-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MIxQDT2EWiLwwqIp3Npnad2xCxOyy0LoMmIWf0mUfY/PHnNLDf15g2oX3Q42O2Ob dMJxit3K/QMTi+AOA3y5Uw== 0000950005-98-000737.txt : 19980901 0000950005-98-000737.hdr.sgml : 19980901 ACCESSION NUMBER: 0000950005-98-000737 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980831 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK PERIPHERALS INC CENTRAL INDEX KEY: 0000922521 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 770216135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-23970 FILM NUMBER: 98700977 BUSINESS ADDRESS: STREET 1: 1371 MCCARTHY BLVD CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4083217300 MAIL ADDRESS: STREET 1: 1371 MCCARTHY BLVD CITY: MILPITAS STATE: CA ZIP: 95035 10-K/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 Identification Number) Incorporation or Organization) 1371 McCarthy Boulevard Milpitas, California 95035 (Address, including zip code of principal executive offices) (408) 321-7300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(g) of the Act: Title of class Common Stock Indicate by checkmark 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 the filing requirements for the past 90 days. Yes [ ] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 18, 1998 was $94,251,917 based upon the closing price of the Registrant's Common Stock on the Nasdaq National Market System on that date. The number of shares of the Registrant's Common Stock outstanding as of March 18, 1998 was 12,260,412. The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Annual Report for the fiscal year ended December 31, 1997 on Form 10-K as set forth in the pages attached hereto: 1 Part III Item 10. Directors and Executive Officers of the Registrant The following table sets forth the name and age of each director of the Company, the principal occupation of each during the past five years, and the period during which each has served as a director of the Company:
Principal Occupation Director Name During the Past Five Years Age Since ---- -------------------------- --- ----- Joseph Marengi Mr. Marengi has served on the Board of Directors 44 1997 since July 1997. Since August 1997, he has been the Senior Vice President and General Manager of the Relationship Group at Dell Computers. Previously, at Novell, Inc. (Novell), Mr. Marengi held the position of President and Chief Operating Officer from August 1996 to June 1997. While at Novell, he was the Executive Vice President of Worldwide Sales from April 1994, a corporate officer since August 1993, and Senior Vice President from October 1992. William Rosenberger Mr. Rosenberger has served as the President, Chief 48 1998 Executive Officer and a director of the Company since June 1998. From June 1996 to June 1998 Mr. Rosenberger was President and Chief Executive Officer of NetAccess, Inc., an Internet sevices company. From October 1995 to December 1995 Mr. Rosenberger was Vice President of sales and business development for NetVision, a networking company. From March 1993 to June 1995, Mr. Rosenberger was General Manager of ACSYS, Inc., an Internet consulting and development company. Prior to March 1993 Mr. Rosenberger was President and Chief Executive Officer of Netronix, Inc., a networking hardware designer and manufacturer. Michael S. Gardner Mr. Gardner has served as a director of the Company 53 1998 since May 1998. From February 1998 to the present Mr. Gardner has served as Senior Vice President of Worldwide Field Operations for Sybase, Inc., an information management software company. From November 1996 to February 1998 Mr. Gardner was Chief Operating Officer for ACT Networks, a wide-area network access products manufacturer. From May 1995 to November 1996 Mr. Gardner was President of Whittaker Communications (formerly Hughes LAN Systems), a networking company. From April 1993 to April 1995 Mr. Gardner was Senior Vice President of Worldwide Sales for UB Networks, a networking company. Steven Bell Mr. Bell has served as a director of the Company 44 1998 since July 1998. From May 1998 to the present Mr. Bell has served as President and Chief Executive Officer of the Silicon Valley Networking Lab, Inc., of networking industry products testing company. From September 1993 to April 1998 Mr. Bell was founder and President of Bell Consulting, Inc., a networking products marketing company. From August 1992 to August 1993 Mr. Bell was Vice President of Marketing for Make Systems, Inc., a networking software company. Glenn Penisten Mr. Penisten has served as the Chairman of the Board 66 1996 of Directors since June 1996. Since September 1985, he has been a partner of Alpha Partners, a venture capital firm. He has served as Chief Executive Officer for several leading technology companies including; Superconductor Technologies, Inc., from May 1987 to June 1988; American Microsystems, Inc., from July 1976 to December 1984, and Data Transmission Co., from February 1972 to April 1976. Mr. Penisten has also held director level positions at Dataproducts Corporation, Sanders Associates and Gould, Inc. He served as a corporate officer at Texas Instruments, Inc., and chairman of the American Electronics Association. Mr. Penisten currently serves as director for Ikos Systems, Bell Microproducts, Pinnacle