Document:

exv10w1

 

Exhibit 10.1

	 	 	 	 	 	 	 	 	 
	

	 	
	 	110 Rio Robles San Jose, CA 95134

W > www.covad.com
	 	
	 	T > 408-952-6400

F >408-952-7539

          September 7, 2007

James A. Kirkland

110 Rio Robles

San Jose, California 95134

Dear Jim:

     Covad Communications Group, Inc. (“Covad”) hereby confirms to you that your employment will
terminate on September 12, 2007 (the “Employment Termination Date”). As a result of the
termination of your employment, provided that you satisfy the eligibility requirements set forth in
Covad’s current Executive Severance Plan (the “Severance Plan”), you will receive the benefits
provided under the Severance Plan.

     We are also pleased to offer to engage you as a consultant to Covad for the period commencing
from the Employment Termination Date through September 12, 2008 (the
“Consulting Period”), serving as a
full member of Covad’s Board of Advisors. Any Covad stock option held by you as of the Employment
Termination Date shall continue to vest and remain exercisable in accordance with the provisions of
the applicable stock option agreement(s) (the “Stock Option(s)”) and, unless otherwise agreed in
writing, continued vesting and exercisability of the Stock Option(s) shall be your sole
compensation from Covad for the consulting services you provide during the Consulting Period. You
will not be entitled to any benefits from Covad other than those provided by the Severance Plan and
the Stock Option(s).

     You remain bound by the terms of that certain Proprietary Information and Inventions Agreement
(“Confidentiality Agreement”) previously executed by you.

     The terms set forth in this letter represent our entire agreement with respect to the matters
covered herein and supersede all prior negotiations and agreements, whether written or oral, with
the exception of the Confidentiality Agreement, the Severance Plan, and the Stock Option(s). No
modification shall be effective unless made by an instrument in writing executed by you and Covad.

     Following the Employment Termination Date, it is the express intent of the parties that you
will be an independent contractor, and not an employee, agent, representative, joint venturer or
partner of Covad or any of its related entities (Covad and such entities collectively referred to
hereinafter as “Covad Entities”). Nothing in this Agreement shall be interpreted or construed as
creating or establishing the relationship of employer and employee between any of the Covad
Entities and you. After the Employment Termination Date, you are not authorized to represent
yourself as an employee, agent, representative, joint venturer or partner of any of the Covad
Entities or to enter into any contracts, leases, agreements or other binding commitments on behalf
of any of the Covad Entities. Both parties acknowledge that, after the Employment Termination
Date, you will not be an employee for state or federal tax purposes or for purposes of unemployment
insurance or other requirement of federal or state employment law. After the Employment
Termination Date, you retain the right to perform the same or similar services for others during
the term of

1

 

this Agreement, so long as you do not utilize information or materials that are confidential or
proprietary to any of the Covad Entities. The Covad Entities also retains the right to enter into
similar contracts for the same or similar services with other individuals.

     If you accept our offer to engage your services as a consultant, then please sign and return
this letter to us at your earliest convenience.

	 	 	 	 	 
	Covad Communications Group, Inc.:

 	 	 
	/s/ Charles Hoffman
 	 	 
	By: Charles Hoffman 	 	 
	Title:  	President and Chief Executive Officer 	 	 
	 

I am pleased to accept the offer to provide consulting services on the terms set forth herein.

	 	 	 	 	 
	James A. Kirkland:

 	 	 
	/s/ James Kirkland
 	 	 
	Signature 	 	 
	 
	James Kirkland
 	 	 
	Name 	 	 
	 
	Date: 9/7/07

 	 	 
	 	 	 
	 	 	 
	 	 	 
	 

2exv10w2

 

Exhibit 10.2

As
approved by the Board of Directors
September 7, 2007

COVAD
COMMUNICATIONS GROUP, INC.

2007 EQUITY INCENTIVE PLAN

AMENDED EFFECTIVE AS OF SEPTEMBER 7, 2007

     1. PURPOSE. The purpose of the Covad Communications Group, Inc. 2007 Equity Incentive Plan
(the “Plan”) is to provide incentives to attract, retain and motivate eligible persons whose
present and potential contributions are important to the success of the Company, its Subsidiaries
by offering them an opportunity to participate in the Company’s future performance through awards
of Options, Restricted Stock, Stock Bonuses, Stock Appreciation Rights (“SARs”) and Restricted
Stock Units (“RSUs”). Capitalized terms not defined elsewhere in the text are defined in Section
25.

     2. SHARES SUBJECT TO THE PLAN.

          2.1 Number of Shares Available. Subject to Sections 2.2 and 21, twenty million
(20,000,000) Shares are available for grant and issuance under the Plan. Shares subject to Awards
that are cancelled, forfeited, settled in cash or that expire by their terms will be returned to
the pool of Shares available for grant and issuance under the Plan. If the Exercise Price or
Purchase Price of any Award, or the tax withholding with respect to any Award, is satisfied by
tendering Shares to the Company (by either actual delivery or attestation), or if an SAR is
exercised, only the net number of Shares issued to the Participant, will be deemed to have been
issued from the Plan and to have reduced the number of Shares remaining available for delivery
under this Plan. No more than one hundred million (100,000,000) Shares shall be issued pursuant to
the exercise of ISOs. At no time may the number of Shares issued from the Plan and then
outstanding without any vesting requirement having been imposed on their issuance, exceed five
percent (5%) of the aggregate number of Shares that have been reserved under the Plan to that date.
The Company will reserve and keep available at least a sufficient number of Shares to satisfy the
requirements of all Awards.

