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, 1997
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, 1997 was 12,190,634.
This quarterly report on Form 10-Q consists of 17 pages of which this is page 1.
The Exhibit Index starts on page 16.
<PAGE>
NETWORK PERIPHERALS INC.
INDEX TO FORM 10-Q
For the quarter ended
June 30, 1997
PART I. FINANCIAL INFORMATION
Item Page
- ---- ----
1. Financial Statements (unaudited):
a. Consolidated Balance Sheets - June 30, 1997
and December 31, 1996. 3
b. Consolidated Statements of Operations - Three
Months and Six Months Ended June 30, 1997 and 1996 4
c. Consolidated Statements of Cash Flows -- Six
Months Ended June 30, 1997 and 1996. 5
d. Notes to Consolidated Financial Statements 6-7
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-11
PART II. OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders 12
6. Exhibits and Reports on Form 8-K 13-14
Signatures 15
Index to Exhibits 16-17
<PAGE>
<TABLE>
NETWORK PERIPHERALS INC.
CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands, except share and per share data)
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,767 $ 23,523
Short-term investments 16,328 22,350
Accounts receivable, net of allowance for doubtful
accounts and returns of $1,028 and $1,154, respectively 8,680 8,359
Inventories 8,235 8,228
Deferred income taxes 2,271 2,271
Prepaid expenses and other current assets 2,061 1,843
-------- --------
Total current assets 54,342 66,574
Property and equipment, net 3,928 3,575
Deferred income taxes and other assets 874 443
Goodwill 759 842
-------- --------
$ 59,903 $ 71,434
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,664 $ 2,736
Accrued liabilities 6,755 8,841
-------- --------
Total current liabilities 8,419 11,577
-------- --------
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; 12,177,853 and 11,954,000, respectively
shares issued and outstanding 12 12
Additional paid-in capital 63,302 62,614
Accumulated deficit (11,830) (2,769)
-------- --------
Total stockholders' equity 51,484 59,857
-------- --------
$ 59,903 $ 71,434
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NETWORK PERIPHERALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 10,637 $ 12,774 $ 22,643 $ 22,902
Cost of sales 6,513 6,792 12,583 12,990
-------- -------- -------- --------
Gross profit 4,124 5,982 10,060 9,912
-------- -------- -------- --------
Operating expenses:
Research and development 2,376 2,340 4,762 3,952
Marketing and selling 3,986 2,687 7,839 4,732
General and administrative 1,184 951 2,455 1,542
Acquired research and development in
process and product integration costs 6,462 -- 6,462 13,732
-------- -------- -------- --------
Total operating expenses 14,008 5,978 21,518 23,958
-------- -------- -------- --------
Income (loss) from operations (9,884) 4 (11,458) (14,046)
Interest income 369 374 783 929
-------- -------- -------- --------
Income (loss) before income taxes (9,515) 378 (10,675) (13,117)
Provision for (benefit from) income taxes (1,208) 132 (1,614) (30)
-------- -------- -------- --------
Net income (loss) $ (8,307) $ 246 $ (9,061) $(13,087)
======== ======== ======== ========
Net income (loss) per share $ (0.68) $ 0.02 $ (0.75) $ (1.13)
======== ======== ======== ========
Weighted average common and common 12,153 12,333 12,114 11,617
equivalents shares ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NETWORK PERIPHERALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,061) $(13,087)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 1,208 1,341
Amortization of goodwill 283 --
Acquired research and development in process 6,462 13,032
Changes in assets and liabilities (net of effect of
acquisitions)
Accounts receivable (321) (1,937)
Inventories (7) (894)
Prepaid expenses and other assets (605) 526
Accounts payable (1,072) 2,083
Accrued liabilities (2,343) 1,747
-------- --------
Net cash provided by (used in) operating activities (5,456) 2,811
-------- --------
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired (6,449) (10,401)
Sale of short-term investments 6,022 2,760
Purchases of property and equipment (1,561) (996)
-------- --------
Net cash used in investing activities (1,988) (8,637)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 667 496
-------- --------
Net cash provided by financing activities 667 496
-------- --------
Foreign currency translation 21 --
-------- --------
Net decrease in cash and cash equivalents (6,756) (5,330)
Cash and cash equivalents at beginning of period 23,523 27,210
-------- --------
Cash and cash equivalents at end of period $ 16,767 $ 21,880
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid -- $ 133
======== ========
Supplemental disclosure of noncash investing activity:
Common Stock used for purchase of Nucom -- $ 5,342
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited 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
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, 1997 and December 31, 1996, the
results of its operations for the three and six month periods ended June 30,
1997 and 1996, and its cash flows for the six month periods ended June 30, 1997
and 1996. These financial statements should be read in conjunction with the
audited financial statements of the Company as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996, 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 period ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997 or for any other future period.
2. NET LOSS PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during these 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. Net loss per share is computed using the weighted
average number of common shares outstanding during the periods. Common stock
equivalents have been excluded from the calculation of weighted average shares
as a result of the operating losses in the six months ended June 30, 1997 and
1996.
3. INVENTORIES
The components of inventory consist of the following (in thousands):
June 30, December 31,
1997 1996
------ ------
Raw materials $3,916 $4,685
Work-in-process 3,204 2,600
Finished goods 1,115 943
------ ------
$8,235 $8,228
====== ======
<PAGE>
NETWORK PERIPHERALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
June 30, December 31,
1997 1996
------- -------
Computer and test equipment $ 8,394 $ 7,271
Furniture and fixtures 1,005 817
Leasehold improvements 351 356
------- -------
9,750 8,444
Less: accumulated depreciation (5,822) (4,869)
------- -------
$ 3,928 $ 3,575
======= =======
5. ACCRUED LIABILITIES
The components of accrued liabilities consist of the following (in
thousands):
June 30, December 31,
1997 1996
------ ------
Salaries and benefits $1,946 $2,699
Royalty 749 1,154
Warranty 594 717
Income taxes 290 1,268
Holdback amount from acquisition 441 1,115
Payments received in advance -- 605
Other 2,735 1,283
------ ------
$6,755 $8,841
====== ======
6. ACQUISITION OF NETVISION
Effective April 29, 1997, the Company acquired NetVision Corporation
(NetVision), a privately held company engaged in the development of very high
bandwidth LAN switching and Gigabit Ethernet technologies. The transaction was
accounted for using the purchase method at a cost of $6.5 million, including
payments to NetVision stockholders, the assumption of certain liabilities, and
transaction expenses. The purchase price was allocated to the assets acquired
and liabilities assumed based on the estimated fair market values at the date of
acquisition. The research and development in process represents the estimated
current fair market value of specified technologies, which had not reached
technological feasibility and had no future uses. The allocation of the purchase
price is as follows in (thousands):
Research and development, in process $ 6,462
Goodwill 200
Assets 44
Liabilities assumed (257)
-------
$ 6,449
=======
<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
Litigation Reform Act of 1995. The future events described in such statements
involve risks and uncertainties, including:
o the timely development and market acceptance of new products;
o 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;
o competitive actions, including pricing actions and the introduction of new
competitive products, that may affect the volume of sales of the Company's
products;
o uninterrupted supply of key components, including semiconductor devices and
other materials, some of which are sourced from a single supplier;
o the cost of materials and components;
o the ability of the Company to recruit, train and retain key personnel,
including engineers and other technical professionals;
o the development of new technologies rendering existing technologies and
products obsolete; and
o general market conditions. 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 for the three months ended June 30, 1997 were $10.6 million,
as compared to $12.8 million for the three months ended June 30, 1996, a
decrease of 17%. Net sales for the six months ended June 30, 1997 were $22.6
million, as compared to $22.9 million for the six months ended June 30, 1996, a
decrease of 1%. The decreases in the three and six month periods reflected price
reductions resulting from competitive pressures and a decline in shipments of
the Company's FDDI adapters, offset in part by increased shipments of Fast
Ethernet switching products. Net sales of Fast Ethernet products increased to
30% and 29% of total sales in the three and six month periods ended June 30,
1997, respectively, as compared to 17% and 11% in the comparable periods in
1996, respectively, reflecting increased demand for products based on Fast
Ethernet technology. As a result of its declining sales in mature FDDI product
lines, the Company does not expect growth in sales for future periods in 1997.