Systems, and Superconductor Technologies, Inc. Charles Hart Mr. Hart has served on the Board of Directors since 60 1996 November 1996. From February 1998, he has been the Chief Executive Officer and a director of Micronics Computers Inc., a supplier of advanced system boards for high-performance personal computers. From April 1997 through February 1998, he served as the Executive Vice President, Business Development, for the Company. From August 1995 to May 1997, he was a founding board member of InsWeb Corporation, an internet technology company providing a vertically integrated marketplace for the insurance industry on the World Wide Web. From July 1992 through July 1995, he was President and Chief Executive Officer of Semaphore Communications Corporation. Previously, he held positions of President and Chief Executive Officer with Phaser Systems and Etak, Inc.
There are no family relationships among any directors or officers of the Company. Board Meetings and Committees The Board of Directors of the Company held a total of 9 meetings and took action by written consent two times during the fiscal year ended December 31, 1997. No director participated in fewer than 75% of all such meetings and actions of the Board of Directors and the committees, if any, upon which such director served. The Board of Directors has an Audit Committee and a Compensation Committee. It does not have a Nominating Committee or a committee performing the functions of a Nominating Committee. The functions of a Nominating Committee are performed by the Board of Directors as a whole. The Audit Committee of the Board of Directors, consisting of directors Mr. Levy and Mr. Penisten, met 4 times during fiscal 1997. The Audit Committee recommends engagement of the Company's independent accountants, and is primarily responsible for reviewing and approving the scope of the audit and other services performed by the Company's independent accountants and for reviewing and evaluating the Company's accounting principles and its systems of internal accounting controls. The Compensation Committee of the Board of Directors, which consists of directors Joseph Marengi and William Tai, held two meetings and took action by written consent two times during fiscal 1997. Director Ann Bowers, who resigned from the Board of Directors in May 1997, also served as a member of the Compensation Committee for a portion of 1997. The terms of office of Mr. Marengi and Mr. Tai will expire at the 1998 Annual Meeting. The new members of the Compensation Committee are anticipated to be Mr. Hart and Mr. Marengi. The Compensation Committee reviews and approves the Company's executive compensation policy, and reviews and approves grants of options to employees under the Company's 1997 Stock Plan. The Compensation Committee also approved two stock option repricings effective July 25, 1997 and October 31, 1997. See "Report of Compensation Committee on Executive Compensation." Compensation of Directors Directors who are not employees of the Company (an "Outside Director") are entitled to receive a director fee of $4,000 per fiscal quarter so long as they remain directors of the Company. Directors do not receive any additional or special remuneration for their service on any of the committees established by the Board of Directors. Non-employee directors are eligible to participate in the Company's 1994 Outside Directors Stock Option Plan. The Outside Directors Plan, as amended, provides for the automatic granting of nonstatutory stock options to Outside Directors of the Company. Each continuing Outside Director will automatically be granted an option to purchase 5,000 shares of Common Stock on the date of each annual meeting of stockholders. Each new Outside Director will automatically be granted an option to purchase 15,000 shares of Common Stock on their date of election. During 1997, the Company granted nonstatutory options to director Ms. Alker for 66,667 shares (inclusive of the effects of the repricing - See "Report of the Compensation Committee on Executive Compensation - Chief Executive Officer Compensation"), pursuant to the 1993 Stock Option Plan. In addition, Mr. Hart, Mr. Levy and Mr. Tai were each granted nonstatutory stock options for 5,000 shares and Mr. Marengi was granted 15,000 shares under the 1994 Outside Directors Stock Option Plan, as amended OTHER INFORMATION Share Ownership by Principal Stockholders and Management The following table sets forth the beneficial ownership of Common Stock of the Company as of March 31, 1998 by: (a) each director; (b) each of the officers named in the Summary Compensation Table ("Named Officers"); (c) all directors and executive officers as a group; and (d) each person known to the Company who beneficially owns 5% or more of the outstanding shares of its Common Stock. The number and percentage of shares beneficially owned is determined under rules of the Securities and Exchange Commission ("SEC"), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of March 31, 1998 through the exercise of any stock option or other right. To the Company's knowledge, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table. A total of 12,260,412 shares of the Company's Common Stock were issued and outstanding as of March 31, 1998.
