UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1994
For the transition period from _______ to ________
Commission file number 0-23970
NETWORK PERIPHERALS INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0216135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1371 McCarthy Boulevard
Milpitas, California 95035
(Address, including zip code, of principal executive offices)
(408) 321-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares of the Registrant's Common Stock, $0.001 par value,
outstanding as of July 31, 1996 was 11,897,036.
This quarterly report on Form 10-Q consists of 15 pages of which this is page 1.
The Exhibit Index begins on page 15.
<PAGE>
NETWORK PERIPHERALS INC.
INDEX TO FORM 10-Q
For the quarter ended June 30, 1996
PART I. FINANCIAL INFORMATION
Item Page
----
1. Financial Statements (unaudited):
a. Condensed Consolidated Balance Sheets -- June 30, 1996
and December 31, 1995. 3
b. Condensed Consolidated Statements of Operations -- Three
Months and Six Months Ended June 30, 1996 and 1995. 4
c. Condensed Consolidated Statements of Cash Flows -- Six
Months Ended June 30, 1996 and 1995. 5
d. Notes to Condensed Consolidated Financial Statements 6-7
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 12-13
Signatures 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS -Unaudited
(in thousands, except share and per
share data)
<CAPTION>
June 30, December 31,
1996 1995
------------------ ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,880 $ 27,210
Short-term investments 22,171 24,931
Accounts receivable, net of allowance for doubtful
accounts and returns of $1,007 and $738, respectively 8,451 5,364
Inventories 8,458 6,420
Deferred income taxes 2,544 2,189
Prepaid expenses and other current assets 1,943 1,557
------------------ ----------------
Total current assets 65,447 67,671
Property and equipment, net 2,734 2,280
Other assets 1,746 160
------------------ ----------------
$ 69,927 $ 70,111
================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,380 $ 956
Accrued liabilities 8,085 3,446
------------------ ----------------
Total current liabilities 11,465 4,402
------------------ ----------------
Stockholders' equity:
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized; no shares issued or outstanding - -
Common Stock, $0.001 par value, 20,000,000
shares authorized; 11,891,484 and 11,268,161,
shares issued and outstanding, respectively 12 11
Additional paid-in capital 62,409 56,579
Notes receivable from stockholders (5) (14)
Retained earnings (accumulated deficit) (3,954) 9,133
------------------ ----------------
Total stockholders' equity 58,462 65,709
------------------ ----------------
$ 69,927 $ 70,111
================== ================
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS - Unaudited
(in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 12,774 $ 13,815 $ 22,902 $ 27,030
Cost of sales 6,792 7,292 12,990 14,407
------------- ------------- -------------- -------------
Gross profit 5,982 6,523 9,912 12,623
------------- ------------- -------------- -------------
Operating expenses:
Acquired research and development in
process and product integration costs - - 13,732 -
Research and development 2,340 1,374 3,952 2,739
Marketing and selling 2,687 1,543 4,732 3,100
General and administrative 951 543 1,542 1,066
------------- ------------- -------------- -------------
Total operating expenses 5,978 3,460 23,958 6,905
------------- ------------- -------------- -------------
Income (loss) from operations 4 3,063 (14,046) 5,718
Interest income, net 374 551 929 1,104
------------- ------------- -------------- -------------
Income (loss) before income taxes 378 3,614 (13,117) 6,822
Provision for income taxes 132 1,266 (30) 2,388
------------- ------------- -------------- -------------
Net income (loss) $ 246 $ 2,348 $ (13,087) $ 4,434
============= ============= ============== =============
Net income (loss) per share $ 0.02 $ 0.20 $ (1.13) $ 0.38
============= ============= ============== =============
Weighted average common and
common equivalent shares 12,333 11,750 11,617 11,757
============= ============= ============== =============
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
NETWORK PERIPHERALS INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS - Unaudited
Increase (decrease) in Cash and Cash Equivalents
(in thousands)
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (13,087) $ 4,434
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,341 525
Research and development, in-process 13,032 -
Deferred income tax (355) -
Changes in assets and liabilities (net of effect of
NuCom acquisition)
Accounts receivable (1,937) (2,559)
Inventories (894) 1,036
Prepaid expenses and other current assets 881 147
Accounts payable 2,083 (2,824)
Accrued liabilities 631 (376)
------------- -------------
Net cash provided by operating activities 1,695 383
------------- -------------
Cash used in investing activities:
Cash paid for Acquisition, net of cash acquired (10,401) -
Holdback amount from Acquisition 1,116 -
Sale (purchase) of short-term investments 2,760 (13,727)
Purchases of property and equipment (996) (868)
------------- -------------
Net cash used in investing activities (7,521) (14,595)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 488 15
Repayment of stockholders' notes receivable 8 28
------------- -------------
Net cash provided by financing activities 496 43
------------- -------------
Net decrease in cash and cash equivalents (5,330) (14,169)
Cash and cash equivalents at beginning of period 27,210 21,068
------------- -------------
Cash and cash equivalents at end of period $ 21,880 $ 6,899
============= =============
Supplemental disclosure of cash flow information:
Income taxes paid $ 133 $ 2,382
============= =============
Cash paid for interest $ - $ 27
============= =============
Supplemental disclosure of noncash investing activity:
Common Stock used for acquisition of NuCom $ 5,342 $ -
============= =============
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
5
<PAGE>
NETWORK PERIPHERALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the Company's financial condition as of June 30, 1996
and December 31, 1995, the results of its operations for the three and six month
periods ended June 30, 1996 and 1995, and its cash flows for the six month
periods ended June 30, 1996 and 1995. These financial statements should be read
in conjunction with the audited financial statements of the Company as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, including notes thereto, included in the Company's Annual
Report on Form 10-K (Commission File No. 0-23970).