Gross Profit/Margin Gross margin for the three months ended June 30,
1997 was 39%, as compared to 47% for the three months ended June 30, 1996. The
decrease was attributed to price reductions, price credits associated with those
price reductions, and non-recurring charges, including the write-off of excess
FDDI inventory and the costs associated with the transfer of production of FDDI
products from internal operations to an external turnkey-manufacturing partner.
Gross margin for the six months ended June 30, 1997 was 44%, as compared to 43%
for the six months ended June 30, 1996. Non-recurring charges and adjustments
for excess inventory were primary contributors for the lower than historical
gross margin for both six month periods in 1997 and 1996. Additionally, price
reductions and credits also contributed to the low gross margin in the 1997
period. The Company does not believe the gross margin for the three and six
month periods are indicative of future gross margins. The Company believes that
gross margins will improve to historical levels to the extent the Company is
able to increase sales of higher margin Fast Ethernet products and to minimize
non-recurring charges. However, due to the Company's lack of experience with
turnkey manufacturing, competitive price pressures, fluctuations in the cost of
materials and components, product and channel mix, and other factors, the
Company may be unable to improve gross margin.
<PAGE>
Acquired Research and Development In-Process
For the quarter ended June 30, 1997, the Company incurred a
non-recurring charge of $6.5 million for in-process research and development
costs related to the acquisition of NetVision Corporation (refer to Note 6).
Research and Development
Research and development expenses for the three months ended June 30,
1997 were $2.4 million, or 22% of net sales, as compared to $2.3 million, or 18%
of net sales, for the corresponding period in 1996. For the six months ended
June 30, 1997 and 1996, research and development expenses were $4.8 million, or
21% of sales, and $4.0 million, or 17% of sales, respectively. The expenses in
the three and six month periods in 1997 are net of contract funding of $168,000
and $217,000, respectively. For the three and six month periods in 1996 contract
funding was $121,000 and $271,000, respectively. The increase in expenditures in
the three and six month periods reflected the addition of staff, facilities and
equipment resulting from the acquisitions of NetVision and NuCom. The increase
is also attributable to the development of new technologies, including Gigabit
Ethernet, and the enhancement and expansion of existing technologies, including
Ethernet switching and network management. The Company believes it is essential
to continue this level of investment in research and development and expects the
dollar level of spending will increase in the future periods of 1997.
Marketing and Selling
Marketing and selling expenses for the three months ended June 30, 1997
were $4.0 million, or 37% of net sales, compared to $2.7 million, or 21% of net
sales, for the corresponding period in 1996. For the six months ended June 30,
1997, and 1996, marketing and selling expenses were $7.8 million, or 35% of
sales, and $4.7 million, or 21% of sales, respectively. The increase in
expenditures in both three and six month periods reflected the addition of
staff, facilities and equipment resulting from the acquisition of NuCom.
Additionally, the Company continued to incur expenses pursuing its marketing
strategy to penetrate the global markets and to establish brand name
recognition. The cost of implementing this strategy included the addition of
sales staff and related overhead costs, and the cost of advertising and
promotional campaigns, and trade shows. The Company expects to realign its
marketing resources and focus on increasing its OEM customer base. This renewed
strategy is expected to decrease total expenditures for marketing and selling in
future periods of 1997.
General and Administrative
General and administrative expenses for the three months ended June 30,
1997 were $1.2 million, or 11% of net sales, compared to $951,000, or 7% of net
sales, in the corresponding period in 1996. For the six months ended June 30,
1997 and 1996, general and administrative expenses were $2.5 million, or 11% of
sales, and $1.5 million, or 7% of sales, respectively. The increase in
expenditures reflected the addition of staff, facilities and equipment resulting
from the acquisition of NuCom. Additionally, to enhance the Company's
information system infrastructure to support future growth, the Company incurred
costs associated with increased staffing, equipment and overhead. The Company
expects the dollar level of general and administrative expenses to remain
relatively unchanged in the future periods of 1997.
Interest Income
Interest income for the three months ended June 30, 1997 was $369,000,
compared to $374,000 in the corresponding period in 1996. For the six months
ended June 30, 1997, and 1996, interest income was $783,000, and $929,000,
respectively. The decrease was the result of reduced level of invested funds as
a result of operating losses and the acquisitions of NetVision and NuCom.
Income Taxes
The Company recorded a tax benefit for the three months ended June 30,
1997 and for the six months ended June 30, 1997 and 1996 using an effective tax
rate of 35%. In recording the benefit, the Company expects to carry-back its net
operating loss to prior years. In the three months ended June 30, 1996, the
Company recorded a tax provision using an effective tax rate of 35%, less than
the statutory rate as a result of tax exempt interest income.
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 1997, the Company recorded a net loss
of $9.1 million, of which, $6.5 million was due to a non-recurring charge for
in-process research and development purchased in connection with the acquisition
of NetVision.
Cash used in operating activities for the six months ended June 30,
1997 was $5.5 million, primarily due to the operating loss for the period of
$4.2 million, net of the non-recurring charge for in process research and
development of $6.5 million, and a decrease in accounts payable and accrued
liabilities.
Cash used in investing activities for the six months ended June 30,
1997 was $2.0 million, of which $6.5 million was attributed to the acquisition
of NetVision, offset in part by the sale of short term investments of $6.0
million. The remainder of the cash was used for the purchase of equipment to
enhance the information system infrastructure.
Cash provided by financing activities for the six months ended June 30,
1997 was $667,000 resulting from the exercise of stock options.
At June 30, 1997, the Company's principal sources of liquidity were its
cash, cash equivalents and short-term investments of $33.1 million, and $10.0
million available for borrowing under the Company's line of credit. As of June
30, 1997, there were no borrowings outstanding under the Company's bank line of
credit. The Company believes that its balance of cash, cash equivalents,
short-term investments, and available borrowing capacity will be sufficient to
meet the Company's capital and operating requirements for the foreseeable
future.
Acquisition
Effective April 29, 1997, the Company acquired NetVision Corporation.
Refer to Note 6 of Notes to Consolidated Financial Statements.
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. 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.
<PAGE>
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 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. These
competitive pressures could adversely affect the Company's business and
operating results.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The company held its annual meeting of stockholders on April
24, 1997.
(b) The election of two Class III Directors for a term expiring in
the year 2000 was voted at the meeting and there were
9,977,446 shares of Common Stock represented in person and by
proxy. Glenn E. Penisten received 9,494,196 votes for, 0 votes
against, and 483,250 votes abstained. Charles J. Hart received
9,484,167 votes for, 0 votes against, and 493,279 votes
abstained. Broker non-votes were counted as abstentions. In
addition to the foregoing, Pauline Lo Alker, Kenneth Levy, and
William P. Tai will continue to serve until their successors
have been elected and qualified. Effective May 12, 1997, Ann
S. Bowers resigned as a member of the Board of Directors and
was replaced by Joe Marengi in July 1997.
(c) On a proposal to ratify the Company's 1997 Stock Plan,
3,862,237 shares were voted for the proposal, 864,209 shares
were voted against the proposal, and 55,888 shares abstained.
Broker non-votes were counted as abstentions.
