Continuation, as defined below.

 

(c)           “Aggregate
Value” shall be based on the closing price of the Company’s Class A common
stock on the effective date of the Change of Control and shall be computed as
the sum of the following:

 

(i)            The
aggregate of the difference between such closing stock price on the date of the
Change of Control and the strike price of each then in the money option that
you held as of the date of this Agreement or were awarded after the date of
this Agreement, regardless of whether such options are then vested or unvested
and regardless of whether you may have previously exercised such options; plus

 

(ii)           The
value of all of the shares of Restricted Stock that have been awarded to you
since your becoming an employee of the Company in November 1998, regardless of
whether such shares of Restricted Stock are then vested or unvested and
regardless of whether you may have previously sold or disposed of such shares
of Restricted Stock.

 

(iii)          The
gross amount of salary and bonus that is to be paid to you as Salary
Continuation

 

(d)           “Constructive
Termination” shall mean your resignation from employment with the Surviving
Entity due to a diminution in your compensation package or job duties and such
resignation occurs within the first thirty (30) days after such diminution
becomes effective.

 

4

 

(e)           “Surviving
Entity” means the entity that survives or succeeds the Company after a Change
of Control.

 

(f)            “Cause”
in connection with any termination of employment shall mean cause as defined in
the Plan.

 

(g)           “Salary Continuation” shall mean that
you shall be entitled to have your then current salary continue to be paid to
you for a period of two (2) years from the date of such termination of
employment.  In addition you will be paid
two (2) annual bonuses, one during each such year, equal to the average annual
bonus that you received during the two (2) years immediately prior to the year
in which such termination occurs.  Such
annual bonuses shall be paid at the same time as annual bonuses are paid to
other senior executives of the Company in each particular year.

 

(h)           Any payments under this paragraph 8
are expressly conditioned on: (i) your signing a release in form satisfactory
to the Company releasing the Company and all of its officers, directors,
employees and agents from any and all claims or liabilities arising out of your
employment and/or the termination of employment and (ii) your full compliance
with the restrictive covenants contained in paragraph 11 hereof.

 

9.     Going Private Transaction     In the event that there is a “Going Private”
or “LBO” type transaction and as a result the Company’s equity securities are
no longer publicly traded, then you will be eligible to participate in such
transaction on a basis similar to other members of senior management of the
Company.

 

10.     Termination     This Agreement may be terminated during
the original term or any renewal term as follows:

 

(a)        The Company may
terminate this Agreement at any time for cause and without further obligation
hereunder.

 

(b)        You may terminate this
Agreement for any reason at any time after May 1, 2006 (as may be modified as
provided in paragraph 5 hereof) by giving the Company at least 120 days prior
written notice of termination.   In the
event you terminate this Agreement pursuant to this paragraph 10(b), then (i)
after the date of such termination there will be no further vesting of any
options or Restricted Stock that you then hold, you will have 90 days from the
date of such termination to exercise any vested options and after such 90th day
all unexercised options will terminate as provided in the Plan, (ii) you will
not be entitled to any severance or other payment as a result of such
termination except for any salary, bonus or unused vacation earned through the
date of termination and (iii) all provisions of this Agreement that extend
beyond termination, including without limitation the restrictive covenants in
paragraph 11 hereof, shall apply.

 

(c)        The Company may
terminate this Agreement for its convenience and without cause.  In the event of such a termination without
Cause, subject to the conditions set forth below, (except in the case of a
termination without Cause or a Constructive Termination within the one year
period following such Change of Control, which terminations will be governed by
paragraph 8 hereof) the Company shall be obligated to pay to you a one-time
bonus (computed as set forth below) and continue to pay the salary and auto
allowance for the period through February 29, 2008 or one (1) year from the
date of such termination, whichever is longer, and all grants of options and
Restricted Stock made through the effective date of such termination will
continue to vest through the period ending on February 29, 2008, as if you had
remained employed hereunder through that date. 
Any vested options at the time of such termination of your employment,
or which later vest as

 

5

 

provided in this Paragraph 10(c), may be
exercised at any time within the later of two (2) years from your date of
termination or ninety (90) days from the date of vesting.  Such continued payments and vesting of
options and Restricted Stock are expressly conditioned on: (i) your signing a
release in form satisfactory to the Company releasing the Company and all of
its officers, directors, employees and agents from any and all claims or
liabilities arising out of your employment and/or the termination of employment
and (ii) your full compliance with the restrictive covenants contained in
paragraph 11 hereof.   For purpose of the
foregoing, the one-time bonus to be paid in accordance with the above shall be
the sum of $350,000 plus the Prorated Prior Year’s Bonus.   For purposes of the preceding sentence the
Prorated Prior Year’s Bonus shall be the amount of the annual bonus that you were
paid in the year immediately preceding the year in which the termination occurs
prorated in accordance with the number of days from January 1, to the date of
such termination in the year in which such termination occurs.