          2.2 Adjustment of Shares. If the number of outstanding Shares is changed by a stock
dividend, recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company, without consideration,
then (a) the number of Shares reserved for issuance and future grant under the Plan set forth in
Section 2.1, (b) the Exercise Prices of and number of Shares subject to outstanding Options and
SARs, (c) the number of Shares subject to other outstanding Awards, (d) the maximum number of
shares that may be issued as ISOs set forth in Section 2.1; and (e) the maximum number of shares
that may be issued to an individual or to a new employee in any one fiscal year set forth in
Section 3, will be proportionately adjusted, subject to any required action by the Board or the
stockholders of the Company and compliance with applicable securities laws; provided that fractions
of a Share will not be issued but will either be replaced by a cash payment equal to the Fair
Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee; and provided further that the Exercise Price of any Option or SAR may
not be decreased to below the par value of the Shares.

     3. ELIGIBILITY. ISOs may be granted only to employees (including officers and directors who
are also employees) of the Company or Subsidiary. All other Awards may be granted to employees,
officers, directors, consultants, independent contractors and advisors of the Company or
Subsidiary. The Committee (or its designee under 4.1(c)) will from time to time determine in its
sole discretion and designate the eligible persons who will be granted Awards under the Plan. The
Plan is discretionary in nature, and the grant of Awards by the Committee is voluntary and
occasional. A person may be granted more than one Award under the Plan. However, no person will
be eligible to receive more than two million (2,000,000) Shares issuable from Awards granted in a
given calendar year, other than new employees of the Company or Subsidiary (including new employees
who are also officers and directors of the Company or Subsidiary), who are eligible to receive up
to a maximum of four million (4,000,000) Shares issuable under Awards granted in the calendar year
in which they commence their employment.

 

 

     4. ADMINISTRATION.

          4.1 Committee Authority. The Plan shall be administered by the Committee.
Notwithstanding any provision of the Plan to the contrary, administration of the Plan shall at all
times be limited by the requirement that any administrative action or exercise of discretion shall
be void (or suitably modified when possible) if necessary to avoid the application to any
Participant of taxation under Section 409A of the Code. Subject to the general purposes, terms and
conditions of the Plan, the Committee will have full power to implement and carry out the Plan.
Without limiting the previous sentence, the Committee will have the authority to:

	 	(a)	 	construe and interpret the Plan, any Award Agreement and any other agreement or
document executed pursuant to the Plan;
	 
	 	(b)	 	prescribe, amend and rescind rules and regulations relating to the Plan or any
Award, including determining the forms and agreements used in connection with the Plan;
provided that the Committee may delegate to the Company’s legal department the
authority to approve revisions to the forms and agreements used in connection with the
Plan that are designed to facilitate Plan administration, and that are not inconsistent
with the Plan or with any resolutions of the Committee relating to the Plan;
	 
	 	(c)	 	select persons to receive Awards; provided that the Committee may delegate to
one or more Executive Officers (who would also be considered “officers” under Delaware
law) the authority to grant an Award under the Plan to Participants who are not
Insiders;
	 
	 	(d)	 	determine the terms of Awards;
	 
	 	(e)	 	determine the number of Shares or other consideration subject to Awards;
	 
	 	(f)	 	determine whether Awards will be granted singly, in combination, or in tandem
with, in replacement of, or as alternatives to, other Awards under the Plan or any
other incentive or compensation plan of the Company or any Subsidiary;
	 
	 	(g)	 	grant waivers of Plan or Award conditions;
	 
	 	(h)	 	determine the vesting, exercisability, transferability, and payment of Awards;
	 
	 	(i)	 	correct any defect, supply any omission, or reconcile any inconsistency in the
Plan, any Award or any Award Agreement;
	 
	 	(j)	 	determine whether an Award has been earned;
	 
	 	(k)	 	amend the Plan;
	 
	 	(l)	 	to take any action consistent with the terms of the Plan, either before or after an
Award has been granted, which it deems necessary or advisable to comply with any
governmental laws or regulatory requirement of a foreign country, including, but not limited
to, modifying or amending the terms and conditions governing any Awards or establishing any
local country plans as sub-plans to this Plan; or
	 
	 	(m)	 	make all other determinations necessary or advisable for the administration of
the Plan.