------------------------------------ Shares Beneficially Owned - ------------------------------------------------------------------------ ------------------ ----------------- Name Number Percent - ------------------------------------------------------------------------ ------------------ ----------------- Seneca Ventures (1)............................................. 1,030,000 8.2% - ------------------------------------------------------------------------ ------------------ ----------------- Pauline Lo Alker (2)........................................ 755,498 6.0% - ------------------------------------------------------------------------ ------------------ ----------------- Glenn Penisten (3)........................................ 135,813 1.1% - ------------------------------------------------------------------------ ------------------ ----------------- Fred Kiremidjian (3)........................................... 37,500 * - ------------------------------------------------------------------------ ------------------ ----------------- Kenneth Levy (4)............................................... 28,302 * - ------------------------------------------------------------------------ ------------------ ----------------- Oliver Szu (3)................................................... 20,919 * - ------------------------------------------------------------------------ ------------------ ----------------- Robert Hersh (3)................................................ 13,541 * - ------------------------------------------------------------------------ ------------------ ----------------- William Tai (3)............................................. 10,186 * - ------------------------------------------------------------------------ ------------------ ----------------- Charles Hart (3)............................................. 7,604 * - ------------------------------------------------------------------------ ------------------ ----------------- James Sullivan (3).................................................... 7,292 * - ------------------------------------------------------------------------ ------------------ ----------------- Joseph Marengi .................................................. 0 * - ------------------------------------------------------------------------ ------------------ ----------------- Donald Morrison (5).......................................... 0 * - ------------------------------------------------------------------------ ------------------ ----------------- Derek Obata (5)............................................. 0 * - ------------------------------------------------------------------------ ------------------ ----------------- All directors and current executive officers as a group (6) 1,016,655 8.1% - ------------------------------------------------------------------------ ------------------ ----------------- * Less than 1% (1) Based on information contained in the Schedule 13D filed by the above entity and other members of a group of which that entity is a part, including Woodland Venture Group, Woodland Partners, Barry Rubenstein, and Marilyn Rubenstein. (2) Includes 36,000 shares held by a trust for the benefit of Ms. Alker's son, as to which shares Ms. Alker disclaims beneficial ownership; and 114,498 shares issuable upon the exercise of outstanding stock options which were exercisable at the Record Date or within 60 days thereafter. (3) Includes the following number of shares issuable upon the exercise of outstanding stock options which were exercisable at the Record Date or within 60 days thereafter held by the following persons: Mr. Penisten, 115,555 shares; Mr. Kiremidjian, 37,500 shares; Mr. Hersh, 13,541 shares; Mr. Szu, 18,747 shares; Mr. Tai, 10,186 shares; Mr. Hart, 7,604 shares; and Mr. Sullivan, 7,292 shares. (4) Includes 24,366 shares held by Mr. Levy as the trustee of a family trust; and 3,936 shares issuable upon the exercise of outstanding stock options which were exercisable at the Record Date or within 60 days thereafter. (5) Mr. Morrison and Mr. Obata are included in the Summary Compensation Table but are former executive officers of the Company. They do not hold any outstanding stock options exercisable at the Record Date or within 60 days thereafter. (6) Includes 328,859 shares issuable upon exercise of outstanding stock options which were exercisable at the Record Date or within 60 days thereafter.