 

Any payments made under
paragraph 8 or 10(c) incident to a termination of employment shall be in lieu
of and in satisfaction of all claims for severance, payment in lieu of notice
or other compensation which may otherwise arise upon termination of employment
with the Company except for salary and auto allowance earned through the date
of termination and payment of earned but unused vacation in accordance with
Company policy then in existence.

 

If this Agreement terminates
as of February 29, 2008 or any February 29, thereafter, due to a notice
pursuant to paragraph 1 hereof by the Company, it shall not be deemed a
termination by the Company and there shall be no acceleration of the vesting of
options or Restricted Stock or extension of the period for exercise of options
after termination from that provided in the Plan and there shall be no payment
of severance (except as may be provided for under Company policy then in
effect) or continuation payments thereafter.

 

11.     Restrictive Covenants     You agree to the following Restrictive Covenants:

 

(a)    Non-Competition     It is understood and agreed that so long
as you are employed by the Company or being paid your salary after termination
of employment as provided in this Agreement and for a period of one year
thereafter you will not directly or indirectly, provide any service either as
an employee, employer, consultant, contractor, agent, principal, partner,
substantial stockholder, corporate officer or director of or for a company or
enterprise which competes in any material manner with the then present or
planned business activities of the Company. 
The foregoing notwithstanding, if the Company either (i) elects to
terminate your employment for reasons other than Cause or (ii) offers you a
salary and bonus package which is lower than your then current package in
connection with an election by the Company to renegotiate the terms of this
Agreement and your employment terminates due to a failure to reach Agreement on
a lower salary and bonus package, then in either such event the length of the
foregoing covenant against competition shall be reduced (but in no event
extended to more than one year) to the period following the termination of your
employment which is the sum of: (i) any period of notice provided for in this
Agreement for which you are given payment in lieu thereof; (ii) the time of any
salary continuation as provided in this Agreement plus the time equivalent, at
your then current salary rate, of any additional payments made to you in
connection with such termination; and (iii) three (3) months.  For purpose of the foregoing “planned
business activities” shall mean a business initiative materially discussed by
the Board of Directors or which is currently under material consideration by
the Board of Directors or which has been approved by the Board of Directors.

 

(b)     Non-Solicitation     In addition it is understood and agreed
that for the one year period following any termination of your employment with
the Company you will not, without the express prior written permission of the
Company, employ, offer to employ, counsel a third party to employ, or
participate in any manner in the recommendation, recruitment or solicitation of
the

 

6

 

employment of any person who was an employee
of the Company on the date of the termination of your employment or at any time
within the 90 days prior thereto.  In the
event that any such person shall be employed in a position under your direct or
indirect supervision within such one year period without the Company’s express
prior written permission, it shall be conclusively presumed that this
restriction has been violated.

 

(c)     Non-Disparagement     You agree that you will not make any
statement that would adversely reflect on the Company or its management or take
any action that might interfere with the Company’s activities or damage the
Company’s reputation in any way. 
Prohibited actions would include, but not be limited to, Private or
public comments, whether oral or written, critical or disparaging of the
Company or any of its managers.

 

You
agree that a material portion of the covenants of the Company contained in this
Agreement and of the compensation, including any bonuses set forth herein,
benefits and training that you will receive hereunder are consideration for the
restrictions contained in this paragraph 11. 
In the event you violate the restrictive covenants set forth in (a) or
(b) above, it is agreed that the time period for which the restrictive covenant
so violated is applicable shall be extended for a period of one (1) year from
the date you cease such violation.  You
acknowledge that any violation of the provisions set forth in this paragraph 11
may cause irreparable harm to the Company. 
You, therefore, expressly agree that the Company, in addition to any
other rights or remedies which it may possess, shall be entitled to injunctive
and other equitable relief to prevent a breach of these restrictions.