          4.2 Committee Interpretation and Discretion. Any determination made by the Committee
with respect to any Award shall be made in its sole discretion at the time of grant of the Award
or, unless in contravention of any express term of the Plan or Award, at any later time, and such
determination shall be final and binding on the Company and all persons having an interest in any
Award under the Plan. The Committee shall not exercise its discretion to waive any condition which
must be satisfied before Shares subject to an Award are “Vested” (as defined in the applicable
Award documentation at the time of grant of such Award) except in

 

 

connection with: (i) death, (ii) Disability, (iii) any Termination occurring at or after attaining
normal retirement age, (iv) a Corporate Transaction (including any Termination occurring after a
Corporate Transaction), or (v) any Termination without cause that is classifiable as an
“involuntary separation from service” under Treas. Reg. Sec. 1.409A-1(n). Any dispute regarding
the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or
Company to the Committee for review. The resolution of such a dispute by the Committee shall be
final and binding on the Company and the Participant. The Committee may delegate to one or more
Executive Officers the authority to review and resolve disputes with respect to Awards held by
Participants who are not Insiders, and such resolution shall be final and binding on the Company
and the Participant.

          4.3 Administration with respect to Section 162(m) of the Code. When necessary or
desirable for an Award to qualify as “performance-based compensation” under Section 162(m) of the
Code the Committee shall include at least two persons who are “outside directors” (as defined under
Section 162(m) of the Code) and at least two (or a majority if more than two then serve on the
Committee) such “outside directors” shall approve the grant of such Award and timely determine the
Performance Period and any Performance Factors upon which vesting of any portion of such Award is
to be subject. When required by Section 162(m) of the Code, then prior to settlement of any such
Award at least two (or a majority if more than two then serve on the Committee) such “outside
directors” then serving on the Committee shall determine and certify in writing the extent to which
such Performance Factors have been timely achieved and the extent to which the Shares subject to
such Award have thereby been earned.

          4.4 Administration with respect to Certain Awards. At any time that the Company has
any form of security that is publicly-traded on a national securities exchange, then with respect
to the grant and administration of any Award granted to a non-employee member of the Board, such
grant and administration shall only be by a committee appointed by the Board that is comprised
solely of independent directors as determined under the applicable rules of such national
securities exchange (for example, the rules of the American Stock Exchange).

     5. OPTIONS.

          5.1 Grant of Options. The Committee may grant Options to Participants and will
determine (a) whether the Options will be ISOs or NSOs; (b) the number of Shares subject to the
Option, (c) the Exercise Price of the Option, (d) the period during which the Option may be
exercised, (e) the vesting and exercisability of the Option and (f) all other terms and conditions
of the Option, subject to the provisions of this Section 5 and the Plan. Each Option granted under
the Plan will be evidenced by an Award Agreement, which shall expressly identify the Option as an
ISO or NSO. The date of grant of an Option will be the date on which the Committee makes the
determination to grant the Option, unless the Committee otherwise specifies a later date.

          5.2 Exercise Period; Expiration Date and Exercise. An Option will be exercisable
within the times or upon the occurrence of events determined by the Committee and set forth in the
Award Agreement governing such Option and subject to Company policies established by the Committee
(or by individuals to whom the Committee has delegated responsibility) from time to time. The
Committee may provide for Options to become exercisable at one time or from time to time,
periodically or otherwise (including, without limitation, upon the attainment during a Performance
Period of performance goals based on Performance Factors), in such number of Shares or percentage
of Shares subject to the Option as the Committee determines. The Award Agreement shall set forth
the Expiration Date; provided that no Option will be exercisable after the expiration of ten years
from the date the Option is granted; and provided further that no ISO granted to a Ten Percent
Stockholder will be exercisable after the expiration of five years from the date the Option is
granted.

          5.3 Exercise Price. The Exercise Price of an Option will be determined by the
Committee when the Option is granted and may not be less than the Fair Market Value on the date of
grant; provided that the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be
less than 110% of the Fair Market Value of the Shares on the date of grant.

 

 

          5.4 Vesting and Termination.

     (a) Vesting. Except as may be set forth in the Participant’s Award Agreement, any
Option granted to a Participant will cease to vest on the Participant’s Termination Date. If the
Participant does not exercise his or her Option within the time specified by the Committee or as
set forth in the Award Agreement, the Option shall terminate.

     (b) Post-Termination Exercise Period. Subject to Section 10.4, following a
Participant’s Termination, the Participant’s Option may be exercised to the extent vested and
exercisable as set forth below:

          (i) no later than three months after the Termination Date if a Participant is Terminated for
any reason except death or Disability, unless a different period of time period is specifically set
forth in the Participant’s Award Agreement; provided that no Option may be exercised after the
Expiration Date of the Option; or

          (ii) no later than twelve months after the Termination Date in the case of Termination due to
Disability or death, unless a different time period is specifically set forth in the Participant’s
Award Agreement; provided that no Option may be exercised after the Expiration Date of the Option.

          5.5 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date
of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant
during any calendar year (under the Plan or under any other incentive stock option plan of the
Company or any Subsidiary) shall not exceed $100,000. If the Fair Market Value of Shares on the
date of grant with respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become
exercisable in that calendar year will be ISOs, and the Options for the Shares with a Fair Market
Value in excess of $100,000 that become exercisable in that calendar year will be NSOs. If the
Code is amended to provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISOs, such different limit shall be automatically incorporated into the Plan and will
apply to any Options granted after the effective date of the Code’s amendment.