COMPENSATION OF EXECUTIVE OFFICERS Summary of Cash and Certain Other Compensation The following table sets forth certain information concerning the compensation of the Company's Chief Executive Officer, the three other most highly compensated executive officers of the Company (collectively the "Named Officers") whose salary and bonus for the year ended December 31, 1997 exceeded $100,000, and two former executive officers of the Company whose salary and bonus exceeded $100,000, but who were not executive officers at December 31, 1997. SUMMARY COMPENSATION TABLE
----------------------------------- ----- --------------------------- LongTerm Compensation Annual Compensation Awards - ------------------------------------- ------- -------------- ----- -------------- ----- ---------------------------- Name and Securities Underlying Principal Position Year Salary Bonus(1) Options/SARs(#)(1) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Pauline Lo Alker 1997 $175,000 $149,048 286,667 (4) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- President and CEO 1996 $175,000 $ 49,500 280,000 (5) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- 1995 $161,250 $ 42,601 80,000 (5) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Fred Kiremidjian 1997 $183,656 $ 45,150 300,000 (6) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- VP of NuWave Group 1996 $ 80,881 - 200,000 (6) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Oliver Szu 1997 $160,000 $199,235 (3) 150,000 (7) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- VP of NuCleus Group 1996 $ 83,978 - 50,000 (7) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Robert Hersh 1997 $111,781 - 150,000 (8) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- VP of Operations and CFO - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Derek Obata 1997 $174,175 (2) $ 15,000 10,000 (11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- (former VP of Sales) 1996 $166,190 (2) - 100,000 (9)(11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- 1995 $ 20,327 $ 109 35,000 (9)(11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- Donald Morrison 1997 $136,153 (2) $ 68,760 37,500 (11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- (former VP of Marketing) 1996 $152,501 (2) $ 28,500 100,000 (10)(11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- 1995 $ 93,750 $ 5,101 50,000 (10)(11) - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- - -------------------------------------- ------- -------------- ----- -------------- ----- ------------- ------------- (1) From time to time, the Compensation Committee reviews the performance of the executive officers and may award cash bonuses and/or stock options to officers. Bonuses paid in 1997 were earned in 1996. Fiscal year 1996 bonuses include a portion of bonus amounts earned in 1995. No bonus for 1997 will be awarded, other than the bonus paid to Oliver Szu pusuant to the acquisition of NuCom Systems, Inc. in 1996. (2) Includes commission payments to the following persons: Mr. Morrison, $50,436 and $17,501 for 1997 and 1996, respectively; Mr. Obata, $50,330 and $28,690 for 1997 and 1996 respectively. (3) Includes bonus payment of $140,000 in accordance with the agreement relating to the acquisition of NuCom Systems Inc. in 1996. (4) Option to purchase an aggregate of 66,667 shares was issued 10/31/97, replacing option to purchase 100,000 shares granted 3/6/97. Option to purchase an aggregate of 120,000 shares issued 10/31/97 replaces option to purchase 180,000 shares granted 9/18/96 (see Note (5) below). Refer to "Report of the Compensation Committee on Executive Compensation--Chief Executive Officer Compensation." (5) Option to purchase an aggregate of 180,000 shares was issued 9/18/96, replacing option to purchase 100,000 shares granted 4/9/96 and option to purchase 80,000 shares granted in 1995. Refer to "Report of the Compensation Committee on Executive Compensation--Chief Executive Officer Compensation." (6) Option to purchase 250,000 shares was issued 10/31/97, replacing option to purchase 50,000 shares granted 3/6/97 and 200,000 shares granted 6/3/96. Refer to "Report of the Compensation Committee on Executive Compensation--Repricing of Options." (7) Option to purchase 100,000 shares was issued 10/31/97, replacing option to purchase 50,000 shares granted 3/21/96 and option to purchase 50,000 shares granted 3/6/97. Refer to "Report of the Compensation Committee on Executive Compensation--Repricing of Options." (8) Option to purchase 50,000 shares was issued 10/31/97, replacing option to purchase 50,000 shares granted 4/21/97. Refer to "Report of the Compensation Committee on Executive Compensation--Repricing of Options." (9) Option to purchase an aggregate of 35,000 shares was issued 1/19/96, replacing an option to purchase 35,000 shares granted in 1995. (10) Option to purchase an aggregate of 50,000 shares was issued 1/19/96, replacing an option to purchase 50,000 shares granted in 1995. (11) These options expired without being exercised three months after termination of the officers' employment by the Company prior to December 31, 1997.