 

12.     Confidentiality and
Intellectual Property Rights    Your position involves a close and
confidential relationship in which you will be privy to proprietary information
of the Company, including without limitation strategic planning, acquisition
and investment analysis, research, consulting reports, computer programs and
sales, technical, financial and programming practices and data all of which you
agree will be held in the strictest confidence at all times.  All trade secret, copyright, trademark and/or
other intellectual property rights of any kind developed while this Agreement
is in effect which relate to the Company’s business or to your duties hereunder
shall be considered a “work for hire” and shall be and remain the sole and
exclusive property of the Company and you shall, to the extent deemed necessary
or desirable by the Company, cooperate and assist the Company in assigning to
the Company and perfecting, filing and recording any such rights in the name of
the Company.

 

13.     No Restrictions     In making this Agreement you represent and
warrant that you are free to enter into and perform this Agreement and are not
and will not be under any disability, restriction or prohibition, contractual
or otherwise, with respect to (a) your right to execute this Agreement; (b)
your right to make the covenants contained herein; and (c) your right to fully
perform each and every term and obligation hereunder.  You further agree not to do or attempt to do,
or suffer to be done, during or after the term hereof, any act in derogation of
or inconsistent with the obligations under this Agreement.

 

14.      Miscellaneous     This Agreement constitutes the entire
agreement and understanding between you and the Company concerning the
compensation to be paid to you and all of the terms and conditions of your
employment and supercedes all prior agreements concerning same, whether written
or oral, including without limitation the Employment Agreement dated August 6,
2002 and the Supplement to Employment Agreement dated March 9, 2004.  Each party agrees to pay reasonable attorney’s
fees and costs incurred by the other if the other party is successful in
enforcing its rights under this Agreement in any court action, arbitration or
other proceeding.  This Agreement
supersedes any prior understandings, representations or agreements, whether
oral or written, concerning the subject matter hereof. This Agreement may not
be modified or amended except by written instrument duly executed by each of
the parties.  A waiver by either party of
any

 

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term or condition of this Agreement or the
breach thereof shall not be deemed to constitute a waiver of any other term or
condition of this Agreement or of any subsequent breach of any term or
condition hereof.

 

SIGNATURE PAGE FOLLOWS

 

8

 

IN
WITNESS WHEREOF, intending to be legally bound hereby, the parties have affixed
their hands and seals as of the date first written above.

 

	
   

  	
   

  	
  /s/
  Stephen F. Fisher

  	
   

  
	
   

  	
   

  	
  Stephen
  F. Fisher

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   12/31/04

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Entercom
  Communications Corp.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  David J. Field

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO
  / President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  12/31/04

  	
   

  
						

 

9Exhibit 10.1

 

Amended
and Restated

Sonus Pharmaceuticals, Inc.

Executive
Compensation Program

 

I.              PURPOSE

 

The
purpose of the Sonus Pharmaceuticals Executive Compensation Program (“Program”)
is to provide competitive compensation opportunities that are aligned with and
promote the overall financial objectives of Sonus Pharmaceuticals (the “Company”)
and its shareholders.  This will be
accomplished through a combination of base salary, short-term incentives, and
long-term equity awards.

 

II.            ELIGIBILITY

 

Company
executives are eligible to participate in the Program.  As of January 1, 2004, the following
executives have been approved for participation in the Program (the “Participants”):

 

•      President & CEO

 

•      SVP, Clinical & Regulatory Affairs, Chief
Medical Officer

 

•      SVP, Chief Financial Officer

 

•      VP, Research and Process Development

 

•      VP, Preclinical Development

 

•      VP, Strategic Development & Corporate
Development

 

•      VP, Regulatory Affairs & Quality Assurance

 

•      VP, Market & Business Development

 

•      VP, Human Resources

 

•      Controller & Principal Accountant

 

•      Investor Relations

 

Other
individuals may become Program Participants during a fiscal year (“New
Participants”) provided such an individual is: (1) an executive of the Company;
(2) recommended for participation by the President & CEO and the
Compensation Committee; and (3) approved for participation by the Board of
Directors.  In addition, a New
Participant must satisfy the specific eligibility requirements of the
Short-Term Incentive and Stock Option Programs in order to receive an award
under each of these programs (see Sections VI and VII, respectively).

 

 

III.           COMPENSATION PHILOSOPHY

 

Four
guiding principles provide the framework for the Program:

 

A.            Pay Program Objectives. 
The primary contributions expected from the Program include:

 

1.     Align the interests of executives and
shareholders by providing an opportunity for Participants to share in the
increase in Company value.

 

2.     Create a direct meaningful link between
business results and individual performance and reward executives for
commensurate company performance.

 

3.     Provide competitive compensation
opportunities to help attract and retain critical leadership and talent.

 

4.     Ensure flexibility to fairly compensate
executives for performance when business priorities and objectives change
throughout the year.