Operating results for the three and six month periods ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996 or for any other future period.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the periods. Common
equivalent shares consist of stock options (using the treasury stock method).
Common equivalent shares from stock options are excluded from the computation if
their effect is antidilutive.
3. INVENTORIES
The components of inventory consist of the following (in thousands):
June 30, December 31,
1996 1995
------------------- --------------------
Raw material $ 4,450 $ 3,629
Work-in-process 3,080 1,894
Finished goods 928 897
------------------- --------------------
$ 8,458 $ 6,420
=================== ====================
6
<PAGE>
NETWORK PERIPHERALS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--Continued
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
June 30, December 31,
1996 1995
---------------- ----------------
Computer and test equipment $ 5,100 $ 4,085
Furniture and fixtures 1,067 607
Leasehold improvements 346 346
---------------- ----------------
6,513 5,038
Less: accumulated depreciation (3,779) (2,758)
---------------- ----------------
$ 2,734 $ 2,280
================ ================
5. ACQUISITION OF NUCOM
Effective March 21, 1996 the Company completed its acquisition of NuCom
Systems, Inc. (NuCom), a Taiwan-based company, by purchasing all the outstanding
shares of NuCom in exchange for $11,158,134 in cash, and 440,748 shares of
Network Peripheral's common stock valued at $5,341,866, for an aggregate
purchase price of $17.1 million. The transaction was accounted for using the
purchase method; accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair market values at
the date of acquisition. The research and development in process represents the
estimated current fair market value, using a risk-adjusted income approach, of
specifically identified technologies which had not reached technological
feasibility and had no future uses. The results of operations of NuCom will be
included with those of the Company beginning with the quarter ending June 30,
1996. The allocation of the purchase price is as follows (in thousands):
Research and development, in process $ 13,032
Other intangible assets 1,716
Current assets 4,495
Non-current assets 613
Property and equipment 479
Current liabilities Assumed (3,235)
-----------
$ 17,100
===========
The total purchase price is derived as follows:
Cash payment $ 11,158
Issuance of common stock 5,342
Other expenses 600
-----------
$ 17,100
===========
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The forward-looking statements included in the succeeding paragraphs
are made in reliance upon the safe harbor provisions of the Private Securities
Lititgation Reform Act of 1995. The future events described in such statements
involve risks and uncertainties, including:
* the timely development and market acceptance of new products;
* the market demand by customers for the Company's existing products,
including demand by OEM customers for custom products, and the
distribution channels through which such demand is satisfied;
* competitive actions, including pricing actions and the introduction of new
competitive products, that may affect the volume of sales of the Company's
products;
* the resources expended in integrating the acquisition of NuCom and the
time required to complete that integration;
* uninterrupted supply of key components, including semiconductor devices
and other materials, some of which are sourced from a single supplier;
* the cost of materials and components;
* the ability of the Company to recruit, train and retain key personnel,
including engineers and other technical professionals;
* the development of new technologies rendering existing technologies and
products obsolete; and
* resources devoted to developing distribution channels and the success of
these efforts.
In evaluating these forward-looking statements, consideration should also be
given to the Business Risks discussed below in this interim report.
Net Sales
Net sales were $12.8 million for the three months ended June 30, 1996,
as compared to $13.8 million for the three months ended June 30, 1995, a
decrease of 8%. For the six months ended June 30, 1996 and 1995, net sales were
$22.9 million and $27.0 million, respectively, a decrease of 15%. The decreases
in the three and six month periods were primarily attributed to lower shipments
of FDDI LAN switching products, which declined 12% to $6.1 million for the
quarter and 32% to $9.8 million for the six months. The decline in shipments
reflected a significant reduction in OEM demand for FDDI switching hubs, offset
in part by shipments of new Fast Ethernet products. The Company made initial
shipments of its Fast Ethernet products in the quarter ended March 31, 1996. The
Fast Ethernet products represented $2.0 million, or 15.8% of net sales during
the most recent quarter.