(d) On a proposal to ratify the amendments to the Company's 1994
Outside Directors Stock Option Plan to I) change the formula
for granting option, II) change the option vesting provisions
applicable in the event of a change in control of the Company,
and III) revise the requirements for stockholder approval of
subsequent amendments to the plan, 8,193,739 shares were voted
for the proposal, 771,862 shares were voted against the
proposal, and 54,407 shares abstained. Broker non-votes were
counted as abstentions.
(e) On a proposal to ratify the appointment of Price Waterhouse as
the Company's independent accountants, 9,874,151 shares were
voted for the proposal, 94,991 shares were voted against the
proposal, and 8,304 shares abstained. Broker non-votes were
counted as abstentions.
<PAGE>
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.
10.9(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.
10.12(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.
10.18(5) Purchase Agreement among Network Peripherals
Inc., Network Peripherals, Ltd., NuCom
Systems, Inc., and the shareholders of NuCom,
dated January 31, 1996.
<PAGE>
10.21(4) Employment agreement dated January 1997 with
Truman Cole
10.22(4) Line of Credit Agreement with Sumitomo Bank
dated October 2, 1996
10.23(4) Agreement with Glenn Peniston dated May 15,
1996
10.24 Salary continuation agreement dated April 1997
with Charles Hart
10.25 Salary continuation agreement dated April 1997
with Robert Hersh
10.26(6) Purchase Agreement among Network Peripherals
Inc., Network Peripherals, Ltd., NetVision
Corporation, and the shareholders of
NetVision, dated April 29, 1997.
10.27 1997 Stock Option Plan
10.28 Amended 1994 Outside Directors Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, dated May 14, 1997 reported under
item 2., the Company's acquisition of NetVision Corporation.
(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's Annual Report 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)
(6) Incorporated by reference to the Registrants' report
on form 8-K filed on May 14, 1997.
<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 14, 1997 By: \s\ ROBERT HERSH
-----------------
Robert Hersh
Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<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.
10.9(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.
10.12(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.
10.18(5) Purchase Agreement among Network Peripherals Inc., Network
Peripherals, Ltd., NuCom Systems, Inc., and the shareholders
of NuCom, dated January 31, 1996.
10.21(4) Employment agreement dated January 1997 with Truman Cole
10.22(4) Line of Credit Agreement with Sumitomo Bank dated October 2,
1996
10.23(4) Agreement with Glenn Peniston dated May 15, 1996
10.24 Salary continuation agreement dated April 1997 with Charles
Hart
10.25 Salary continuation agreement dated April 1997 with Robert
Hersh
10.26(6) Purchase Agreement among Network Peripherals Inc., Network
Peripherals, Ltd., NetVision Corporation, and the shareholders
of NetVision, dated April 29, 1997.
10.27 1997 Stock Option Plan
10.28 Amended 1994 Outside Directors Option Plan
27 Financial Data Schedule
<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's Annual Report 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).
(6) Incorporated by reference to the corresponding exhibit in the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and
entered into as of April 21, 1997 (the "Effective Date"), by and between Network
Peripherals Inc., a Delaware corporation (the "Company") and Charles J. Hart
("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 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:
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 12 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 12 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 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.
<PAGE>
(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.
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
<PAGE>
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.
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
<PAGE>
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: April 21, 1997 By: /s/ Pauline Jo Arther
Signature
Title: President, CEO
Date: April 21, 1997 /s/ Charles Hart
Employee's Signature
Charles Hart
Name
Address of Designated Matigo M. Hart
Beneficiary: Designated Beneficiary
Same As Above
SALARY CONTINUATION AGREEMENT
This Salary Continuation Agreement (the "Agreement") is made and
entered into as of April 21, 1997 (the "Effective Date"), by and between Network
Peripherals Inc., a Delaware corporation (the "Company") and Robert O. Hersh
("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 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:
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 12 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 12 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 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.
<PAGE>
(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.
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
<PAGE>
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.
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
<PAGE>
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: April 21, 1997 By: /s/ Pauline Jo Arther
Signature
Title: President, CEO
Date: April 21, 1997
Employee's Signature
/s/ Robert O. Hersh
Name
Robert O. Hersh
Address of Designated
Beneficiary: Designated Beneficiary
6826 Via Quito Grace H. Hersh
Pleasanton, CA 94566
NETWORK PERIPHERALS INC.
1997 STOCK PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 Establishment. The Network Peripherals Inc. 1997 Stock
Plan (the "Plan") is hereby established effective as of February 18, 1997 (the
"Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Awards granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 Definitions. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "Award" means an Option or Restricted Stock.
(b) "Board" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(c) "Code" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(d) "Committee" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(e) "Company" means Network Peripherals Inc., a
Delaware corporation, or any successor corporation thereto.
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<PAGE>
(f) "Consultant" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(g) "Director" means a member of the Board or of the
board of directors of any other Participating Company.
(h) "Disability" means the permanent and total
disability of the Participant within the meaning of Section 22(e)(3) of the
Code.
(i) "Employee" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(j) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(k) "Fair Market Value" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein, subject to the
following:
(i) If, on such date, there is a public
market for the Stock, the Fair Market Value of a share of Stock shall be the
closing sale price of a share of Stock (or the mean of the closing bid and asked
prices of a share of Stock if the Stock is so quoted instead) as quoted on the
Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or
regional securities exchange or market system constituting the primary market
for the Stock, as reported in the Wall Street Journal or such other source as
the Company deems reliable. If the relevant date does not fall on a day on which
the Stock has traded on such securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which
the Stock was so traded prior to the relevant date, or such other appropriate
day as shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public
market for the Stock, the Fair Market Value of a share of Stock shall be as
determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(l) "Incentive Stock Option" means an Option intended
to be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(m) "Insider" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(n) "Nonstatutory Stock Option" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
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<PAGE>
(o) "Option" means a right granted under Section 6 to
purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to
the terms and conditions of the Plan. An Option may be either an Incentive Stock
Option or a Nonstatutory Stock Option.
(p) "Option Agreement" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.
(q) "Optionee" means a person who has been granted
one or more Options.
(r) "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "Participant" means a person who has been granted
one or more Awards.
(t) "Participating Company" means the Company or any
Parent Corporation or Subsidiary Corporation.
(u) "Participating Company Group" means, at any point
in time, all corporations collectively which are then Participating Companies.
(v) "Restricted Stock" means Stock (subject to
adjustment as provided in Section 4.2) granted or sold to a Participant pursuant
to Section 7 and the terms and conditions of the Plan.
(w) "Restricted Stock Agreement" means a written
agreement between the Company and a Participant setting forth the terms,
conditions and restrictions applying to the Restricted Stock acquired by the
Participant.
(x) "Rule 16b-3" means Rule 16b 3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(y) "Section 162(m)" means Section 162(m) of the
Code, as amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66), and
any regulations promulgated thereunder.
(z) "Securities Act" means the Securities Act of
1933, as amended.
(aa) "Service" means a Participant's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Participant's Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders Service to the Participating Company Group or a change
in the Participating Company for which the Participant renders such Service,
provided that there is no interruption or termination of the Participant's
Service. Furthermore, a Participant's Service with the Participating Company
Group shall not be deemed to have
3
<PAGE>
terminated if the Participant takes any military leave, sick leave, or other
bona fide leave of absence approved by the Company; provided, however, that if
any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such
leave the Participant's Service shall be deemed to have terminated unless the
Participant's right to return to Service with the Participating Company Group is
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Participant's Option Agreement or Restricted Stock Agreement. The Participant's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Participant performs Service
ceasing to be a Participating Company. Subject to the foregoing, the Company, in
its sole discretion, shall determine whether the Participant's Service has
terminated and the effective date of such termination.
(bb) "Stock" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.
(cc) "Subsidiary Corporation" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(dd) "Ten Percent Stockholder" means a Participant
who, at the time an Award is granted to the Participant, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 Administration by the Board. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Award shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in the Plan or such Award. Any
officer of a Participating Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, determination or election.