 

B.            Comparative Framework. 
Target pay levels will be competitive with those of similarly situated
executives in comparable life sciences companies.  To ensure an accurate representation of market
practice, multiple survey sources will be considered.

 

1.     Radford Biotechnology Survey.

 

2.     Life Sciences Industry Executive Total
Direct Compensation Survey.

 

3.     Other surveys deemed appropriate by the
Compensation Committee.

 

4.     Peer group of business and labor market
competitors.  The peer group will be
reviewed by the Compensation Committee on an annual basis and submitted to the
Board for approval.

 

A competitive analysis of Sonus’ compensation levels
relative to market will be completed in the fourth quarter of each fiscal year
and will serve as the basis for developing the pay structure for the next
fiscal year.

 

Additionally, the Compensation Committee will utilize
an independent, outside consultant to review the Company’s compensation
programs and practices and make recommendations.

 

C.            Target Pay Position. 
For each element of compensation, Sonus will target the following market
position relative to the comparative framework:

 

	
   

  	
   

  	
  Total
  Cash Compensation

  	
   

  	
   

  
	
  Base Salary

  	
   

  	
  Target
  Total Cash

  	
   

  	
  Maximum
  Total Cash

  	
   

  	
  Target
  Stock Option Grant

  
	
  50th – 60th Percentile

  	
   

  	
  50th
  Percentile

  	
   

  	
  60th – 75th
  Percentile

  	
   

  	
  50th
  Percentile

  (subject to dilution constraints)

  

 

Note:  Total cash is base salary plus short-term
incentive.

 

2

 

D.            Ownership.  The Company
will encourage and facilitate equity ownership of Program Participants through
the grant of stock option awards.  Target
award levels will be based on the competitive value provided to executives in
the market.  Actual awards will reflect
competitive market practice, company stock price performance relative to peers,
individual performance, the strategic importance of individual and retention
objectives.

 

IV.           PROGRAM ADMINISTRATION

 

The
Program will be administered by the President & CEO and the Compensation
Committee of the Board of Directors (the “Compensation Committee”).

 

A.            President & CEO Responsibilities.

 

1.     Recommend new executives for Program
Participation.

 

2.     Develop specific base salary, short-term
incentive and stock option grant recommendations for all Participants (except
the President & CEO) and submit to the Compensation Committee for approval.

 

3.     Propose performance measures, weightings,
and performance levels for the short-term incentive program, and changes
thereto.

 

4.     Evaluate actual performance against the
short-term incentive measures and goals.

 

5.     Communicate Program parameters and
mechanics to Participants.

 

B.            Compensation Committee Responsibilities.

 

1.     Submit new Program Participants to the
full Board for approval.

 

2.     Review peer group companies used for
annual competitive analysis and submit to the full Board for approval.

 

3.     Review short-term incentive performance
measures, goals, and weightings, and make a recommendation to the full Board
for approval.

 

4.     Certify achievement of short-term
incentive measures and determine form of payment.

 

5.     Review President & CEO’s pay
recommendations for Participants, develop pay recommendations for the President
& CEO, and submit all pay recommendations to the full Board for approval.

 

6.     Review President & CEO’s stock option
award recommendations and make a recommendation to the full Board for approval.

 

V.            BASE SALARY

 

The
target base salary market position for Program Participants is the 50th to 60th
percentile of the comparator market.

 

A.            Salary Increase. 
All Participants will be eligible for a salary review at the end of each
fiscal year.  Salary increases may be
comprised of a merit increase and/or a technical adjustment.   Merit increase guidelines (as a percent of
base salary) will be established for the entire company each October based on a
review of current market practices and the Company’s financial condition.  The merit increase guidelines for Program
Participants will be the same as all Company employees.  A Participant will be eligible for a merit
increase based on individual performance as determined through the Company’s
performance review process.

 

3

 

If
a Participant’s base salary after giving effect to the merit increase is below
market 50th percentile, the individual may also receive a technical
adjustment.  Technical adjustments will
be based on the competitive position of the Participant’s base salary relative
to market and the Company’s financial condition.

 

If
a Participant’s base salary is less than 80% of the market 50th percentile
after a merit increase and technical adjustment, the individual will be
eligible for another technical adjustment on or about July 1st of
the following fiscal year.