Option Grants in Last Fiscal Year The following table sets forth details regarding stock options granted to the Named Officers in 1997. The Company granted no stock appreciation rights in 1997. In addition, in accordance with SEC rules, the table shows the hypothetical gains or "option spreads" that would exist for the respective options. These gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the options were granted over the full option term. The actual value, if any, an executive may realize will depend on the spread between the market price and the exercise price on the date the option is exercised.
------------------------------------------------------- Individual Grants - --------------------- -------------- --------------- ----------- ------------ ------------------------------ Number of Percent of Potential Realizable Value Securities Total Options Exercise at Assumed Annual Rates of Underlying Granted to or Base Stock Price Appreciation for Options Employees in Price Expiration Option Term (5) - --------------------- -------------- --------------- ----------- ------------ --------------- -------------- Name Granted * Fiscal Year ($/Sh) Date 5% ($) (10% ($) - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Pauline Lo Alker 66,667 (1) 1.4% $ 4.94 3/06/07 $ 190,153 $ 472,955 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 120,000 (1) 2.5% $ 4.94 9/18/06 $ 321,393 $ 788,985 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 100,000 (1) 2.1% $ 14.00 10/31/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Fred Kiremidjian 200,000 (2) 4.2% $ 4.94 6/3/06 $ 514,026 $1,251,534 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 (2) 1.0% $ 4.94 3/6/07 $ 142,614 $ 354,715 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 (2) 1.0% $ 14.00 10/31/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Oliver Szu 50,000 (3) 1.0% $ 4.94 3/6/07 $ 146,742 $ 367,267 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 (3) 1.0% $ 4.94 3/21/06 $ 124,812 $ 302,171 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 (3) 1.0% $ 14.00 10/31/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Robert Hersh 50,000 (4) 1.0% $ 4.94 4/21/07 $ 145,017 $ 361,984 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 1.0% $ 5.69 11/14/07 $ 178,842 $ 453,221 - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- 50,000 (4) 1.0% $ 9.13 10/31/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Derek Obata 10,000 0.2% $ 14.00 12/25/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- Donald Morrison 37,500 0.8% $ 14.00 9/13/97 - - - --------------------- -------------- ---- ---------- ----------- ------------ --------------- -------------- * Executive Officers who were employees of the Company at October 31, 1997 were offered the right to reprice their options to the market price at that date. Refer to "Report of the Compensation Committee on Executive Compensation - Repricing of Options." (1) Option to purchase 66,667 shares granted on 10/31/97 replaced option to purchase 100,000 shares granted on 3/6/97. Option to purchase 120,000 shares granted on 10/31/97 replaced option to purchase 180,000 shares granted on 9/18/96. (2) Option to purchase 200,000 shares granted on 10/31/97 replaced option to purchase 200,000 shares granted on 6/3/96. Option to purchase 50,000 shares granted on 10/31/97 replaced option to purchase 50,000 shares granted on 3/6/97. (3) Option to purchase 50,000 shares granted on 10/31/97 replaced option to purchase 50,000 shares granted on 3/6/97. Option to purchase 50,000 shares granted on 10/31/97 replaced option to purchase 50,000 shares granted on 3/21/96. (4) Option to purchase 50,000 shares granted on 10/31/97 replaced options to purchase 50,000 shares granted on 4/21/97. (5) The potential gain is calculated based on the fair market value of the Company's Common Stock on the date of grant, which is equal to the closing price reported on the Nasdaq National Market. These amounts only represent certain assumed rates of appreciation as established by the SEC. Actual gains, if any, on stock option exercises are dependent upon the future performance of the Company and overall stock market conditions. There can be no assurance that the amounts reflected in this table or the associated rates of appreciation will be achieved.