          5.6 Notice of Disqualifying Dispositions of Shares Acquired on Exercise of an ISO.
The Award Agreement for an ISO shall require that, if a Participant sells or otherwise disposes of
any Shares acquired pursuant to the exercise of an ISO on or before the later of (a) the date two
years after the Date of Grant, and (b) the date one year after the exercise of the ISO (in either
case, a “Disqualifying Disposition”), the Participant shall immediately notify the Company in
writing of such Disqualifying Disposition.

          5.7 No Disqualification. Notwithstanding any other provision in the Plan, no term of
the Plan relating to ISOs will be interpreted, amended or altered, and no discretion or authority
granted under the Plan will be exercised, so as to disqualify the Plan under Section 422 of the
Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422
of the Code. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be
treated in accordance with Section 424(h) of the Code and the regulations thereunder.

     6. RESTRICTED STOCK AWARDS.

          6.1 Awards of Restricted Stock. A Restricted Stock Award is an offer by the Company
to sell to a Participant Shares that are subject to restrictions. The Committee will determine to
whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the
restrictions under which the Shares will be subject and all other terms and conditions of the
Restricted Stock Award. A Participant accepts a Restricted Stock Award by signing and delivering
to the Company an Award Agreement with full payment of the Purchase Price within 30 days from the
date the Award Agreement was delivered to the Participant. If the Participant does not accept the
Restricted Stock Award within 30 days, then the offer of the Restricted Stock Award will terminate,
unless the Committee determines otherwise. At least three years, as measured from the date of
grant, shall pass before any portion of a Restricted Stock Award may vest.

          6.2 Purchase Price. The Purchase Price for a Restricted Stock Award will be
determined by the Committee and may be less than Fair Market Value (but not less than the par value
of the Shares) on the date the

 

 

Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with
Section 11 of the Plan and the Award Agreement, and in accordance with any procedures established
by the Company.

          6.3 Termination. Except as may be set forth in the Participant’s Award Agreement, any
Restricted Stock Award will cease to vest on the Participant’s Termination Date.

     7. STOCK BONUS AWARDS.

          7.1 Awards of Stock Bonuses. A Stock Bonus Award is an award to a Participant of
Shares (which may consist of fully-vested Stock, Restricted Stock or Restricted Stock Units) for
services to be rendered or for past services already rendered to the Company or any Subsidiary and
any vesting requirement may be based on continuation in service or other factors (including,
without limitation, upon the attainment during a Performance Period of performance goals based on
Performance Factors). No payment will be required for Shares awarded pursuant to a Stock Bonus
Award (other than any minimum payment required by applicable law which may be made in the form of
any legally acceptable form of consideration).

          7.2 Form of Payment to Participant. The Stock Bonus Award shall be settled within the
period of time permitted under Section 409A of the Code without triggering the “additional tax”
under Section 409A(a)(1)(B) of the Code. Payment may be made in the form of cash, whole Shares, or
a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus
Award on the date of payment, and in either a lump sum payment or in installments, all as the
Committee determines.

          7.3 Termination of Participant. Except as may be set forth in the Participant’s Award
Agreement, any Stock Bonus Award will cease to vest on the Participant’s Termination Date.

     8. STOCK APPRECIATION RIGHTS.

          8.1 Awards of SARs. A Stock Appreciation Right (“SAR”) is an award to a Participant
that may be settled in Shares (which may consist of Restricted Stock or RSUs), having a value equal
to the value determined by multiplying the difference between the Fair Market Value on the date of
exercise over the Exercise Price and the number of Shares with respect to which the SAR is being
settled. The SAR may be granted for services to be rendered or for past services already rendered
to the Company, or any Subsidiary.

          8.2 Exercise Period and Expiration Date. A SAR will be exercisable within the times
or upon the occurrence of events determined by the Committee and set forth in the Award Agreement
governing such SAR (including, without limitation, upon the attainment during a Performance Period
of performance goals based on Performance Factors). The Award Agreement shall set forth the
Expiration Date; provided that no SAR will be exercisable after the expiration of ten years from
the date the SAR is granted.

          8.3 Exercise Price. The Committee will determine the Exercise Price of the SAR when
the SAR is granted, however the Exercise Price shall not be less than the Fair Market Value on the
date of grant.

          8.4 Termination.

     (a) Vesting. Any SAR granted to a Participant will cease to vest on the Participant’s
Termination Date. If the Participant does not exercise his or her SAR within the time specified by
the Committee or as set forth in the Award Agreement, the SAR shall terminate.

     (b) Post-Termination Exercise Period. Subject to Section 10.4, following a
Participant’s Termination, the Participant’s SAR may be exercised to the extent vested and
exercisable as set forth below:

          (i) no later than three months after the Termination Date if a Participant is Terminated for
any reason except death or Disability, unless a different period of time period is specifically set
forth in the Participant’s Award Agreement; provided that no SAR may be exercised after the
Expiration Date of the SAR; or

 

 

          (ii) no later than twelve months after the Termination Date in the case of Termination due to
Disability or death, unless a different time period is specifically set forth in the Participant’s
Award Agreement; provided that no SAR may be exercised after its Expiration Date.