Gross Profit/Margin
Gross margin was 46.8% for the three months ended June 30, 1996, as
compared to 47.2% for the three months ended June 30, 1995. The decrease was
primarily the result of the amortization of intangible assets related to the
acquisition of NuCom Systems, Inc. (the Acqusition) and changes in the product
mix. For the six months ended June 30, 1996 and 1995, gross margins were 43.3%
and 46.7%, respectively. The decrease was attributable to several nonrecurring
charges in the first quarter, including start-up costs for several of the Fast
Ethernet products and extraordinary costs to expedite production to meet
shipping requirements for certain OEM customers. Continued changes in the
product mix and the sales channel mix, variables in the development,
introduction and marketing of a new product line, fluctuations in the cost of
materials and components, as well as competitive factors, may adversely impact
the gross margin in future periods. Precluding such variables, the Company
expects the gross margin to remain relatively constant for the remainder of
1996.
Research and Development In-Process and Product Integration Costs
In the first quarter of 1996, the Company incurred one-time charges of
$13.0 million for in-process research and development costs and $700,000 for
product integration related to the Acquisition (refer to Note 5).
8
<PAGE>
Research and Development
Research and development expense was $2.3 million, or 18.3% of net
sales, for the three months ended June 30, 1996, as compared to $1.4 million, or
9.9% of net sales, for the corresponding period in 1995. For the six months
ended June 30, 1996 and 1995, research and development expenses were $4.0
million, or 17.3% of sales, and $2.7 million, or 10.1% of sales, respectively.
The expenses in the three and six months ended June 30, 1996 are net of contract
funding of $121,000 and $271,000, respectively. No contract funding was recorded
in the corresponding periods in 1995. The increase in expenditures reflected the
addition of staff, facilities and equipment resulting from the Acquisition, as
well as costs for the development of new technologies, including ATM, and
enhancement of current technologies, including FDDI and Fast Ethernet. The
Company expects the dollar level of research and development expense to remain
relatively constant for the remainder of the 1996.
Marketing and Selling
Marketing and selling expense was $2.7 million, or 21% of net sales,
for the three months ended June 30, 1996, as compared to $1.5 million, or 11.2%
of net sales, for the corresponding period in 1995. For the six months ended
June 30, 1996 and 1995, marketing and selling expenses were $4.7 million, or
20.7% of net sales, and $3.1 million, or 11.5% of sales, respectively. The
increase in expenditures reflected the addition of staff, facilities and
equipment resulting from the Acquisition. Additionally, the Company incurred
expenses during 1996 while pursuing its marketing strategy to penetrate the
global markets, including Asia and Europe, and to establish brandname
recognition. The cost of implementing this strategy includes the addition of
sales staff and related overhead costs, and the cost of advertising and
promotional campaigns. The Company expects the dollar level of marketing and
selling expense to increase in future periods of 1996 as the Company expands its
international sales efforts.
General and administrative
General and administrative expense was $951,000, or 7.4% of net sales,
for the three months ended June 30, 1996, as compared to $543,000, or 3.9% of
net sales, for the corresponding period in 1995. For the six months ended June
30, 1996 and 1995, general and administrative expenses were $1.5 million, or
6.7% of sales, and $1.1 million, or 3.9% of sales, respectively. The increase in
expenditures reflected the addition of staff, facilities and equipment resulting
from the Acquisition and higher professional fees to support the increased
activities of the Company. The Company expects the dollar level of general and
administrative expense to remain relatively constant for the remainder of 1996.
Interest Income
Interest income was $374,000 for the three months ended June 30, 1996,
as compared to $551,000 for the corresponding period in 1995. For the six months
ended June 30, 1996 and 1995, interest income was $929,000 and $1.1 million,
respectively. The decrease was the result of reduced level of invested funds as
a result of the Acquisition.
Income Taxes
The Company's effective tax rate for the three and six months ended
June 30, 1996 was 35%, excluding the non-recurring charge of in-process research
and development, a non-deductible item for tax purposes. The rate was unchanged
from the rate applied throughout 1995 and is less than the combined federal and
state statutory rate due principally to the effects of tax exempt interest and
tax credits available to the Company.
Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company recorded a loss of
$13.1 million due principally to a non-recurring charge for in-process research
and development purchased in connection with the Acquisition.
9
<PAGE>
Cash provided by operating activities for the six months ended June 30,
1996 was $1.7 million, primarily due to a net increase in current liabilities,
offset in part by an increase in accounts receivable. The increases in current
liabilities is attributable principally to a low level of accounts payable at
the end of the prior year and the increase in account receivable is attributable
to a significant portion of shipment recorded in the last month in the quarter.
Cash used in investing activities for the six months ended June 30,
1996 was $7.5 million, of which $10.4 million, was attributed to the acquisition
of NuCom, reduced by $1.1 million retained in the transaction. The remainder of
the cash used was for the purchase of computer equipment offset by the sale of
short-term investments.
Cash provided by financing activities for the six months ended June 30,
1996 primarily resulted from the issuance of common stock under the Company's
stock option and employee stock purchase programs.