3.2 Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b 3.
4
<PAGE>
3.3 Powers of the Board. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Awards shall be granted and the number of shares of Stock to be
subject to each Award;
(b) to determine whether an Award will be an
Incentive Stock Option, a Nonstatutory Stock Option, or Restricted Stock;
(c) to determine the Fair Market Value of shares of
Stock or other property;
(d) to determine the terms, conditions and
restrictions applicable to each Award (which need not be identical) and any
shares acquired pursuant to the Plan, including, without limitation, (i) the
exercise or purchase price, if any, applicable to each Award, (ii) the method of
payment for shares purchased under the Plan, (iii) the method for satisfaction
of any tax withholding obligation arising in connection with the Award or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of each Option or the vesting
of any shares acquired pursuant to the Plan, (v) the time of the expiration of
the Award, (vi) the effect of the Participant's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Award or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement
and Restricted Stock Agreement;
(f) to amend, modify, extend, or renew, or grant a
new Award in substitution for, any Award or to waive any restrictions or
conditions applicable to any Award or any shares acquired under the Plan;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired under the
Plan, including with respect to the period following a Participant's termination
of Service with the Participating Company Group;
(h) to delegate to any proper officer of the Company
the authority to grant one or more Awards, without further approval of the
Board, to any person eligible pursuant to Section 5, other than a person who, at
the time of such grant, is an Insider; provided, however, that (i) such Awards
shall not be granted to any one person within any fiscal year of the Company for
more than 50,000 shares in the aggregate, (ii) the exercise or purchase price
per share of Stock shall be equal to the Fair Market Value per share of the
Stock on the effective date of grant, and (iii) each such Award shall be subject
to the terms and conditions of the appropriate standard form of Option Agreement
or Restricted Stock Agreement approved by the Board and shall conform to the
provisions of the Plan and such other guidelines as shall be established from
time to time by the Board;
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<PAGE>
(i) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted Awards;
and
(j) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement or Restricted
Stock Agreement and to make all other determinations and take such other actions
with respect to the Plan or any Award as the Board may deem advisable to the
extent consistent with the Plan and applicable law.
3.4 Committee Complying with Section 162(m). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) (a "Section 162(m) Committee") to approve
the grant of any Award which might reasonably be anticipated to result in the
payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes pursuant to Section
162(m).
4. SHARES SUBJECT TO PLAN.
4.1 Maximum Number of Shares Issuable. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one million five hundred thousand
(1,500,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Award for any reason expires
or is terminated or canceled or shares of Stock acquired, subject to repurchase
or forfeiture, pursuant to an Award are repurchased by the Company or forfeited,
the shares of Stock allocable to the unexercised portion of such Award, or such
repurchased or forfeited shares of Stock, shall again be available for issuance
under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Awards, in the Section 162(m) Grant
Limit set forth in Section 4.3, and in the exercise or purchase price per share
of any outstanding but unexercised Awards. If a majority of the shares which are
of the same class as the shares that are subject to outstanding Awards are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the "New Shares"), the Board may unilaterally amend the outstanding
Awards to provide that such Awards are for New Shares. In the event of any such
amendment, the number of shares subject to outstanding Awards and the exercise
or purchase price per share of outstanding but unexercised Awards shall be
adjusted in a fair and equitable manner as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 4.2 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
exercise
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<PAGE>
or purchase price of any Award be decreased to an amount less than the par
value, if any, of the stock subject to the Award. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
4.3 Section 162(m) Grant Limit. Subject to adjustment as
provided in Section 4.2, at any such time as a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), no Employee
shall be granted one or more Awards within any fiscal year of the Company which
in the aggregate are for more than five hundred thousand (500,000) shares;
provided, however, that the Company may make an additional one-time grant to any
newly-hired Employee of an Award for up to two hundred fifty thousand (250,000)
shares (the "Section 162(m) Grant Limit"). An Option which is canceled in the
same fiscal year of the Company in which it was granted shall continue to be
counted against the Section 162(m) Grant Limit for such period.
5. ELIGIBILITY. Awards may be granted only to Employees, Consultants,
and Directors. For purposes of the foregoing sentence, "Employees,"
"Consultants" and "Directors" shall include prospective Employees, prospective
Consultants and prospective Directors to whom Awards, other than a Restricted
Stock Bonus (as defined in Section 7 below), may be granted in connection with
written offers of a Service relationship with the Participating Company Group.
Eligible persons may be granted more than one (1) Award.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. Option Agreements may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
6.1 Limitations on Options.
(a) Option Grant Restrictions. Any person who is not
an Employee on the effective date of the grant of an Option to such person may
be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted
to a prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service as
an Employee with a Participating Company, with an exercise price determined as
of such date in accordance with Section 6.2.
(b) Fair Market Value Limitation. To the extent that
options designated as Incentive Stock Options (granted under all stock option
plans of the Participating Company Group, including the Plan) become exercisable
by an Optionee for the first time during any calendar year for stock having a
Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the
portion of such options which exceeds such amount shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6.1(b), options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this
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<PAGE>
Section 6.1(b), such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 6.1(b), the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
6.2 Exercise Price. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share for an Incentive Stock Option shall be not less
than the Fair Market Value of a share of Stock on the effective date of grant of
the Option, (b) the exercise price per share for a Nonstatutory Stock Option
shall be not less than eighty five percent (85%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option, and (c) no
Incentive Stock Option granted to a Ten Percent Stockholder shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.3 Exercise Period. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Stockholder shall be exercisable
after the expiration of five (5) years after the effective date of grant of such
Option, and (c) no Option granted to a prospective Employee, prospective
Consultant or prospective Director may become exercisable prior to the date on
which such person commences Service with a Participating Company. Except as
otherwise provided in this Section or by the Board in the grant of an Option,
any Option granted hereunder shall have a term of ten (10) years from the
effective date of grant of the Option.
6.4 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option
8
<PAGE>
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 6.7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.5 Tax Withholding. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company
9
<PAGE>
Group arising in connection with the Option or the shares acquired upon the
exercise thereof. The Company shall have no obligation to deliver shares of
Stock or to release shares of Stock from an escrow established pursuant to the
Option Agreement until the Participating Company Group's tax withholding
obligations have been satisfied by the Optionee.
6.6 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier
termination of the Option as otherwise provided herein, an Option shall be
exercisable after an Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service
with the Participating Company Group is terminated because of the Disability of
the Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Option Agreement evidencing such Option (the
"Option Expiration Date").
(ii) Death. If the Optionee's Service with
the Participating Company Group is terminated because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee's
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee's death at any time prior to the expiration of
six (6) months (or such longer period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(iii) Other Termination of Service. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
longer period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 12 below, the Option shall remain exercisable until three
(3) months after the date the Optionee is notified by the Company that the
Option is exercisable, but in any event no later than the Option Expiration
Date.
(c) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b)
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<PAGE>
of the Exchange Act, the Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of such
shares by the Optionee would no longer be subject to such suit, (ii) the one
hundred and ninetieth (190th) day after the Optionee's termination of Service,
or (iii) the Option Expiration Date.
6.7 Standard Forms of Option Agreement. Unless otherwise
provided by the Board at the time the Option is granted, an Option designated as
an "Incentive Stock Option" or a "Nonstatutory Stock Option" shall comply with
and be subject to the terms and conditions set forth in the form of Incentive
Stock Option Agreement or Nonstatutory Stock Option Agreement, respectively,
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time. The Board shall have the authority from time to time to vary
the terms of any of the standard forms of Option Agreement described in this
Section either in connection with the grant or amendment of an individual Option
or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan. Such authority shall include, but not by way of limitation,
the authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by an
Optionee upon the exercise of an Option in the event such Optionee's employment
or service with the Participating Company Group is terminated for any reason,
with or without cause.