 

B.            Recommendations and Approval. 
Salary increases for all Participants (except the President & CEO)
will be recommended by the President & CEO and submitted to the
Compensation Committee, with supporting documentation, for review.  The Compensation Committee will develop the
salary increase recommendation for the President & CEO and make a
recommendation with respect to salary increases for all Participants to the
full Board for approval.

 

VI.           SHORT-TERM INCENTIVE
PROGRAM

 

The
short-term incentive program (“STIP”) is designed to reward executives for the
financial and operational success of the Company.

 

A.            Performance Period. 
The STIP will measure and reward performance on an annual basis (January
1 – December 31).

 

B.            Eligibility. 
All Program Participants as of January 1st, are eligible to
participate in the STIP.  New
Participants will be eligible to participate in the STIP upon the
recommendation of the President & CEO and Compensation Committee and
approval by the full Board; provided, however, that the New Participant is
approved for the Program by September 30th.  The New Participant’s award opportunity (see
Section VI. D. below) will be prorated based on the number of full and partial
months remaining in the performance period at the time Program participation is
approved.  New Participants approved for
the Program after September 30th will only be eligible to receive an
award (prorated based on the number of full and partial months remaining in the
performance period) for the achievement of individual performance
measures.  These individuals will be
eligible to participate in the full STIP in the next fiscal year.

 

C.            Performance Measures and Weighting. 
STIP awards will be selected and approved by the Board each year and
will be tied to the achievement of corporate financial goals, operational
objectives and individual performance. 
Performance measures and weightings will be selected based on their
importance to Sonus’ strategic goals and the Participants’ ability to impact
each metric.  STIP awards may be subject
to a “corporate gate”; this is a minimum performance requirement before any
award may be earned.  The “gate” is to be
approved by the Board each year.

 

Goals
will be reviewed on a quarterly basis to ensure continued alignment with the
Company’s business strategy and objectives. 
Upon the recommendation of the President & CEO and Compensation
Committee and approval of the full Board, the performance measures, weightings,
and/or performance levels may be adjusted at this time to reflect changes in
business priorities.

 

D.            Award Levels. 
Target award levels for each STIP Participant have been established
based on competitive practice and Sonus’ compensation philosophy.  Threshold and maximum award levels represent
50% and 150% of target, respectively.

 

	
  Title/Level

  	
   

  	
  Target STIP Award

  (as a% of base salary)

  	
   

  
	
  President & CEO

  	
   

  	
  45.0

  	
  %

  
	
  Senior Vice President

  	
   

  	
  35.0

  	
  %

  
	
  Vice President

  	
   

  	
  25.0

  	
  %

  

 

4

 

E.             Award Determination. 
Actual performance will be measured against the performance metrics and
goals at the end of the fiscal year.  A
score will be assigned to each measure/goal based on the level of achievement
and an aggregate point value determined for each measure.    If the threshold performance level for any
other performance measure is not achieved, no points will be earned for that
measure.  Conversely, actual performance
that is greater than the maximum performance level will yield only the  maximum points for that measure.  The aggregate point value will be multiplied
by each Participant’s Target STIP Award to establish the earned incentive award
percentage.  This percentage will then be
multiplied by the Participant’s base salary to determine the dollar value of
the Participant’s STIP award.

 

The
President & CEO will be for responsible for evaluating actual performance
against the performance goals and determining the award earned.  Written documentation supporting the
President & CEO’s evaluation of performance and calculation of awards will
be submitted to the Compensation Committee for review.  The Compensation Committee will make a
recommendation to the Board regarding the award amount and form of payment.

 

F.             Award Payout. 
Subject to approval by the Compensation Committee, STIP awards will be
paid no later than February 28th following the conclusion of the
fiscal year to which the award relates. 
A Participant must be actively employed at the Company on the date
awards are paid to receive an award.  The
Compensation Committee retains the discretion to recommend that STIP awards be
paid in cash, restricted stock, stock options, promissory note, or to defer
payments via a nonqualified deferred compensation program.

 

VII          STOCK OPTION PROGRAM

 

The
stock option program is designed to focus Program Participants on increasing
Company and shareholder value through the grant of nonqualified stock options.

 

A.            Eligibility. 
All Program Participants as of January 1st, are eligible to
receive a stock option award on or about December 15th to December
31st (“Refresher Grant”).  New
Participants will be eligible to receive a new hire award (“New Hire Grant”) as
soon as administratively possible after their start date.  New Participants will also be eligible for a
Refresher Grant if they enter the Program prior to July 1st;
however, this award will be prorated based on the number of full and partial
months remaining in the fiscal year at the time Program participation is
approved.  New Participants entering the
Program after July 1st will not be eligible to receive a Refresher
Grant during the current fiscal year but will be considered for such an award
in the next fiscal year.