At June 30, 1996, the Company's principal sources of liquidity were its
cash, cash equivalents and short-term investments of $44.1 million. As of June
30, 1996, the Company was in the process of renegotiating its bank line of
credit and expects an agreement to be reached no later than the quarter ending
September 30, 1996. The Company believes that its existing cash balances and
funds provided by future operating activities will be sufficient to meet the
Company's capital and operating requirements for the foreseeable future.
Business Risks
In addition to the factors addressed in the preceding sections, certain
characteristics and dynamics of the Company's markets, technologies and
operations create risks to the Company's long-term success and to predictable
quarterly results. These risks will also affect the Company's ability to achieve
the results anticipated by the forward-looking statements contained in this
interim report. The Company's quarterly results have in the past varied, and are
expected in the future to vary significantly as a result of factors such as the
timing and shipment of significant orders, new product introductions or
technological advances by the Company and its competitors, market acceptance of
new or enhanced versions of the Company's products, changes in pricing policies
by the Company and its competitors, the mix of distribution channels through
which the Company's products are sold, the mix of products sold, the accuracy of
resellers' forecast of end-user demand, the ability of the Company to obtain
sufficient supplies of sole or limited source components for the Company's
products and general economic conditions. In response to competitive pressures
or new product introductions, the Company may take certain pricing or marketing
actions that could materially and adversely affect the Company's operating
results. In the event of a reduction in the prices of its products, the Company
has committed to providing retroactive price adjustments on inventories held by
its distributors, which could have the effect of reducing margins and operating
results. In addition, changes in the mix of products sold and the mix of
distribution channels through which the Company's products are sold may cause
fluctuations in the Company's gross margins. The Company's expense levels are
based, in part, on its expectations of its future revenue and, as a result, net
income would be disproportionately affected by a reduction in revenue. The
absence of significant Company experience with new products limits the Company's
ability to plan for production, market demand and sales and may adversely affect
operating results if the Company misallocates resources to a new product. Due to
the potential quarterly fluctuation in operating results, the Company believes
that quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indicators of future
performance.
The markets for the Company's products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and short product life cycles. These changes can adversely affect
the business and operating results of industry participants. The Company's
success will depend upon its ability to enhance its existing products and to
develop and introduce, on a timely and cost-effective basis, new products that
keep pace with technological developments and emerging industry standards and
address increasingly sophisticated customer
10
<PAGE>
requirements. The inability to develop and manufacture new products in a timely
manner, the existence of reliability, quality or availability problems in the
products or their component parts, the failure to obtain reliable subcontractors
for volume production and testing of mature products, or the failure to achieve
market acceptance would have a material adverse effect on the Company's business
and operating results.
The markets in which the Company competes are also characterized by
intense competition. Several of the Company's competitors have significantly
broader product offerings and greater financial, technical, marketing and other
resources and finished installed bases than the Company. These larger
competitors may also be able to obtain higher priority for their products from
distributors and other resellers that carry products of many companies. A number
of the Company's competitors were recently acquired, which is likely to permit
these competitors to devote significantly greater resources to the development
and marketing of competitive products. These competitive pressures could
adversely affect the Company's business and operating results.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) By-Laws.
4.1(1) Fourth Amended and Restated Investor Rights
Agreement dated July 15, 1993.
10.1(1)* Form of Indemnity Agreement for directors and
officers.
10.2(1)* Amended and Restated 1993 Stock Option Plan and
forms of agreement thereunder.
10.3(1)* 1994 Employee Stock Purchase Plan.
10.4(1)* 1994 Outside Directors Stock Option Plan and form
of agreement thereunder.
10.6(1) Business Loan Agreement, and collateral agreements,
with Silicon Valley Bank dated August 9, 1991, as
amended May 5, 1992, April 15, 1993, February 1,
1994 and April 4, 1994 and Warrant dated August 10,
1991.
10.9(1) Facilities Lease dated August 8, 1991 with John
Arrillaga, Trustee, or his Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended,
and Richard T. Peery, Trustee, or his Successor
Trustee UTA dated 7/20/77, as amended.
10.10(1)(2) Corporate Purchasing Agreement with Ungermann-Bass,
Inc. dated June 10, 1991.
10.11(1)(2) Product Development Agreement with Ungermann-Bass,
Inc. dated June 10, 1991.
10.12(1)(2) OEM Purchase Agreement with Network General
Corporation dated March 4, 1991.
10.13(1)(2) Authorized Distributor Agreement with Westcon, Inc.
dated March 4, 1993.
10.14(3) Amendment No. 1 to Facilities Lease dated June 1,
1994 with John Arrillaga, Trustee, or his Successor
Trustee UTA dated 7/20/77, as amended, and Richard
T. Peery, Trustee, or his Successor Trustee UTA
dated 7/20/77, as amended.