6.8 Nontransferability of Incentive Stock Options. During the
lifetime of the Optionee, an Option shall be exercisable only by the Optionee or
the Optionee's guardian or legal representative. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall
be assignable or transferable to the extent permitted by the Board and set forth
in the Option Agreement evidencing such Option.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK.
The Board may from time to time grant Restricted Stock Awards
which may be in the form of a stock bonus (a "Restricted Stock Bonus") or a
stock purchase right (a "Restricted Stock Purchase Right"). Restricted Stock
Awards shall be evidenced by Restricted Stock Agreements, specifying the number
of shares of Stock covered there, in such form as the Board shall from time to
time establish. Restricted Stock Agreements may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
7.1 Performance-Based Restricted Stock Awards. A Section
162(m) Committee may, but need not, condition the grant of any Restricted Stock
Award (a "Performance Award") on the attainment, during a performance period
established by such Committee, of one or more performance goals pursuant to
procedures intended to qualify such Award as "performance-based compensation"
for purposes of Section 162(m). Any such performance goals shall be
preestablished in writing by the Section 162(m) Committee within the period
required by Section 162(m) and shall be based on one or more of the following
business
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<PAGE>
criteria with respect to the Participating Company Group: revenue, operating
income, pre-tax profit, net income, gross margin, operating margin, earnings per
share, return on stockholder equity, return on capital, return on assets, or the
initial shipment of a new product. Such business criteria shall have the same
meaning as used in the Company's financial statements, or, if not used in the
Company's financial statements, the meaning pursuant to generally accepted
accounting principles or as used generally in the Company's industry. Each
performance goal shall be objectively determinable and may be an absolute
measure or a relative measure determined with reference to an index or other
standard selected by the Section 162(m) Committee. Prior to the issuance of
Stock pursuant to a Performance Award, the Section 162(m) Committee shall
certify in writing the attainment of the relevant performance goals. Neither the
Board nor any Committee thereof shall have the discretion to waive the
attainment of any performance goal or to increase the number of shares issuable
pursuant to a Performance Award in excess of the amount determined in accordance
with the objective formula established by the Section 62(m) Committee. However,
if provided in a Participant's Restricted Stock Agreement, the Section 62(m)
Committee shall have the authority to reduce the number of shares that would
otherwise become issuable to the Participant upon the attainment of the relevant
performance goals if, in the Section 162(m) Committee's sole judgment, such
reduction is appropriate; provided, however, that such reduction shall not
increase the number of shares issuable to another Participant.
7.2 Purchase Price. The purchase price under each Restricted
Stock Purchase Right shall be established by the Board. No monetary payment
(other than applicable tax withholding) shall be required as a condition of
receiving a Restricted Stock Bonus, the consideration for which shall be
services actually rendered to the Participating Company Group or for its
benefit.
7.3 Purchase Period. A Restricted Stock Purchase Right shall
be exercisable within a period established by the Board, which shall in no event
exceed thirty (30) days from the effective date of the grant of the Restricted
Stock Purchase Right; provided, however, that no Restricted Stock Purchase Right
granted to a prospective Employee, prospective Consultant or prospective
Director may become exercisable prior to the date on which such person commences
Service with a Participating Company.
7.4 Payment of Purchase Price.
(a) Forms of Consideration Authorized. Except as
otherwise provided below, payment of the purchase price for the number of shares
of Stock being purchased pursuant to any Restricted Stock Purchase Right shall
be made (i) in cash, by check, or cash equivalent, (ii) by the Participant's
promissory note in a form approved by the Company, (iii) y such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (iv) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
form of Restricted Stock Agreement described in Section 7.9, or by other means,
grant Restricted Stock Purchase Rights which do not permit all of the foregoing
forms of consideration to be used in payment of the purchase price or which
otherwise restrict one or more forms of consideration. Restricted Stock
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<PAGE>
Bonuses shall be issued in consideration for services actually rendered to the
Participating Company Group or for its benefit.
(b) Payment by Promissory Note. No promissory note
shall be permitted if the purchase of Restricted Stock using a promissory note
would be a violation of any law. Any permitted promissory note shall be on such
terms as the Board shall determine at the time the Restricted Stock Purchase
Right is granted. The Board shall have the authority to permit or require the
Participant to secure any promissory note used to purchase Restricted Stock with
such shares or with other collateral acceptable to the Company. Unless otherwise
provided by the Board, if the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Participant shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
7.5 Tax Withholding. The Company shall have the right to
require the Participant, through payroll withholding, cash payment or otherwise,
to make adequate provision for the federal, state, local and foreign taxes, if
any, required by law to be withheld by the Participating Company Group in
connection with a Restricted Stock Award or the shares acquired pursuant
thereto. The Company shall have no obligation to deliver shares of Stock or to
release shares of Stock from an escrow established pursuant to the Restricted
Stock Agreement until the Participating Company Group's tax withholding
obligations have been satisfied by the Participant.
7.6 Vesting and Restrictions on Transfer. Shares issued
pursuant to any Restricted Stock Award may be made subject to vesting
conditioned upon the satisfaction of such Service requirements, performance
goals (which may, but need not, be established and certified in accordance with
the provisions of Section 7.1), or other restrictions (the "Vesting
Restrictions") as shall be determined by the Board (or a Section 162(m)
Committee, as the case may be) and set forth in the Restricted Stock Agreement
evidencing such Award. During such period (the "Restriction Period") as shares
acquired pursuant to a Restricted Stock Award remain subject to Vesting
Restrictions, such shares may not be sold, exchanged, transferred, pledged,
assigned or otherwise disposed of other than pursuant to an Ownership Change
Event or as provided in Section 7.10. Upon request by the Company, each
Participant shall execute any agreement evidencing such transfer restrictions
prior to the receipt of shares of Stock hereunder and shall promptly present to
the Company any and all certificates representing shares of Stock acquired
hereunder for the placement on such certificates of appropriate legends
evidencing any such transfer restrictions.
7.7 Voting Rights; Dividends. Except as provided in this
Section and Section 7.6, during the Restriction Period applicable to shares of
Restricted Stock held by a Participant, the Participant shall have all of the
rights of a stockholder of the Company holding shares of Stock, including the
right to vote the shares of Restricted Stock and to receive all dividends and
other distributions paid with respect to such shares; provided, however, that if
any
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<PAGE>
such dividends or distributions are paid in shares of Stock, such shares shall
be subject to the same Vesting Restrictions as the shares of Restricted Stock
with respect to which they were paid.
7.8 Effect of Termination of Service. If a Participant's
Service with the Participating Company Group terminates for any reason, whether
voluntary or involuntary (including the Participant's death or disability), (a)
the Company shall have the option to repurchase at the original purchase price
paid by the Participant shares of Restricted Stock acquired by the Participant
pursuant to a Restricted Stock Purchase Right and (b) the Participant shall
forfeit to the Company shares of Restricted Stock acquired by the Participant
pursuant to a Restricted Stock Bonus which, in either case, remain subject to
Vesting Restrictions as of the date of the Participant's termination of Service.
The Company shall have the right to assign at any time any repurchase right it
may have, whether or not such right is then exercisable, to one or more persons
as may be selected by the Company.
7.9 Standard Forms of Restricted Stock Agreement. The Board
shall have the authority from time to time to approve one or more standard forms
of Restricted Stock Agreement and to vary the terms of any such standard forms
either in connection with the grant or amendment of an individual Restricted
Stock Award or in connection with the authorization of a new standard form or
forms; provided, however, that the terms and conditions of any such new, revised
or amended standard form or forms of Restricted Stock Agreement are not
inconsistent with the terms of the Plan.
7.10 Nontransferability of Restricted Stock Award Rights.
Rights to acquire shares of Stock pursuant to a Restricted Stock Award may not
be assigned or transferred in any manner except by will or the laws of descent
and distribution, and, during the lifetime of the Participant, shall be
exercisable only by the Participant.
