EXHIBIT 10.40
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and
entered into as of October 31, 1997 (the "Effective Date"), by and between
Network Peripherals Inc., a Delaware corporation (the "Company"), and James
Sullivan ("Employee").
Recitals
The Company recognizes that the possibility of a Change in Control or
other event may occur which may change the nature and structure of the Company
and that uncertainty regarding the consequences of such events may adversely
affect the Company's ability to retain its key employees. The Company also
recognizes that the Employee possesses an intimate and essential knowledge of
the Company upon which the Company may need to draw for objective advice and
continued services in connection with any acquisition of the Company or other
Change in Control that is potentially advantageous to the Company's
stockholders. The Company believes that the existence of this Agreement will
serve as an incentive to Employee to remain in the employ of the Company and
will enhance its ability to call on and rely upon the Employee in connection
with a Change in Control.
The Company and the Employee desire to enter into this Agreement in
order to provide additional compensation and benefits to the Employee in
recognition of past services and to encourage Employee to continue to devote his
full attention and dedication to the Company and to continue his employment with
the Company.
1. Definitions. As used in this Agreement, unless the context requires
a different meaning, the following terms shall have the meanings set forth
herein:
(a) "Cause" means:
(i) theft, a material act of dishonesty, fraud, the
falsification of any employment or Company records or the commission of any
criminal act which impairs Employee's ability to perform his duties under this
Agreement;
(ii) improper disclosure of the Company's
confidential, business or proprietary information by the Employee;
(iii) any action by Employee which the Company's
Board of Directors (the "Board") reasonably believes has had or will have a
material detrimental effect on the Company's reputation or business; or
(iv) persistent failure of the Employee to perform
the lawful duties and responsibilities assigned by the Company which is not
cured within a reasonable time following the Employee's receipt of written
notice of such failure from the Company.
(b) "Change in Control " means an Ownership Change Event (as
defined below) or a series of related Ownership Change Events (collectively, the
"Transaction") wherein
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the stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately before the
Transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting stock of
one or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
For purposes of this Agreement, "Ownership Change Event" means the
occurrence of any of the following with respect to the Company: (i) the direct
or indirect sale or exchange in a single or series of related transactions by
the stockholders of the Company of more than fifty percent (50%) of the voting
stock of the Company; (ii) a merger or consolidation in which the Company is a
party; (iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or (iv) a liquidation or dissolution of the Company.
(c) "Constructive Termination" means one or more of the
following events that occurs within one (1) year after the occurrence of any
Change in Control:
(i) without the Employee's express written consent,
the assignment to the Employee of any duties, or any limitation of the
Employee's responsibilities, substantially inconsistent with the Employee's
positions, duties, responsibilities and status with the Company immediately
prior to the date of the Change in Control;
(ii) without the Employee's express written consent,
the removal of the Employee from the Employee's position with the Company as
held by the Employee immediately prior to the Change in Control (including a
termination of employment as a result of the death or Permanent Disability of
the Employee), except in connection with the termination of the employment of
the Employee by the Company for Cause;
(iii) without the Employee's express written consent,
the relocation of the principal place of the Employee's employment to a location
that is more than fifty (50) miles from the Employee's principal place of
employment immediately prior to the date of the Change in Control, or the
imposition of travel requirements on the Employee substantially inconsistent
with such travel requirements existing immediately prior to the date of the
Change in Control;
(iv) any failure by the Company to pay, or any
reduction by the Company of (1) the Employee's base salary in effect immediately
prior to the date of the Change in Control (unless reductions comparable in
amount and duration are concurrently made for all other employees of the Company
with responsibilities, organizational level and title comparable to the
Employee), or (2) the Employee's bonus compensation in effect immediately prior
to the date of the Change in Control (subject to applicable performance
requirements with respect to the
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actual amount of bonus compensation earned by the Employee and all other
participants in the bonus program);
(v) any failure by the Company to (1) continue to
provide the Employee with the opportunity to participate, on terms no less
favorable than those in effect for the benefit of any executive, management or
administrative group which customarily includes a person holding the employment
position or a comparable position with the Company then held by the Employee,
any benefit or compensation plans and programs, including, but not limited to,
the Company's life, disability, health, dental, medical, savings, profit
sharing, stock purchase and retirement plans in which the Employee was
participating immediately prior to the date of the Change in Control, or their
equivalent (provided, that any changes or terminations of such existing benefit
or compensation plans or programs shall not be a Constructive Termination if the
changed plan or program or a replacement plan or program provides equivalent or
more favorable benefits or compensation to the Employee), or (2) provide the
Employee with all other fringe benefits (or their equivalent) from time to time
in effect for the benefit of any executive, management or administrative group
which customarily includes a person holding the employment position or a
comparable position with the Company then held by the Employee; or
(vi) any failure or refusal of a successor company to
assume the Company's obligations under this Agreement as required by Section 13;
provided, however, that the Employee's resignation as a result of any of the
foregoing events shall be a voluntary resignation, and not a resignation
following Constructive Termination, unless the Employee gives written notice of
any such event(s) to the Board and allows the Company at least ten (10) days
thereafter to correct such condition(s).