Aggregated Option Exercises and Fiscal Year End Option Values The following table sets forth certain information concerning options exercised by the Named Officers during 1997, including the aggregate value of gains on the date of exercise. In addition, this table includes the number of shares covered by both exercisable and nonexercisable stock options as of year-end. Also reported are the values for "in-the-money" options, which represent the positive spread between the exercise price of any such existing stock options and the year-end price of the Company's Common Stock.
----------- ----------- ----------------------------------- ------------------------------ Shares Value Number of Securities Underlying Acquired Realized Unexercised Options at FY end Value of In-the-Money On On (#)(1) Options at FY End (2) - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Name Exercise Exercise Exercisable(1) Unexercisable Exercisable Unexercisable - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Pauline Lo Alker - - 80,054 178,613 $ 481,019 $ 447,449 - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Fred Kiremidjian - - 12,499 237,501 $ 28,904 $ 549,221 - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Oliver Szu - - 6,248 93,752 $ 14,449 $ 216,802 - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Robert Hersh - - 8,333 91,667 $ 13,020 $ 180,730 - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Derek Obata - - - - - - - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- Donald Morrison - - - - - - - --------------------- ----------- ----------- ----------------- ----------------- ------------- ---------------- (1) A portion of these options were immediately exercisable at the date of grant, but shares purchased upon exercise of unvested options are subject to repurchase at the option of the Company at their original issuance price based upon the scheduled vesting period. (2) Market value of underlying securities, based on the closing price of the Company's Common Stock, as reported by the Nasdaq National Market System, on December 31, 1997 of $7.25, minus the exercise price.
Employment Agreements and Change in Control Arrangements Management Salary Continuation Agreements In November 1997 the Company amended Salary Continuation Agreements with Pauline Lo Alker and Robert Hersh and entered into a Salary Continuation Agreement with Fred Kiremidjian. These agreements provide that in the event the individual is terminated, including "constructive termination" by demotion, relocation or reduction of the salary of the individual, beginning 30 days prior to public announcement and ending one year after the "change in control" of the Company, the individual would be entitled to continued salary and bonus payments for a period of six months for Mr. Kiremidjian, one year for Mr. Hersh, and two years for Ms. Alker. Each executive would also be entitled to continued medical coverage by the Company during the period of salary continuation, unless the executive is covered by another employer's group health plan. In addition, the Salary Continuation Agreements provide for the acceleration of all options to purchase shares of the Company's Common Stock granted to that individual prior to the "change of control". The 1997 Stock Plan provides that the Board of Directors may, in its sole discretion, accelerate the vesting and the ability to exercise options held by executive officers in the event of a change of control of the Company. Compensation Committee Interlocks and Insider Participation in Compensation Decisions During 1997, no members of the Compensation Committee were officers or employees of the Company or any of its subsidiaries. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Committee") is comprised of non-employee directors. The Committee is responsible for setting and administering policies governing compensation of executive officers. The Committee reviews the performance and compensation levels for executive officers, sets salary and bonus levels and makes option grants under the Company's Option Plans other than the 1994 Outside Directors Stock Option Plan. Compensation Policies The goals of the Company's executive officer compensation policies are to attract, retain and reward executive officers who contribute to the Company's success, to align executive officer compensation with the Company's performance and to motivate executive officers to achieve the Company's business objectives. The Company uses salary, bonuses and stock options to achieve these goals. The Committee reviews various available data, including compensation surveys, to enable the Committee to compare the Company's compensation package with that of other high technology companies of similar size and growth rates in the Company's geographic area. Compensation Components Salaries are set for each executive officer with reference to a range of salaries for comparable positions among high technology companies of similar size, growth rate and location. Annual salary adjustments take into account achievements of individual executive officers during the prior fiscal year as measured against key Company-wide objectives set each year by the Board of Directors, as well as the executive officers' performance of their individual responsibilities. Each Committee member weighs objective and subjective performance factors and a consensus is obtained through discussion. The Compensation Committee also considered relative levels of responsibility among the executive officers in attempting to reach equitable and appropriate projected compensation levels. Cash incentive compensation is provided through participation in the Company's executive bonus plan. The Committee determines the amount of an individual's bonus based on