8. TRANSFER OF CONTROL.
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs 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.
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(b) A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein 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.
8.2 Effect of Transfer of Control on Awards. In the event of a
Transfer of Control, the Board, in its sole discretion, may provide that any
unexercisable or unvested portion of the outstanding Awards shall be immediately
exercisable and vested in full as of a date determined by the Board and/or may
arrange with the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to either assume the Company's rights and
obligations under outstanding Awards or substitute for outstanding Awards
substantially equivalent awards for the Acquiring Corporation's stock. For
purposes of this Section 8.2, an Award shall be deemed assumed if, following the
Transfer of Control, the Award confers the right to acquire in accordance with
its terms and conditions, for each share of Stock subject to the Award
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. Any Awards which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Transfer of Control nor exercised as of the date of the Transfer of
Control shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Award prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Award Agreement
evidencing such Award except as otherwise provided in such Award Agreement or by
the Board.
9. PROVISION OF INFORMATION. Each Participant shall be given
access to information concerning the Company equivalent to that information
generally made available to the Company's common stockholders.
10. COMPLIANCE WITH SECURITIES LAW. The grant of Awards and
the issuance of shares of Stock pursuant to Awards shall be subject to
compliance with all applicable requirements of federal, state or foreign law
with respect to such securities. No shares may be issued pursuant an Award if
such issuance would constitute a violation of any applicable federal,
15
<PAGE>
state or foreign securities laws or other law or regulations or the requirements
of any stock exchange or market system upon which the Stock may then be listed.
In addition, no Award may be exercised or shares issued pursuant to an Award
unless (a) a registration statement under the Securities Act shall at the time
of such exercise or issuance be in effect with respect to the shares issuable
pursuant to the Award or (b) in the opinion of legal counsel to the Company, the
shares issuable pursuant to the Award may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the issuance of shares pursuant to any Award, the Company may
require the Participant to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
11. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.
12. TERMINATION OF AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in applicable law, regulations
or rules that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Award or any unexercised portion thereof,
without the consent of the Participant, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
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IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Network Peripherals Inc. 1997 Stock Plan was duly adopted by
the Board on February 18, 1997.
________________________________
Secretary
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PLAN HISTORY
------------
February 18, 1997 Board adopts Plan, with an initial reserve of
1,500,000 shares.
[April 24, 1997 Stockholders approve Plan, with an initial reserve of
1,500,000 shares.]
18
NETWORK PERIPHERALS INC.
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
(As Amended Through February 18, 1997)
1. Purpose. The Network Peripherals Inc. 1994 Outside Directors Stock
Option Plan (the "Plan") is established effective as of the effective date of
the registration by Network Peripherals Inc. of its common stock under section
12 of the Securities Exchange Act of 1934, as amended, (the "Effective Date") to
create additional incentive for the non employee directors of Network
Peripherals Inc., a Delaware corporation, and any successor corporation thereto
(collectively referred to as the "Company") to promote the financial success and
progress of the Company and any present or future parent and/or subsidiary
corporations of the Company. For purposes of the Plan, a parent corporation and
a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of
the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. The Board shall have no authority, discretion, or
power to select the non employee directors of the Company who will receive
options under the Plan, to set the exercise price of the options granted under
the Plan, to determine the number of shares of common stock to be granted under
option or the time at which such options are to be granted, to establish the
duration of option grants, or to alter any other terms or conditions specified
in the Plan, except in the sense of administering the Plan subject to the
provisions of the Plan. All questions of interpretation of the Plan or of any
options granted under the Plan (an "Option") shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan and/or any Option. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
3. Eligibility and Type of Option. Options may be granted only to
directors of the Company who, at the time of such grant, are not employees of
the Company or of any parent or subsidiary corporation of the Company ("Outside
Directors"). Options granted to Outside Directors shall be nonqualified stock
options; that is, options which are not treated as having been granted under
section 422(b) of the Code. A person granted an Option is hereinafter referred
to as an "Optionee."
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4. Shares Subject to Option. Options shall be for the purchase of
shares of authorized but unissued common stock or treasury shares of common
stock of the Company (the "Stock"), subject to adjustment as provided in
paragraph 8 below. The maximum number of shares of Stock which may be issued
under the Plan shall be One Hundred Fifty Thousand (150,000) shares. In the
event that any outstanding Option for any reason expires or is terminated and/or
shares of Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased shares,
may again be subject to an Option grant.
5. Time for Granting Options. All Options shall be granted, if at all,
within ten years from the Effective Date.
6. Terms, Conditions and Form of Options. Options granted pursuant to
the Plan shall be evidenced by written agreements specifying the number of
shares of Stock covered thereby, in substantially the form attached hereto as
Exhibit A (the "Option Agreement"), which written agreement may incorporate all
or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:
(a) Automatic Grant of Options. Subject to execution by an
Outside Director of an appropriate Option Agreement, options shall be granted
automatically and without further action of the Board, as follows:
(i) Each person who is newly elected or appointed as
an Outside Director after the Effective Date and prior to the date of the annual
meeting of the stockholders of the Company held in 1997 (the "1997 Annual
Meeting") shall be granted an Option on the day of such initial election or
appointment to purchase Ten Thousand (10,000) shares of Stock.
(ii) Each person who is newly elected or appointed as
an Outside Director on or after the date of the 1997 Annual Meeting shall be
granted an Option on the day of such initial election or appointment to purchase
Fifteen Thousand (15,000) shares of Stock.
(iii) On the date of each Annual Meeting of
Stockholders of Network Peripherals Inc. occurring after the Effective Date and
prior to the date of the 1997 Annual Meeting, each Outside Director shall be
granted an Option to purchase Two Thousand (2,000) shares of Stock; provided,
however, that in the event an Outside Director was elected or appointed as an
Outside Director and was granted an Option pursuant to the provisions of
subparagraph 6(a)(i) above within six months prior to the Annual Meeting of
Stockholders, that Outside Director shall be ineligible to receive an Option
with respect such Annual Meeting of Stockholders.
(iv) On the date of each Annual Meeting of
Stockholders of Network Peripherals Inc. occurring on or after the date of the
1997 Annual Meeting, each Outside Director shall be granted an Option to
purchase Five Thousand (5,000) shares of Stock; provided, however, that in the
event an Outside Director was elected or appointed as an Outside Director and
was granted an Option pursuant to the provisions of subparagraph 6(a)(ii)
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above within six months prior to the Annual Meeting of Stockholders, that
Outside Director shall be ineligible to receive an Option with respect to such
Annual Meeting of Stockholders.
(v) Notwithstanding the foregoing, any person may
elect not to receive an Option to be granted pursuant to this paragraph 6(a) by
delivering written notice of such election to the Board no later than the day
prior to the date on which such Option would otherwise be granted. A person do
declining an Option shall receive no payment or other consideration in lieu of
such declined Option. A person who has declined an Option may revoke such
election by delivering written notice of such revocation to the Board no later
than the day prior to the date on which such Option would be granted pursuant to
paragraph 6(a).
(vi) Notwithstanding any other provision of the Plan
to the contrary, no Option shall be granted to any individual on a day when he
or she is no longer serving as an Outside Director of the Company.
(b) Option Exercise Price. The exercise price per share of
Stock subject to an Option shall be the fair market value of a share of the
Stock on the date of the granting of the Option. Where there is a public market
for the common stock of the Company, the fair market value per share of Stock
shall be the mean of the bid and asked prices of the common stock of the Company
on the date of the granting of the Option, as reported in the Wall Street
Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in
the event the common stock of the Company is listed on the NASDAQ National
Market System or a securities exchange, the fair market value per share of Stock
shall be the closing price on such National Market System or exchange on the
date of the granting of the Option, as reported in the Wall Street Journal. If
the date of the granting of an Option does not fall on a day on which the common
stock of the Company is trading on NASDAQ, the NASDAQ National Market System or
securities exchange, the date on which the Option exercise price shall be
established shall be the last day on which the common stock of the Company was
so traded prior to the date of the granting of the Option.