     9. RESTRICTED STOCK UNITS.

          9.1 Awards of Restricted Stock Units. An RSU is an award to a Participant covering a
number of Shares that may be settled in cash, or by issuance of those Shares for services to be
rendered or for past services already rendered to the Company or any Subsidiary or achievement of
other factors (including, without limitation, upon the attainment during a Performance Period of
performance goals based on Performance Factors). At least three years, as measured from the date
of grant, shall pass before any portion of an RSU may vest.

          9.2 Form and Timing of Settlement. To the extent permissible under applicable law,
the Committee may permit a Participant to defer payment under a RSU to a date or dates after the
RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements to
avoid imposition of the “additional tax” provided under Section 409A(a)(1)(B) of the Code (or any
successor provision) and any regulations or rulings promulgated thereunder. Payment may be made in
the form of cash or whole Shares or a combination thereof in a lump sum payment, all as the
Committee determines.

     10. OTHER PROVISIONS.

          10.1 Distribution of Award Agreements and Plan. The Award Agreement, Plan and other
documents may be delivered in any manner (including electronic distribution or posting) that meets
applicable legal requirements.

          10.2 Form of Award Agreement(s). Each Award granted under the Plan will be evidenced
by an Award Agreement, which will be in substantially a form (which need not be the same for each
Participant) that the Committee or an officer of the Company (pursuant to Section 4.1(b)) has from
time to time approved, and will comply with and be subject to the terms and conditions of the Plan.

          10.3 Procedures for Exercising or Settling an Award. A Participant or Authorized
Transferee may exercise or settle Awards by following the procedures established by the Company’s
stock administration department, as communicated and made available to Participants through the
Company’s electronic mail system, intranet site or otherwise.

          10.4 Black-out Periods and Post-Termination Exercisability. In the event a
Participant is prevented from exercising an Option or the Company is unable to settle an Award due
to any trading restrictions currently in effect with respect to the Company’s Shares at the time of
such Participant’s Termination, then the length of time applicable to such trading restrictions
shall toll any post-termination exercise period until such trading restriction lapses.

          10.5 Limitations on Exercise. The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option or SAR; provided that the minimum
number will not prevent a Participant from exercising an Option or SAR for the full number of
Shares for which it is then exercisable. An Option or a SAR may only be exercised by the personal
representative of a Participant or an Authorized Transferee or by the person or persons to whom a
Participant’s rights under the Option or SAR shall pass by such person’s will or by the laws of
descent and distribution of the state of such person’s domicile at the time of death, and then only
as and to the extent that such person was entitled to exercise the Option or SAR on the date of
death.

          10.6 Terms of Awards. The Committee will determine an Award’s terms, including,
without limitation: (a) the number of Shares deemed subject to the Award; (b) the time or times
during which the Award may be exercised and (c) such other terms and conditions and conditions as
the Committee deems appropriate. Awards may be subject to performance goals based on Performance
Factors during any Performance Period as may be set out in advance in the Participant’s Award
Agreement. The Committee may adjust the performance goals

 

 

applicable to Awards to take into account changes in law and accounting and to make such
adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary
or unusual items, events or circumstances.

     11. PAYMENT FOR SHARE PURCHASES.

          11.1 Payment. Payment for Shares purchased pursuant to the Plan may be made by any of
the following methods (or any combination of such methods) that are described in the applicable
Award Agreement and that are permitted by law:

	 	(a)	 	in cash or cash equivalent (including by check);
	 
	 	(b)	 	in the case of exercise by the Participant, a Participant’s guardian or legal
representative or the authorized legal representative of a Participant’s heirs or
legatees after a Participant’s death, by cancellation of indebtedness of the Company to
the Participant;
	 
	 	(c)	 	by surrender of shares of the Company’s Common Stock that either: (1) were
obtained by the Participant or Authorized Transferee in the public market; or (2) if
the shares were not obtained in the public market, they have been paid for within the
meaning of SEC Rule 144;
	 
	 	(d)	 	in the case of exercise by the Participant, Participant’s guardian or legal
representative or the authorized legal representative of a Participant’s heirs or
legatees after a Participant’s death, by waiver of compensation due or accrued to the
Participant for services rendered;
	 
	 	(e)	 	with respect only to purchases upon exercise of an Option, and provided that a
public market for the Shares exists:

	 	(1)	 	through a “same day sale” commitment from the Participant or
Authorized Transferee and an NASD dealer meeting the requirements of the
Company’s “same day sale” procedures and in accordance with law; or
	 
	 	(2)	 	through a “margin” commitment from the Participant or Authorized Transferee and
an NASD dealer meeting the requirements of the Company’s “margin” procedures and in
accordance with law.