10.15(3) Facilities Lease dated June 1, 1994 with John
Arrillaga, Trustee, or his Successor Trustee UTA
dated 7/20/77, as amended, and Richard T. Peery,
Trustee, or his Successor Trustee UTA dated
7/20/77, as amended.
10.16(4) Salary continuation agreement dated as of March 22,
1995 with Pauline Lo Alker.
10.17(4) Salary continuation agreement dated as of March 22,
1995 with Darrell R. Scherbarth.
10.18(5) Purchase Agreement among Network Peripherals Inc.,
Network Peripherals, Ltd., NuCom Systems, Inc., and
the shareholders of NuCom, dated January 31, 1996.
10.19 Salary continuation agreement dated as of May 1996
with Truman Cole.
10.20 Salary continuation agreement dated as of May 1996
with Don Morrison.
11.1 Statement regarding computation of net income per
share.
12
<PAGE>
(1) Incorporated by reference to the corresponding
Exhibit previously filed as an Exhibit to the
Registrant's Registration Statement on Form S-1.
(File No. 33-78350)
(2) Confidential treatment has been granted as to part
of this Exhibit.
(3) Incorporated by reference to the corresponding
Exhibit previously filed as an Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1994 (File No. 0-23970).
(4) Incorporated by reference to the corresponding
exhibit in the Registrant Annual reports on Form
10-K for the year ended December 31, 1995 (File No.
0-23970)
(5) Incorporated by reference to the registrants report
on Form 8-K filed on March 31, 1996 (File No.
0-23970)
(b) Reports on Form 8-K
Amendment to Current Report on Form 8-K, dated March 21, 1996
(filed June 4, 1996) reported under item 2. the Company's
acquisition of NuCom Systems, Inc.
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK PERIPHERALS INC.
Date: August 9, 1996 By: \s\ TRUMAN COLE
-------------------------------
Truman Cole
Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- -------- -----------------------
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(1) By-Laws.
4.1(1) Fourth Amended and Restated Investor Rights Agreement dated
July 15, 1993.
10.1(1)* Form of Indemnity Agreement for directors and officers.
10.2(1)* Amended and Restated 1993 Stock Option Plan and forms of
agreement thereunder.
10.3(1)* 1994 Employee Stock Purchase Plan.
10.4(1)* 1994 Outside Directors Stock Option Plan and form of agreement
thereunder.
10.6(1) Business Loan Agreement, and collateral agreements, with
Silicon Valley Bank dated August 9, 1991, as amended May 5,
1992, April 15, 1993, February 1, 1994 and April 4, 1994 and
Warrant dated August 10, 1991.
10.9(1) Facilities Lease dated August 8, 1991 with John Arrillaga,
Trustee, or his Trustee, or his Successor Trustee UTA dated
7/20/77, as amended, and Richard T. Peery, Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended.
10.10(1)(2) Corporate Purchasing Agreement with Ungermann-Bass, Inc. dated
June 10, 1991.
10.11(1)(2) Product Development Agreement with Ungermann-Bass, Inc. dated
June 10, 1991.
10.12(1)(2) OEM Purchase Agreement with Network General Corporation dated
March 4, 1991.
10.13(1)(2) Authorized Distributor Agreement with Westcon, Inc. dated March
4, 1993.
10.14(3) Amendment No. 1 to Facilities Lease dated June 1, 1994 with
John Arrillaga, Trustee, or his Successor Trustee UTA dated
7/20/77, as amended, and Richard T. Peery, Trustee, or his
Successor Trustee UTA dated 7/20/77, as amended.
10.15(3) Facilities Lease dated June 1, 1994 with John Arrillaga,
Trustee, or his Successor Trustee UTA dated 7/20/77, as
amended, and Richard T. Peery, Trustee, or his Successor
Trustee UTA dated 7/20/77, as amended.
10.16(4) Salary continuation agreement dated as of March 22, 1995 with
Pauline Lo Alker.
10.17(4) Salary continuation agreement dated as of March 22, 1995 with
Darrell R. Scherbarth.
10.18(5) Purchase Agreement among Network Peripherals Inc., Network
Peripherals, Ltd., NuCom Systems, Inc., and the shareholders of
NuCom, dated January 31, 1996.
10.19 Salary continuation agreement dated as of May 1996 with Truman
Cole.
10.20 Salary continuation agreement dated as of May 1996 with Don
Morrison.
11.1 Statement regarding computation of net income per share.
27.0 Financial Data Schedule
15
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and
entered into as of May 24, 1996 (the "Effective Date"), by and between Network
Peripherals Inc., a Delaware corporation (the "Company") and Truman Cole
("Employee").