(c) Exercise Period and Exercisability of Options. An Option
granted pursuant to the Plan shall be exercisable for a term of ten years.
Options granted pursuant to the Plan shall first become exercisable on the day
(the "Initial Vesting Date") which is one year from the date on which the Option
was granted. The Option shall be exercisable on and after the Initial Vesting
Date and prior to termination of the Option in an amount equal to the number of
Option Shares multiplied by the Vested Ratio as set forth below, less the number
of shares previously acquired upon exercise of any portion of the Option.
The "Vested Ratio" shall mean, on any relevant date, except as
otherwise provided herein, the ratio determined as follows:
Vested Ratio
------------
(i) Prior to Initial Vesting Date: 0
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On Initial Vesting Date, 1/4
provided the Optionee's Service has not
terminated prior to such date:
Plus
(ii) For each full month 1/48
of the Optionee's continuous Service from
the Initial Vesting Date until the Vested
Ratio equals 1/1, an additional:
For purposes of the Plan, "Service" shall mean the Optionee's service with the
Company, whether in the capacity of an employee, a director or a consultant. The
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the Company,
provided that there is no interruption or termination of the Optionee's Service.
(d) Payment of Option Exercise Price. Payment of the exercise price for
the number of shares of Stock being purchased pursuant to any Option shall be
made (i) in cash, by check, or in cash equivalent, (ii) by the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of an Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), (iii) by the delivery to the Company
of shares of Stock which have been owned by the holder of the Option for more
than six months and which have an aggregate value equal to such exercise price,
or (iv) by any combination thereof. The Company reserves, at any and all times,
the right, in the Company's sole and absolute discretion, to establish, decline
to approve and/or terminate any program and/or procedure for the exercise of
Options by means of an assignment of the proceeds of a sale of some or all of
the shares of Stock to be acquired upon such exercise or the delivery of
previously owned shares of Stock.
(e) Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Company:
(i) a merger or consolidation in which the Company is not the
surviving corporation;
(ii) a merger or consolidation in which the Company is the
surviving corporation where the stockholders of the Company before such merger
or consolidation do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Company after such merger or
consolidation;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company other than a sale, exchange, or transfer to one
or more subsidiary corporations (as defined in paragraph 1 above) of the
Company; or
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(iv) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange;
(v) a liquidation or dissolution of the Company.
In the event of a Transfer of Control, any unexercisable or unvested
portion of the outstanding Options shall be immediately exercisable and vested
in full as of the date ten (10) days prior to the date of the Transfer of
Control. The exercise or vesting of any Option that was permissible solely by
reason of this paragraph 6(e) shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
paragraph 6(e), an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to acquire in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Transfer of Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Transfer of Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control.
(f) Stockholder Approval. No Option may be granted pursuant to
the Plan prior to obtaining stockholder approval of the Plan.
7. Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of the Option Agreements either in connection
with the grant of an individual Option or in connection with the authorization
of a new standard form or forms of Option; provided, however, that the terms and
conditions of such revised or amended standard form or forms of stock option
agreement shall be in accordance with the terms of the Plan. Such authority
shall include, but not by way of limitation, the authority to grant Options
which are immediately exercisable subject to the Company's right to repurchase
any unvested shares of Stock acquired by the Optionee on exercise of an Option
in the event such Optionee's service as a director of the Company is terminated
for any reason.
8. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan,
the number of shares to be granted under the Plan and to any outstanding Options
and in the Option exercise price of any outstanding Options in the event of a
stock dividend, stock split, recapitalization, reverse stock split, combination,
reclassification, or like change in the capital structure of the Company.
9. Transferability of Options.
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(a) Except as provided in paragraph 9(b), an Option may be
exercised during the lifetime of the Optionee only by the Optionee or the
Optionee's guardian or legal representative and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
(b) Notwithstanding the foregoing, with the consent of the
Board, in its sole discretion, an Optionee may transfer all or a portion of the
Option to: (i) an Immediate Family Member (as defined below), (ii) a trust for
the exclusive benefit of the Optionee and/or one or more Immediate Family
Members, (iii) a partnership in which the Optionee and/or one or more Immediate
Family Members are the only partners, or (iv) such other person or entity as the
Board may permit (individually, a "Permitted Transferee"). For purposes of this
paragraph 9(b), "Immediate Family Members" shall mean the Optionee's spouse,
former spouse, children or grandchildren, whether natural or adopted. As a
condition to such transfer, each Permitted Transferee to whom the Option or any
interest therein is transferred shall agree in writing (in a form satisfactory
to the Company) to be bound by all of the terms and conditions of the Option
Agreement evidencing such Option and any additional restrictions or conditions
as the Company may require. Following the transfer of an Option, the term
"Optionee" shall refer to the Permitted Transferee, except that, with respect to
any requirements of continued Service or provision for the Company's tax
withholding obligations, such term shall refer to the original Optionee. The
Company shall have no obligation to notify a Permitted Transferee of any
termination of the transferred Option, including an early termination resulting
from the termination of Service of the original Optionee. A Permitted Transferee
shall be prohibited from making a subsequent transfer of a transferred Option
except to the original Optionee or to another Permitted Transferee or as
provided in paragraph 9(a).
10. Termination or Amendment of Plan. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the stockholders of the Company,
there shall be no increase in the total number of shares of Stock covered by the
Plan (except by operation of the provisions of paragraph 8 above). In any event,
no amendment may adversely affect any then outstanding Option, or any
unexercised portion thereof, without the consent of the Optionee.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing is the Network Peripherals Inc. 1994 Outside Directors Stock
Option Plan as duly adopted by the Board of Directors of the Company on April
26, 1994 and as subsequently amended through February 18, 1997.
___________________________
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PLAN HISTORY
04/26/94 Plan adopted by the Board with a share reserve of 150,000
shares
05/24/94 Plan approved by the security holders with a share reserve of
150,000 shares
09/18/96 Board amends Plan to increase the size of options granted to
new directors to 15,000 shares and to increase the size of
annual option grants to 5,000 shares
02/18/97 Board amends Plan to permit transferable options, to define
"Service," and to eliminate restrictions no longer imposed
under Rule 16b-3 effective 08/15/96, including requirement of
stockholder approval of changes to eligibility, and to
accelerate vesting upon Transfer of Control.
[04/24/97 Stockholders approve amendments to automatic grant, Transfer
of Control and stockholder approval provisions.]
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EXHIBIT A
NETWORK PERIPHERALS INC.
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
Network Peripherals Inc., a Delaware corporation (the "Company"),
hereby grants to ___________ (the "Optionee") an option to purchase a total of
______ ________ (_____) shares of the common stock of the Company (the "Number
of Option Shares") under the Network Peripherals Inc. 1994 Outside Directors
Stock Option Plan (the "Plan"), at an exercise price of $_____ per share and in
the manner and subject to the provisions of this Option Agreement (the
"Option"). The grant, in all respects, is subject to the terms and conditions of
this Option Agreement and the Plan, the provisions of which are incorporated by
reference herein. Unless otherwise provided in this Option Agreement,
capitalized terms shall have the meaning given to such terms in the Plan. The
Number of Option Shares and the exercise price per share of the Option are
subject to adjustment from time to time as provided in the Plan.
1. Grant of the Option. The Option is granted effective as of
______________ (the "Date of Option Grant").
2. Status of the Option. The Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
3. Term of the Option. The Option shall terminate and may no longer be
exercised on the first to occur of (i) the date ten years after the Date of
Option Grant, (ii) the last date for exercising the Option following termination
of the Optionee's Service as described in paragraph 6 below, or (iii) a Transfer
of Control of the Company to the extent provided in the Plan (the date of such
first occurrence, the "Option Termination Date").