          11.2 Issuance of Shares. Upon payment of the applicable Purchase Price or Exercise
Price and compliance with other conditions and procedures established by the Company for the
purchase of Shares, the Company shall issue the Shares registered in the name of the Participant or
Authorized Transferee and shall deliver certificates representing the Shares (in physical or
electronic form, as appropriate). The Shares may be subject to legends or other restrictions as
described in Section 15 of the Plan.

     12. WITHHOLDING TAXES.

          12.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of
Awards granted under the Plan, the Company may require the Participant to remit to the Company an
amount sufficient to satisfy minimum federal, state, local and foreign income or social security
tax withholding requirements prior to the delivery of any certificate(s) for the Shares. If a
payment in satisfaction of an Award is to be made in cash, the payment will be net of an amount
sufficient to minimum satisfy federal, state, local and foreign income or social security tax
withholding requirements.

          12.2 Stock Withholding. When, under applicable tax laws, a Participant incurs income
or social security tax liability in connection with the grant, exercise, vesting or payment of any
Award that is subject to income or social security tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may, in its sole discretion,
allow the Participant to satisfy the minimum withholding tax obligation by electing to have the
Company withhold from the Shares to be issued that number of whole Shares

 

 

having a Fair Market Value equal to the minimum amount required to be withheld, determined on the
date that the amount of tax to be withheld is to be determined. All elections by a Participant to
have Shares withheld for this purpose shall be made in accordance with the requirements established
by the Committee and be in writing in a form acceptable to the Committee.

     13. PRIVILEGES OF STOCK OWNERSHIP. No Participant or Authorized Transferee will have any
rights as a stockholder of the Company with respect to any Shares until the Shares are issued to
the Participant or Authorized Transferee. After Shares are issued to the Participant or Authorized
Transferee, the Participant or Authorized Transferee will be a stockholder and have all the rights
of a stockholder with respect to the Shares including the right to vote and receive all dividends
or other distributions made or paid with respect to such Shares; provided, that if the Shares are
Restricted Stock, any new, additional or different securities the Participant or Authorized
Transferee may become entitled to receive with respect to the Shares by virtue of a stock dividend,
stock split or any other change in the corporate or capital structure of the Company will be
subject to the same restrictions as the Restricted Stock; provided further, that the Participant or
Authorized Transferee will have no right to retain such dividends or distributions with respect to
Shares that are repurchased at the Participant’s original Exercise Price or Purchase Price pursuant
to Section 15.

     14. TRANSFERABILITY. As may be permitted by the Committee (and to the extent permitted by
applicable law and the terms of the Award Agreement), a Participant may transfer an Award to an
Authorized Transferee. Absent such permission, no Award and no interest therein, shall be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution, and no Award may be made subject to execution, attachment or
similar process.

     15. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to
itself and/or its assignee(s) in the Award documentation a right to repurchase all or a portion of
a Participant’s Shares that are not “Vested” (as defined in the Award documentation), following the
Participant’s Termination, at any time within ninety days after the later of (a) the Participant’s
Termination Date or (b) the date the Participant purchases Shares under the Plan, for cash or
cancellation of purchase money indebtedness with respect to Shares, at the Participant’s original
Exercise Price or Purchase Price; provided that upon assignment of the right to repurchase, the
assignee must pay the Company cash equal to the excess of the Fair Market Value of the Shares over
the original Purchase Price.

     16. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan
(whether in physical or electronic form, as appropriate) will be subject to stock transfer orders,
legends and other restrictions that the Committee deems necessary or advisable, including without
limitation restrictions under any applicable federal, state or foreign securities law, or any
rules, regulations and other requirements of the SEC or any stock exchange or automated quotation
system on which the Shares may be listed.

     17. ESCROW. To enforce any restrictions on a Participant’s Shares, the Committee may require
the Participant to deposit all certificates representing Shares, together with stock powers or
other transfer instruments approved by the Committee, appropriately endorsed in blank, with the
Company or an agent designated by the Company, to hold in escrow until such restrictions have
lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions
to be placed on the certificates.

     18. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless
the Award is in compliance with all applicable state, federal and foreign securities laws, rules
and regulations of any governmental body, and the requirements of any stock exchange or automated
quotation system on which the Shares may then be listed, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding any other
provision in the Plan, the Company shall have no obligation to issue or deliver certificates for
Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) completion of any registration or other
qualification of such shares under any state, federal or foreign law or ruling of any governmental
body that the Company determines to be necessary or advisable. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state, federal

 

 

or foreign securities laws, stock exchange or automated quotation system, and the Company shall
have no liability for any inability or failure to do so.

     19. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall
confer or be deemed to confer on any Participant any right to continue in the employ of, or to
continue any other relationship with, the Company or any Subsidiary or limit in any way the right
of the Company or any Subsidiary to terminate a Participant’s employment or other relationship at
any time, with or without cause, as applicable laws allow.