(d) "Effective Date" means the day and year first set forth
above.
(e) "Permanent Disability" means that:
(i) the Employee has been incapacitated by bodily
injury or disease so as to be prevented thereby from engaging in the performance
of the Employee's duties following reasonable accommodations on behalf of the
Company;
(ii) such total incapacity shall have continued for a
period of six (6) consecutive months; and
(iii) such incapacity will, in the opinion of a
qualified physician, be permanent and continuous during the remainder of the
Employee's life.
(f) "Termination Upon Change in Control" means any one of the
following:
(i) any termination of the employment of the Employee
by the Company without Cause within one (1) year after the occurrence of any
Change in Control;
(ii) any termination of the employment of the
Employee by the Company without Cause during the period commencing thirty (30)
days prior to the date of the Company's first public announcement that the
Company has entered into a definitive agreement to
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effect a Change in Control (even though still subject to approval by the
Company's stockholders and other conditions and contingencies) and ending on the
date of the Change in Control; or
(iii) any resignation by the Employee from all
capacities in which the Employee is then rendering service to the Company within
a reasonable period of time following the event constituting Constructive
Termination (with the termination of employment following death or Permanent
Disability being deemed a resignation);
provided, however, that "Termination Upon Change in Control" shall not include
any termination of the employment of the Employee (1) by the Company for Cause;
or (2) as a result of the voluntary termination of employment by the Employee
that is not deemed a Constructive Termination under Subsection 1(c) above.
2. Position and Duties. Until a Change in Control, Employee shall
continue to be an at-will employee of the Company employed in his current
position at his then current salary rate, subject to revision from time to time
by the Board of Directors or a committee thereof. Employee shall also be
entitled to continue to participate in and to receive benefits on the same basis
as other executive or senior staff members under any of the Company's employee
benefit plans as in effect from time to time. In addition, Employee shall be
entitled to the benefits afforded to other employees similarly situated under
the Company's vacation, holiday and business expense reimbursement policies, as
amended from time to time. Employee agrees to devote his full business time,
energy and skill to his duties at the Company. These duties shall include, but
not be limited to, any duties consistent with his position which may be assigned
to Employee from time to time.
3. Benefits Upon Voluntary Termination, Permanent Disability or Death.
In the event that Employee voluntarily terminates his employment relationship
with the Company at any time and such termination is not deemed a Constructive
Termination as described in Subsection 1(c) above, or in the event that
Employee's employment terminates as a result of his death or Permanent
Disability prior to a Change in Control, Employee shall be entitled to no
compensation or benefits from the Company other than those earned under Section
2 above through the date of his termination of employment.
4. Termination Upon Change in Control.
(a) In the event of the Employee's Termination Upon Change in
Control, Employee shall be entitled to the following separation benefits:
(i) those benefits earned under Section 2 (other than
any unpaid incentive bonus) through the date of Employee's termination;
(ii) Employee's employment as an officer of the
Company shall terminate immediately; however, the Company shall continue
Employee's employment as a non-officer employee of the Company for a period of
four (4) months following the date of the Employee's termination (the "Severance
Period"). During such period, Employee shall be entitled to the greater of (1)
Employee's then current salary at the time of the Change in Control, or (2)
Employee's salary and bonus over the preceding four (4) months, in either case
less applicable withholding, payable in accordance with the Company's normal
payroll practices;
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(iii) within ten (10) days of submission of proper
expense reports by the Employee, the Company shall reimburse the Employee for
all expenses reasonably and necessarily incurred by the Employee in connection
with the business of the Company prior to his termination of employment;
(iv) continued provision of the Company's standard
employee medical insurance coverages through the end of the Severance Period;
thereafter, Employee shall be entitled to elect continued medical insurance
coverage in accordance with the applicable provisions of federal law (COBRA);
provided, however, that in the event Employee becomes covered under another
employer's group health plan during the period provided for herein, the Company
shall cease provision of continued group health insurance for Employee; and
(v) notwithstanding any provisions to the contrary
contained in any stock option agreement between the Company and the Employee,
upon a Termination Upon Change in Control,
(1) all stock options granted by the Company
to the Employee prior to the Change in Control, which are not accelerated
pursuant to the provisions of Section 5, shall become immediately exercisable
and vested in full as of the time of such Termination Upon Change in Control;
and
(2) all such stock options shall remain
exercisable for a period of at least one (1) year, subject to any longer periods
for exercise of such options set forth in the particular option agreements.
This Subsection 4(a)(v) shall apply to all such stock option agreements, whether
heretofore or hereafter entered into between the Company and the Employee.
(b) The Employee's entitlement to any benefits under Section 4
is conditioned upon the Employee's execution and delivery to the Company of (i)
a general release of claims in a form satisfactory to the Company and (ii) a
resignation from all of Employee's positions with the Company (with the
exception of any continued employment for the purposes set forth in Section
4(a)) in a form satisfactory to the Company.