4. Exercise of the Option.
(a) Right to Exercise. Except as otherwise provide herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the Option Termination Date in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as determined pursuant to the Plan, less the
number of shares previously acquired upon exercise of the Option.
(b) Method of Exercise. The Option may be exercised by written
notice to the Company which must state the election to exercise the Option, the
number of shares of stock for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement and the Plan. The written notice must be signed by
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the Optionee and must be delivered in person or by certified or registered mail,
return receipt requested, to the Chief Financial Officer of the Company, or
other authorized representative of the Company, prior to the termination of the
Option as set forth in paragraph 3 above, accompanied by full payment of the
exercise price for the number of shares of Stock being purchased in a form
permitted under the terms of the Plan.
(c) Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
shall make adequate provision for the foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares of stock acquired on exercise of the Option, or (iii) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
(d) Certificate Registration. The certificate or certificates
for the shares of stock as to which the Option shall be exercised shall be
registered in the name of the Optionee, or, if applicable, the heirs of the
Optionee.
(e) Restriction on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of shares of stock on exercise of the
Option shall be subject to compliance with all of the applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares of stock upon such exercise would constitute
a violation of any applicable federal or state securities laws or other law or
regulation. In addition, no Option may be exercised unless (i) a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
shall at the time of exercise of the Option be in effect with respect to the
shares of stock issuable upon exercise of the Option, or (ii) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. As a condition to the exercise
of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
(f) Fractional Shares. The Company shall not be required to
issue fractional shares of stock upon the exercise of the Option.
5. Transferability of Option.
(a) Except as provided in paragraph 5(b) below, the Option may
be exercised during the lifetime of the Optionee only by the Optionee or the
Optionee's guardian or legal representative and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
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(b) Notwithstanding the foregoing, with the consent of the
Board, in its sole discretion, the Optionee may transfer all or a portion of the
Option to: (i) an Immediate Family Member (as defined below), (ii) a trust for
the exclusive benefit of the Optionee and/or one or more Immediate Family
Members, (iii) a partnership in which the Optionee and/or one or more Immediate
Family Members are the only partners, or (iv) such other person or entity as the
Board may permit (individually, a "Permitted Transferee"). For purposes of this
paragraph 5(b), "Immediate Family Members" shall mean the Optionee's spouse,
former spouse, children or grandchildren, whether natural or adopted. As a
condition to such transfer, each Permitted Transferee to whom the Option or any
interest therein is transferred shall agree in writing (in a form satisfactory
to the Company) to be bound by all of the terms and conditions of this Option
Agreement and any additional restrictions or conditions as the Company may
require. Following the transfer of the Option, the term "Optionee" shall refer
to the Permitted Transferee, except that, with respect to any requirements of
continued service or provision for the Company's tax withholding obligations,
such term shall refer to the original Optionee. The Company shall have no
obligation to notify a Permitted Transferee of any termination of the
transferred Option, including an early termination resulting from the
termination of service of the original Optionee. A Permitted Transferee shall be
prohibited from making a subsequent transfer of the transferred Option except to
the original Optionee or to another Permitted Transferee or as provided in
paragraph 5(a).
6. Effect of Termination of Service.
(a) Option Exercisability. If the Optionee's Service for any
reason except death or disability within the meaning of section 22(e)(3) of the
Code, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee at any time prior to the expiration of twelve (12) months from the date
on which the Optionee's Service terminated, but in any event no later than the
Option Termination Date. If the Optionee's Service terminates because of the
death or disability of the Optionee within the meaning of section 22(e)(3) of
the Code, the Option, to the extent unexercised and exercisable by the Optionee
on the date on which the Optionee's Service terminated, may be exercised by the
Optionee (or the Optionee's legal representative) at any time prior to the
expiration of thirty-six (36) months from the date on which the Optionee's
Service terminated, but in any event no later than the Option Termination Date.
The Optionee's Service shall be deemed to have terminated on account of death if
the Optionee dies within three (3) months after the Optionee's termination of
Service. Except as provided in this paragraph 6, an Option shall terminate and
may not be exercised after the Optionee's Service terminates.
(b) Extension of Exercise Prevented by Law. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth above is prevented because the issuance of shares of stock upon such
exercise would constitute a violation of any applicable federal or state
securities law or other law or regulation, the Option shall remain exercisable
until three (3) months after the date the Optionee is notified by the
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Company that the Option is exercisable, but in any event no later than the
Option Termination Date.
(c) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth above of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service or (iii) the Option Termination
Date.
7. Rights as a Stockholder; Rights to Serve as a Director. The Optionee
shall have no rights as a stockholder with respect to any shares of stock
covered by the Option until the date of the issuance of a certificate or
certificates for the shares for which the Option has been exercised. No
adjustment shall be made for dividends or distributions or other rights for
which the record date is prior to the date such stock certificate or
certificates are issued, except as provided in the Plan. Nothing herein shall be
deemed to provide the Optionee with any right to serve as a director of the
Company for any length of time.
8. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become shares of another
corporation (the "New Shares"), the Company may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price shall be adjusted in a
fair and equitable manner.
9. Legends. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares of stock acquired pursuant
to the Option in the possession of the Optionee in order to effectuate the
provisions of this paragraph.
10. Binding Effect. This Option Agreement shall inure to the benefit of
the successors and assigns of the Company and be binding upon the Company and
the Optionee and the Optionee's heirs, executors, administrators, successors and
assigns.
11. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time subject to any limitations described in the Plan; provided, however, that
no such termination or
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amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee.
12. Integrated Agreement. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Company with
respect to the subject matter contained herein and therein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein or therein. To the extent contemplated herein and therein, the provisions
of this Option Agreement and the Plan shall survive any exercise of the Option
and shall remain in full force and effect.
13. Applicable Law. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
NETWORK PERIPHERALS INC.
By: _________________________
Title: ______________________
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and the Plan and hereby accepts the
Option subject to all of the terms and provisions thereof. The Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under this Option
Agreement or the Plan.
The undersigned acknowledges receipt of a copy of the Plan.
Date: _______________________ ____________________________________
Signature
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<PAGE>
NONQUALIFIED STOCK OPTION
NOTICE OF EXERCISE
To: Chief Financial Officer
Network Peripherals Inc.
I hereby exercise my Option to purchase the number of shares (the
"Shares") of Common Stock of Network Peripherals Inc. (the "Company") set
opposite my signature below. Full payments for the Shares in the manner set
forth in my Option Agreement accompanies this notice.
I hereby authorize payroll withholding and otherwise will make adequate
provision for foreign, federal and state tax withholding obligations, if any, as
more fully set forth in my Option Agreement.
I understand that the Shares are being purchased pursuant to the terms
of the Network Peripherals Inc. 1994 Outside Directors Stock Option Plan and my
Option Agreement, copies of which I have received and carefully read and
understand.
Date of Exercise: ________________________________
Date of Option Agreement: ________________________
Shares Being Purchased: __________________________
Price per Share: $________________________________
____________________________________
Signature
____________________________________
Print Name
____________________________________
Social Security Number
____________________________________
Address
6
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922521
<NAME> Network Peripherals Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,767
<SECURITIES> 16,328
<RECEIVABLES> 9,708
<ALLOWANCES> 1,028
<INVENTORY> 8,235
<CURRENT-ASSETS> 54,342
<PP&E> 9,750
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0
0
<COMMON> 12
<OTHER-SE> 51,472
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<SALES> 22,643
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<CGS> 12,583
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<INCOME-TAX> (1,614)
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<CHANGES> 0
<NET-INCOME> (9,061)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