Recitals
The Company recognizes that the possibility of a change of 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 of 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 of 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 of Control Event" means an Ownership Change in which the
stockholders of the Company before such Ownership Change do not retain, directly
or indirectly, at a least a majority of the beneficial interest in the voting
stock of the Company after such
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transaction or in which the Company is not the surviving corporation. For
purposes of this Agreement, an "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company;
(ii) a merger or consolidation in which the Company is a party
and in which the stockholders of the Company before such Ownership Change do not
retain, directly or indirectly, at a least a majority of the beneficial interest
in the voting stock of the Company after such transaction or in which the
Company is not the surviving corporation;
(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
that occurs within two years after the occurrence of any Change of Control
Event:
(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 of Control Event;
(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 of Control Event (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 miles from the Employee's principal place of employment
immediately prior to the date of the Change of Control Event, or the imposition
of travel requirements on the Employee substantially inconsistent with such
travel requirements existing immediately prior to the date of the Change of
Control Event;
(iv) any failure by the Company to pay, or any reduction by
the Company of (a) the Employee's base salary in effect immediately prior to the
date of the Change of Control Event (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
(b) the Employee's bonus compensation in effect immediately prior to the date of
the Change of Control Event (subject to applicable performance requirements with
respect to the actual amount of bonus compensation earned by the Employee and
all other participants in the bonus program);
(v) any failure by the Company to (a) continue to provide the
Employee with the opportunity to participate, on terms no less favorable than
those in effect for
2
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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 of Control Event, 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 (b) 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.
(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 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 of Control" means any one of the
following:
(i) any termination of the employment of the Employee by the
Company without Cause within one year after the occurrence of any Change of
Control Event;
(ii) any termination of the employment of the Employee by the
Company without Cause during the period commencing thirty days prior to the date
of the Company's first public announcement that the Company has entered into a
definitive agreement to effect an Ownership Change (even though still subject to
approval by the Company's stockholders and other conditions and contingencies)
and ending on the date of the Change of Control Event; or
(iii) any resignation by the Employee immediately following
any Constructive Termination (with the termination of employment following death
or Permanent Disability being deemed a resignation) that occurs within one year
after the occurrence of any Change of Control Event.
"Termination Upon Change of Control" shall not include any termination
of the employment of the Employee (a) by the Company for Cause; or (b) as a
result of the voluntary
3
<PAGE>
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 of Control Event, 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 of Control Event, 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 of Control.
(a) In the event of the Employee's Termination Upon Change of
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 one year (the "Severance Period").
During such period, Employee shall be entitled to the greater of (i) Employee's
then current salary at the time of the Change of Control Event, or (ii)
Employee's salary and bonus over the preceding twelve months, in either case
less applicable withholding, payable in accordance with the Company's normal
payroll practices;
(iii) within ten 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).
Notwithstanding the above, in the event Employee becomes
4
<PAGE>
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 of Control all stock options granted by the Company to
the Employee prior to the Change of Control Event, which are not accelerated
pursuant to the provisions of Section 5, shall continue to vest during the term
of the Severance Period, to the extent such stock options remain outstanding and
unexercised at the time of such Termination Upon Change of Control. 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) 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.
(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 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 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 Exerciseability of Stock Options.
(a) In the event of a Change of Control Event where the
consideration paid to stockholders of the Company consists, at least in part, of
other than equity securities of the acquiring entity (except for cash payment
for fractional shares), then all stock options granted to the Employee prior to
the Change of Control Event (whether heretofore or hereafter granted) which
would otherwise become exercisable within 18 months of the Change of Control
Event (assuming Employee's continued employment) shall vest and become
exercisable in full 30 days before the consummation of the transaction
constituting such Change of Control Event.
(b) In the event of a Termination Upon Change of Control, all stock
options granted to the Employee prior to the Change of Control Event (whether
heretofore or hereafter granted) which would otherwise become exercisable within
18 months of the Change of Control Event (assuming Employee's continued
employment) shall vest and become exercisable and shall remain exercisable for a
period of at least one year, subject to any longer periods for exercise of such
options set forth in the particular option agreements.
6. Limitation of Payments and Benefits.
(a) To the extent that any of the payments and benefits provided for
in this Agreement or otherwise payable to the Employee constitute "parachute
payments" within the
5
<PAGE>
meaning of Section 280G of the Internal Revenue Code (the "Code") and, but for
this Section 6, would be subject to the excise tax imposed by Section 4999 of
the Code, the aggregate amount of such payments and benefits shall be reduced
such that none of the payments and benefits are subject to excise tax pursuant
to Section 4999 of the Code.
(b) Within sixty days after the later of termination of employment
or the related Change of Control Event, the Company shall notify the Employee in
writing if it believes that any reduction in the payments and benefits that
would otherwise be paid or provided to the Employee under the terms of this
Agreement is required to comply with the provisions of Subsection 6(a). If the
Company determines that any such reduction is required, it will provide the
Employee with copies of the information used and calculations made by the
Company to determine the amount of such reduction. The Company shall determine,
in a fair and equitable manner after consultation with the Employee, which
payments and benefits are to be reduced so as to result in the maximum benefit
for the Employee.