(c) In the event that Employee accepts employment with, or
provides any services to (whether as a partner, consultant, joint venturer or
otherwise), any person or entity which offers products or services that are
competitive with any products or services offered by the Company or with any
products or services that Employee is aware the Company intends to offer,
Employee shall be deemed to have resigned from his employment with the Company
effective immediately upon such acceptance of employment or provision of
services. Upon such resignation, Employee shall not be entitled to any further
payments or benefits as provided under this Section 4.
(d) In the event that Employee accepts employment with, or
provides any services to (whether as a partner, consultant, joint venturer or
otherwise), any person or entity while Employee continues to receive any
separation benefits pursuant to this Section 4, Employee shall immediately
notify the Company of such acceptance and provide to the Company
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information with respect to such person or entity as the Company may reasonably
request in order to determine if that person's or entity's products or services
are competitive with the Company's.
5. Acceleration of Exercisability and Vesting of Stock Options Upon
Change in Control. In the event of a Change in Control, all stock options
granted to the Employee prior to the Change in Control (whether heretofore or
hereafter granted) shall become immediately exercisable and vested in full
effective as of the date thirty (30) days before the consummation of the
transaction constituting such Change in Control.
6. Parachute Payments. In the event that any payment or benefit
received or to be received by Employee pursuant to this Agreement or otherwise
(collectively, the "Payments") would result in a "parachute payment" as
described in section 280G of the Internal Revenue Code of 1986, as amended,
notwithstanding the other provisions of this Agreement, the amount of such
Payments will not exceed the amount which produces the greatest after-tax
benefit to Employee. For purposes of the foregoing, the greatest after-tax
benefit will be determined within thirty (30) days of the occurrence of such
payment to Employee, in Employee's sole and absolute discretion. If no such
determination is made by Employee within thirty (30) days of the occurrence of
such payment, the Company will promptly make such determination in a fair and
equitable manner.
7. Exclusive Remedy. Under any claim for breach of this Agreement or
wrongful termination, the payments and benefits provided for in Section 4 shall
constitute the Employee's sole and exclusive remedy for any alleged injury or
other damages arising out of the cessation of the employment relationship
between the Employee and the Company in the event of Employee's termination.
Except as expressly set forth herein, the Employee shall be entitled to no other
compensation, benefits, or other payments from the Company as a result of any
termination of employment with respect to which the payments and/or benefits
described in Section 4 have been provided to the Employee.
8. Proprietary and Confidential Information. The Employee agrees to
continue to abide by the terms and conditions of the Company's confidentiality
and/or proprietary rights agreement between the Employee and the Company.
9. Conflict of Interest. Employee agrees that for a period of one (1)
year after termination of his employment with the Company, he will not, directly
or indirectly, solicit the services of or in any other manner persuade employees
or customers of the Company to discontinue that person's or entity's
relationship with or to the Company as an employee or customer, as the case may
be.
10. Arbitration. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in Santa Clara County,
California; provided, however, that this arbitration provision shall not
preclude the Company from seeking injunctive relief from any court having
jurisdiction with respect to any disputes or claims relating to or arising out
of the misuse or misappropriation of the Company's trade secrets or confidential
and proprietary information. All costs and expenses of arbitration or
litigation, including but not limited to attorneys fees and other costs
reasonably incurred by the prevailing party, as determined by such arbitration
or litigation, shall be paid by the other party. Judgment may be entered on the
award of the arbitration in any court having jurisdiction.
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11. Interpretation. Employee and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State of
California.
12. Conflict in Benefits. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement; provided, however, that this Agreement is not intended
to and shall not affect, limit or terminate (i) any plans, programs, or
arrangements of the Company that are either in writing or regularly made
available to a significant number of employees of the Company, (ii) any
agreement or arrangement with the Employee that has been reduced to writing and
which does not relate to the subject matter hereof, or (iii) any agreements or
arrangements hereafter entered into by the parties in writing, except as
otherwise expressly provided herein.
13. Successors and Assigns.
(a) Successors of the Company. The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle the Employee to terminate his employment with the
Company within three (3) months thereafter and to receive the benefits provided
under Section 4 of this Agreement in the event of Termination Upon Change in
Control. As used in this Agreement, "Company" shall mean the Company as defined
above and any successor or assign to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section 13 or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(b) Heirs of Employee. This Agreement shall inure to the
benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Employee should die after the conditions to payment
of benefits set forth herein have been met and any amounts are still payable to
his hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Employee's beneficiary,
successor, devisee, legatee or other designee or, if there be no such designee,
to the Employee's estate. Until a contrary designation is made to the Company,
the Employee hereby designates as his beneficiary under this Agreement the
person whose name appears below his signature on this Agreement.
14. Notices. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Network Peripherals Inc.
1371 McCarthy Boulevard
Milpitas, CA 95035
Attn: President
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and if to the Employee at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. No Representations. Employee acknowledges that he is not relying
and has not relied on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Agreement.
16. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
17. Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
Network Peripherals Inc.
Date: _________________________ By: __________________________________
Signature
Title: _______________________________
Date: _________________________ ______________________________________
Employee's Signature
Address for Notice to Employee:
______________________________________
______________________________________
Name of Designated Beneficiary: Address of Designated Beneficiary:
_____________________________ ______________________________________
______________________________________
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