 

B.            Award Levels. 
Target Refresher and New Hire Grants are based on the stock option value
provided to similarly situated executives in the market.  For purposes of defining “market,” the survey
sources listed in Section III.B. will be considered.  Target value represents the economic value of
the Refresher or New Hire Grant using a risk-adjusted present value of expected
gain methodology.

 

	
  Title/Level

  	
   

  	
  Target Refresher Stock

  Option Value

  	
   

  	
  Target New Hire Stock

  Option Value

  	
   

  
	
  President & CEO

  	
   

  	
  $

  	
  500,000

  	
   

  	
  —

  	
   

  
	
  Senior Vice President

  	
   

  	
  $

  	
  275,000

  	
   

  	
  $

  	
  550,000

  	
   

  
	
  Vice President

  	
   

  	
  $

  	
  225,000

  	
   

  	
  $

  	
  450,000

  	
   

  

 

C.            Grant Determination. 
Refresher and New Hire Grants for each Participant will be calculated
using the following process:

 

1.     Calculate Sonus’ 90-day average closing
stock price from September 15th - December 15th.

 

5

 

2.     Determine the risk-adjusted present value
of expected gain of a Sonus stock option (“Option Value”) using the stock price
calculated in Section VII.C.1. above. 
The Option Value should be approximately 50% of the stock price
determined above.

 

3.     Divide the target Refresher Grant (or New
Hire Grant) value for each Participant by the Option Value to determine the
target number of options to be awarded (“Target Grant”).  The New Hire Grant target number of options
will serve as the guidelines for the entire fiscal year.

 

4.     For each Participant (except the
President & CEO), the President & CEO will recommend an actual award (“Actual
Grant”) that is 50% to 150% of the Target Grant.  Factors used to determine the Actual Grant
have been defined by the Board to include:

 

•      Competitive market practice

•      Company stock price performance relative to peers

•      Individual performance

•      Strategic importance of individual/retention
objectives

 

The Compensation
Committee will make this determination for the President & CEO, subject to
Board approval.

 

5.     The President & CEO will submit a
written recommendation and supporting rationale for each Participant’s Actual
Grant to the Compensation Committee for review, with recommendations to be made
to the full Board.

 

6.     The Compensation Committee and/or Board
of Directors may, in lieu of the foregoing, determine the amount of the option
award levels based on other metrics, including without limitation, total number
of shares subject to options; provided, however, that the option award levels shall
not exceed those that would be determined in accordance with the foregoing
provisions of this Section VII.

 

D.            Aggregate Stock Option Grant. 
The aggregate Refresher Grant value provided to current Program
Participants shall not exceed an amount equal to the sum of the Target
Refresher Grant value for each Participant.

 

E.             Stock Option Grant. 
Refresher Grants will be approved and granted by the full Board on or
about December 15th to December 31st.  New Hire Grants will be approved and granted
as soon as administratively possible following the individual’s approval for
participation in the Program.  The
exercise price of the Refresher Grant will be Sonus’ closing stock price on the
date the grant is approved by the Board. 
The exercise price of the New Hire Grant will be Sonus’ closing stock
price on the date the grant is approved by the Board or date of hire, whichever
is later.

 

F.             Vesting.  Refresher
Grants are subject to a four-year time-based vesting schedule.  One-quarter of the total grant vests after
one year, with the remaining options vesting in 36 equal monthly
installments.  Unless otherwise
determined by the President & CEO or Compensation Committee, New Hire
Grants will vest according to the same schedule.

 

VIII         MISCELLANEOUS PROVISIONS

 

A.            This Program is effective as of January
1, 2004 and will continue until the Compensation Committee and/or Board
terminates the Program.  The Compensation
Committee and/or Board retain the right to amend, alter, or terminate this
Program at any time.

 

B.            All decisions made by the Compensation
Committee and/or Board regarding administration and interpretation of the
Program shall be final and binding on all persons, including the Company and
Participants.

 

6

 

C.            Nothing contained in this document shall
be deemed to alter the relationship between the Company and a Participant, or
the contractual relationship between a Participant and the Company if there is
a written contract regarding such relationship. 
Furthermore, nothing contained in this document shall be construed to
constitute a contract of employment between the Company and a Participant.  The Company and each of the Participants
continue to have the right to terminate the employment or service relationship
at any time for any reason, except as provided in a written contract.

 

7

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