(c) Within thirty days after the Employee's receipt of the Company's
notice pursuant to Subsection 6(b), the Employee shall notify the Company in
writing if the Employee disagrees with the amount of reduction determined by the
Company, or the selection of the payments and the benefits to be reduced. As
part of such notice, the Employee shall also advise the Company of the amount of
reduction, if any, that the Employee has, in good faith, determined to be
necessary to comply with the provisions of Subsection 6(b) and/or the payments
and benefits to be reduced. Failure by the Employee to provide this notice
within the time allowed will be treated by the Company as acceptance by the
Employee of the amount of reduction determined by the Company and/or the
payments and benefits to be reduced. If any differences regarding the amount of
the reduction and/or the payments and benefits to be reduced have not been
resolved by mutual agreement within sixty days after the Employee's receipt of
the Company's notice pursuant to Subsection 6(b), the amount of reduction and/or
the payments and benefits to be reduced determined by the Employee will be
conclusive and binding on both parties unless, prior to the expiration of such
sixty day period, the Company notifies the Employee in writing of the Company's
intention to have the matter submitted to arbitration for resolution and
proceeds to do so promptly. If the Company gives no notice to the Employee of a
required reduction as provided in Subsection 6(b), the Employee may unilaterally
determine the amount of reduction required, if any, and/or the payments and
benefits to be reduced, and, upon written notice to the Company, the amount
and/or the payments and benefits to be reduced will be conclusive and binding on
both parties.
(d) If, as a result of the reductions required by Subsection 6(a),
the amounts previously paid to the Employee exceed the amount to which the
Employee is entitled, the Employee will promptly return the excess amount to the
Company.
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.
6
<PAGE>
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 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.
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 months thereafter and to receive the benefits provided
under Section 4 of this Agreement in the event of Termination Upon Change of
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.
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<PAGE>
(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 him
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
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: /s/ Truman Cole
---------------------- ---------------------------------
Signature
Title: VP Finance & CFO
------------------------------
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<PAGE>
Date: /s/ Truman Cole
----------------------- -----------------------------------
Employee's Signature
Address for Notice: Truman Cole
- ---------------------------- Name
- ----------------------------
Address of Designated ------------------------------------
Beneficiary: Designated Beneficiary
- -----------------------------
- -----------------------------
9
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and
entered into as of May 24, 1996 (the "Effective Date"), by and between Network
Peripherals Inc., a Delaware corporation (the "Company") and Donald Morrison
("Employee").
Recitals
The Company recognizes that the possibility of a change of 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 of 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 of 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 of Control Event" means an Ownership Change in which the
stockholders of the Company before such Ownership Change do not retain, directly
or indirectly, at a least a majority of the beneficial interest in the voting
stock of the Company after such
1
<PAGE>
transaction or in which the Company is not the surviving corporation. For
purposes of this Agreement, an "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company;
(ii) a merger or consolidation in which the Company is a party
and in which the stockholders of the Company before such Ownership Change do not
retain, directly or indirectly, at a least a majority of the beneficial interest
in the voting stock of the Company after such transaction or in which the
Company is not the surviving corporation;
(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
that occurs within two years after the occurrence of any Change of Control
Event:
(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 of Control Event;
(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 of Control Event (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 miles from the Employee's principal place of employment
immediately prior to the date of the Change of Control Event, or the imposition
of travel requirements on the Employee substantially inconsistent with such
travel requirements existing immediately prior to the date of the Change of
Control Event;
(iv) any failure by the Company to pay, or any reduction by
the Company of (a) the Employee's base salary in effect immediately prior to the
date of the Change of Control Event (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
(b) the Employee's bonus compensation in effect immediately prior to the date of
the Change of Control Event (subject to applicable performance requirements with
respect to the actual amount of bonus compensation earned by the Employee and
all other participants in the bonus program);
(v) any failure by the Company to (a) continue to provide the
Employee with the opportunity to participate, on terms no less favorable than
those in effect for
2
<PAGE>
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 of Control Event, 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 (b) 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.
(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 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 of Control" means any one of the
following:
(i) any termination of the employment of the Employee by the
Company without Cause within one year after the occurrence of any Change of
Control Event;
(ii) any termination of the employment of the Employee by the
Company without Cause during the period commencing thirty days prior to the date
of the Company's first public announcement that the Company has entered into a
definitive agreement to effect an Ownership Change (even though still subject to
approval by the Company's stockholders and other conditions and contingencies)
and ending on the date of the Change of Control Event; or
(iii) any resignation by the Employee immediately following
any Constructive Termination (with the termination of employment following death
or Permanent Disability being deemed a resignation) that occurs within one year
after the occurrence of any Change of Control Event.
"Termination Upon Change of Control" shall not include any termination
of the employment of the Employee (a) by the Company for Cause; or (b) as a
result of the voluntary
3
<PAGE>
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 of Control Event, 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 of Control Event, 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 of Control.
(a) In the event of the Employee's Termination Upon Change of
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 one year (the "Severance Period").