     20. REPRICING PROHIBITED; EXCHANGE AND BUYOUT OF AWARDS. The repricing of Options or SARs is
prohibited without prior stockholder approval. The Committee may, at any time or from time to
time, authorize the Company, with prior stockholder approval, in the case of an Option or SAR
exchange, and the consent of the respective Participants, to issue new Awards in exchange for the
surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Option previously granted with payment in cash, Shares or other
consideration, based on such terms and conditions as the Committee and the Participant shall agree.

     21. CORPORATE TRANSACTIONS.

          21.1 Assumption or Replacement of Awards by Successor. In the event of a Corporate
Transaction any or all outstanding Awards may be assumed or replaced by the successor corporation,
which assumption or replacement shall be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in place of
outstanding Shares of the Company held by the Participant, substantially similar shares or other
property subject to repurchase restrictions no less favorable to the Participant. In the event
such successor corporation, if any, refuses to assume or replace the Awards, as provided above,
pursuant to a Corporate Transaction or if there is no successor corporation due to a dissolution or
liquidation of the Company, such Awards shall immediately vest as to 100% of the Shares subject
thereto at such time and on such conditions as the Board shall determine and the Awards shall
expire at the closing of the Corporate Transaction.

          21.2 Other Treatment of Awards. Subject to any greater rights granted to Participants
under Section 21.1, in the event of a Corporate Transaction, any outstanding Awards shall be
treated as provided in the applicable agreement or plan of merger, consolidation, dissolution,
liquidation or sale of assets.

          21.3 Assumption of Awards by the Company. The Company, from time to time, also may
substitute or assume outstanding awards granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in
substitution of such other company’s award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award granted under the
Plan. Such substitution or assumption shall be permissible if the holder of the substituted or
assumed award would have been eligible to be granted an Award under the Plan if the other company
had applied the rules of the Plan to such grant. In the event the Company assumes an award granted
by another company, the terms and conditions of such award shall remain unchanged (except that the
exercise price and the number and nature of Shares issuable upon exercise of any such option will
be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects
to grant a new Option rather than assuming an existing option, such new Option may be granted with
a similarly adjusted Exercise Price. Shares subject to Awards granted to substitute or assume
outstanding awards granted by another company in connection with an acquisition shall not reduce
the number of Shares available for issuance under Section 2.1 of the Plan.

     22. ADOPTION, STOCKHOLDER APPROVAL and TERM. The Plan was adopted by the Board on
April 26, 2007. The Plan shall become effective upon approval by stockholders of the
Company, consistent with applicable laws. The Plan will terminate ten years following the earlier
of (i) the date it was adopted by the Board or (ii) the date it became effective upon approval by
stockholders of the Company, unless sooner terminated by the Board pursuant to Section 23.

 

 

     23. AMENDMENT OR TERMINATION OF PLAN and AWARDS. The Board may at any time terminate, amend
or suspend the Plan in any respect, including without limitation amendment of any form of Award
Agreement or instrument to be executed pursuant to the Plan. Notwithstanding the foregoing,
neither the Board nor the Committee shall, without the approval of the stockholders of the Company,
amend the Plan in any manner that requires such stockholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans, or pursuant to the
Exchange Act or any rule promulgated thereunder. The Committee may modify, extend or renew
outstanding Awards and authorize the grant of Awards in substitution thereof; provided that any
such action (including any amendment to the Plan) may not, without the written consent of a
Participant, impair any of a Participant’s rights under Award previously granted.

     24. NONEXCLUSIVITY OF THE PLAN; UNFUNDED PLAN. Neither the adoption of the Plan by the Board,
the submission of the Plan to the stockholders of the Company for approval, nor any provision of
the Plan shall be construed as creating any limitations on the power of the Board to adopt such
additional arrangements as it may deem desirable, including, without limitation, the granting of
stock options and bonuses otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases. The Plan shall be unfunded. Neither
the Company nor the Board shall be required to segregate any assets that may at any time be
represented by Awards made pursuant to the Plan. Neither the Company, the Committee, nor the Board
shall be deemed to be a trustee of any amounts to be paid under the Plan.

     25. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings:

     (a) “Authorized Transferee” means the permissible recipient, as authorized by this
Plan and the Committee, of an NSO that is transferred during the Participant’s lifetime by the
Participant by gift or domestic relations order. For purposes of this definition a “permissible
recipient” is: (i) a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law of the Participant, including any such person with such
relationship to the Participant by adoption; (ii) any person (other than a tenant or employee)
sharing the Participant’s household; (iii) a trust in which the persons in (i) or (ii) have more
than fifty percent of the beneficial interest; (iv) a foundation in which the persons in (i) or
(ii) or the Participant control the management of assets; or (v) any other entity in which the
person in (i) or (ii) or the Participant own more than fifty percent of the voting interest.

     (b) “Award” means any award under the Plan, including any Option, Stock Appreciation
Right, Restricted Stock, Restricted Stock Unit or Stock Bonus.

     (c) “Award Agreement” means, with respect to each Award, the written agreement between
the Company and the Participant setting forth the terms and conditions of the Award.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Code” means the United States Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.

     (f) “Committee” means the Board and such other committee appointed by the Board to
administer the Plan.

     (g) “Company” means Covad Communications Group, Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.