During such period, Employee shall be entitled to the greater of (i) Employee's
then current salary at the time of the Change of Control Event, or (ii)
Employee's salary and bonus over the preceding twelve months, in either case
less applicable withholding, payable in accordance with the Company's normal
payroll practices;
(iii) within ten 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).
Notwithstanding the above, in the event Employee becomes
4
<PAGE>
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 of Control all stock options granted by the Company to
the Employee prior to the Change of Control Event, which are not accelerated
pursuant to the provisions of Section 5, shall continue to vest during the term
of the Severance Period, to the extent such stock options remain outstanding and
unexercised at the time of such Termination Upon Change of Control. 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) 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.
(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 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 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 Exerciseability of Stock Options.
(a) In the event of a Change of Control Event where the
consideration paid to stockholders of the Company consists, at least in part, of
other than equity securities of the acquiring entity (except for cash payment
for fractional shares), then all stock options granted to the Employee prior to
the Change of Control Event (whether heretofore or hereafter granted) which
would otherwise become exercisable within 18 months of the Change of Control
Event (assuming Employee's continued employment) shall vest and become
exercisable in full 30 days before the consummation of the transaction
constituting such Change of Control Event.
(b) In the event of a Termination Upon Change of Control, all stock
options granted to the Employee prior to the Change of Control Event (whether
heretofore or hereafter granted) which would otherwise become exercisable within
18 months of the Change of Control Event (assuming Employee's continued
employment) shall vest and become exercisable and shall remain exercisable for a
period of at least one year, subject to any longer periods for exercise of such
options set forth in the particular option agreements.
6. Limitation of Payments and Benefits.
(a) To the extent that any of the payments and benefits provided for
in this Agreement or otherwise payable to the Employee constitute "parachute
payments" within the
5
<PAGE>
meaning of Section 280G of the Internal Revenue Code (the "Code") and, but for
this Section 6, would be subject to the excise tax imposed by Section 4999 of
the Code, the aggregate amount of such payments and benefits shall be reduced
such that none of the payments and benefits are subject to excise tax pursuant
to Section 4999 of the Code.
(b) Within sixty days after the later of termination of employment
or the related Change of Control Event, the Company shall notify the Employee in
writing if it believes that any reduction in the payments and benefits that
would otherwise be paid or provided to the Employee under the terms of this
Agreement is required to comply with the provisions of Subsection 6(a). If the
Company determines that any such reduction is required, it will provide the
Employee with copies of the information used and calculations made by the
Company to determine the amount of such reduction. The Company shall determine,
in a fair and equitable manner after consultation with the Employee, which
payments and benefits are to be reduced so as to result in the maximum benefit
for the Employee.
(c) Within thirty days after the Employee's receipt of the Company's
notice pursuant to Subsection 6(b), the Employee shall notify the Company in
writing if the Employee disagrees with the amount of reduction determined by the
Company, or the selection of the payments and the benefits to be reduced. As
part of such notice, the Employee shall also advise the Company of the amount of
reduction, if any, that the Employee has, in good faith, determined to be
necessary to comply with the provisions of Subsection 6(b) and/or the payments
and benefits to be reduced. Failure by the Employee to provide this notice
within the time allowed will be treated by the Company as acceptance by the
Employee of the amount of reduction determined by the Company and/or the
payments and benefits to be reduced. If any differences regarding the amount of
the reduction and/or the payments and benefits to be reduced have not been
resolved by mutual agreement within sixty days after the Employee's receipt of
the Company's notice pursuant to Subsection 6(b), the amount of reduction and/or
the payments and benefits to be reduced determined by the Employee will be
conclusive and binding on both parties unless, prior to the expiration of such
sixty day period, the Company notifies the Employee in writing of the Company's
intention to have the matter submitted to arbitration for resolution and
proceeds to do so promptly. If the Company gives no notice to the Employee of a
required reduction as provided in Subsection 6(b), the Employee may unilaterally
determine the amount of reduction required, if any, and/or the payments and
benefits to be reduced, and, upon written notice to the Company, the amount
and/or the payments and benefits to be reduced will be conclusive and binding on
both parties.
(d) If, as a result of the reductions required by Subsection 6(a),
the amounts previously paid to the Employee exceed the amount to which the
Employee is entitled, the Employee will promptly return the excess amount to the
Company.
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.
6
<PAGE>
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 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.
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 months thereafter and to receive the benefits provided
under Section 4 of this Agreement in the event of Termination Upon Change of
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.
7
<PAGE>
(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 him
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
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:/s/ Donald Morrison
---------------------- ---------------------------------
Signature
Title: Senior VP of Marketing
------------------------------
8
<PAGE>
Date: /s/ Donald Morrison
----------------------- -----------------------------------
Employee's Signature
Address for Notice: Donald Morrison
- ---------------------------- Name
- ----------------------------
Address of Designated ------------------------------------
Beneficiary: Designated Beneficiary
- -----------------------------
- -----------------------------
9
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