     (h) “Corporate Transaction” means (a) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in
which there is no substantial change in the stockholders of the Company and the Awards granted
under the Plan are assumed or replaced by the successor corporation, which assumption shall be
binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of
substantially all of the assets of the Company, (d) a merger in which the Company is the surviving
corporation but after which the stockholders of the Company immediately prior to such merger (other
than any stockholder that

 

 

merges, or which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company; or (e) any other
transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein
the stockholders of the Company give up all of their equity interest in the Company (except for the
acquisition, sale or transfer of all or substantially all of the outstanding shares of the
Company).

     (i) “Disability” means a disability within the meaning of Section 22(e)(3) of the
Code.

     (j) “Effective Date” means the date stockholders approve the Plan pursuant
to Section 22 of the Plan.

     (k) “Exchange Act” means the United States Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.

     (l) “Executive Officer” means a person who is an “executive officer” of the Company as
defined in Rule 3b-7 promulgated under the Exchange Act.

     (m) “Exercise Price” means the price at which a Participant who holds an Option or SAR
may purchase the Shares issuable upon exercise of the Option or SAR.

     (n) “Expiration Date” means the last date on which an Option or SAR may be exercised
as determined by the Committee.

     (o) “Fair Market Value” means, as of any date, the value of a share of the Company’s
Common Stock determined as follows:

	 	(1)	 	if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price on such date or, if
no such reported sale takes place on such date, the average of the closing bid
and asked prices on the principal national securities exchange on which the
Common Stock is listed or admitted to trading;
	 
	 	(2)	 	if such Common Stock is publicly traded but is not admitted to
trading on a national securities exchange, the average of the closing bid and
asked prices on such date, as reported online by a website designated by the
Committee in good faith; or
	 
	 	(4)	 	if none of the foregoing is applicable, by the Committee in
good faith.

     (p) “Insider” means an officer or director of the Company or any other person whose
transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

     (q) “ISO” means an Option designated by the Committee at the time of grant as
intended to receive the treatment provided under Section 422 of the Code.

     (r) “NSO” means an Option that is not designated an ISO by the Committee at
the time of grant or does not qualify as an ISO at the time of grant (for example, an
Option granted to a non-employee).

     (s) “Option” means an Award pursuant to Section 5 of the Plan.

     (t) “Participant” means a person who receives an Award under the Plan.

     (u) “Performance Factors” include, but are not limited to, some or all of the factors
selected by the Committee from among the measures below to determine whether performance goals
established by the Committee and applicable to Awards have been satisfied:

 

 

	 	(1)	 	Net revenue and/or net revenue growth;
	 
	 	(2)	 	Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
	 
	 	(3)	 	Operating income and/or operating income growth;
	 
	 	(4)	 	Net income and/or net income growth;
	 
	 	(5)	 	Earnings per share and/or earnings per share growth;
	 
	 	(6)	 	Total stockholder return and/or total stockholder return
growth;
	 
	 	(7)	 	Return on equity;
	 
	 	(8)	 	Operating cash flow return on income;
	 
	 	(9)	 	Adjusted operating cash flow return on income;
	 
	 	(10)	 	Economic value added; and
	 
	 	(11)	 	Individual business objectives.

     (v) “Performance Period” means the period of service determined by the Committee, not
to exceed five years, during which years of service or performance is to be measured for the Award.

     (w) “Purchase Price” means the price to be paid for Shares acquired under the Plan,
other than Shares acquired upon exercise of an Option or SAR.

     (x) “Restricted Stock Award” means an award of Shares pursuant to Section 6 of the Plan.

     (y) “Restricted Stock Unit” means an Award granted pursuant to Section 9 of the Plan.

     (z) “SEC” means the United States Securities and Exchange Commission.

     (aa) “Securities Act” means the United States Securities Act of 1933, as amended, and
the regulations promulgated thereunder.

     (bb) “Shares” means shares of the Company’s Common Stock $0.001 par value, reserved
for issuance under the Plan, as adjusted pursuant to Sections 2 and 21, and any successor security.

     (cc) “Stock Appreciation Right” means an Award granted pursuant to Section 8 of the Plan.

     (dd) “Stock Bonus” means an Award granted pursuant to Section 7 of the Plan.

     (ee) “Subsidiary” means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if, at the time of granting of the Award, each of the
corporations other than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the other corporations in
such chain.

     (ff) “Ten Percent Stockholder” means any person who directly or by attribution owns
more than ten percent of the total combined voting power of all classes of stock of the Company or
any Subsidiary.

     (gg) “Termination” or “Terminated” means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as an employee,
director, consultant, independent contractor or adviser to the Company or a Subsidiary; provided
that a Participant shall not be deemed to be Terminated if the Participant

 

 

is on a Company approved leave of absence; and provided further, that during any Company
approved leave of absence, vesting of Awards shall be suspended or continue in accordance with
applicable Company policies. Subject to the foregoing, the Committee shall have sole discretion to
determine whether a Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the “Termination Date”); further, the Termination
Date will not be extended by any notice period mandated under local law.

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