subjective judgment of the Company's financial performance (which, for 1997, were based primarily upon revenue and gross margin) and the achievement of established goals. During 1997, the Compensation Committee completed the process of awarding bonuses based on 1996 performance. Depending on the perceived achievement of individual goals, bonuses to executive officers for 1996 resulted in payments ranging from 11% to 85% of base salaries for 1996. These bonuses were paid in 1997 and are reflected in the Summary Compensation Table as compensation received in 1997. The Committee strongly believes that equity ownership by executive officers provides incentives to build stockholder value and aligns the interests of executive officers with the stockholders. The size of an initial option grant to an executive officer has generally been determined with reference to comparable equity compensation offered by similarly-sized high technology companies for similar positions, the responsibilities and expected future contributions of the executive officer, as well as recruitment considerations. In determining the size of subsequent grants, the Committee has considered the individual executive officer's performance during the previous fiscal year, the expected contributions during the coming year, the amount of options already held and the level of recent grants. Option grants to executive officers during 1997 were based upon available data concerning option grants to executive officers of companies of similar size, growth and location and a review of recent grants. The Committee believes that future subsequent option grants, with vesting schedules of up to four years, will provide strong incentives for executive officers to remain with the Company. Repricing of Options Employee stock options are an important element of compensation for the Company and have been used to attract, retain and motivate its workforce. The Committee believes that the Company's success in the future will depend in large part on its ability to attract, retain and motivate a number of highly skilled personnel and that the competition for such personnel is intense. The Committee also believes it is important and cost-effective to provide equity incentives to employees and other service providers of the Company to improve the Company's performance and the value of the Company to its stockholders. In July 1997, the Committee reviewed the impact of the decline in price of the Company's Common Stock and determined that most of the employee options, which had been previously granted at prices above the then current market price of $7.00 per share, were significantly less likely to serve their purposes of retaining and motivating employees. Furthermore, the Committee determined that many existing, experienced employees would be likely to perceive an inequity in comparison to recently hired personnel granted stock options with exercise prices set at the current, lower fair market value of Common Stock. The Committee determined that it was in the best interest of the Company and its stockholders to restore incentive for employees and other service providers to remain with the Company and to exert their maximum efforts on behalf of the Company. The Committee did not believe it was necessary, at the time, to reprice the stock options of corporate officers or directors of the Company. Therefore, the Committee approved the repricing of stock options to a fair market value represented by the closing price of the Company's Common Stock on July 25, 1997, with the condition that vesting of all such repriced options would recommence according to the terms of the original stock option agreement. In October 1997, the Committee again reviewed the impact of further declines in the market price of the Company's Common Stock to $4.94 per share. The Company's voluntary employee turnover rate was approximately twice that of its industry peer group and the Committee was concerned that a further loss of key employees, including officers, could adversely impact new product development schedules and revenue growth. Therefore, the Committee approved the repricing of stock options to a fair market value represented by the closing price of the Company's Common Stock on October 31, 1997, with the condition that vesting of all such repriced options would recommence according to the terms of the original stock option agreement. Certain of the Company's executive officers were beneficiaries of the repricing actions in 1997 as described in the Ten-Year Option/SAR Repricing table below. Participants in the October 1997 repricing agreed to recommence vesting of their outstanding options as a condition for the shares to be repriced. Additionally, Ms. Alker agreed to cancel one-third, or 93,333 of her repriced options. TEN-YEAR OPTION/SAR REPRICING TABLE
- --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Number of Market Length of Securities Number of Price of Exercise Original Term Underlying Securities Stock at Price at New Remaining at Options After Time of Time of Exercise Date of Repricing Name Date Repriced Repricing Repricing Repricing Price - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Pauline Lo Alker 10/31/97 100,000 66,667 $ 4.94 $14.00 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ 10/31/97 180,000 120,000 $ 4.94 $15.00 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ 9/18/96 100,000 100,000 $ 15.00 $13.25 $15.00 10 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ 9/18/96 80,000 80,000 $ 15.00 $20.00 $15.00 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Fred Kiremidjian 10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ 10/31/97 200,000 200,000 $ 4.94 $18.63 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Robert Hersh 10/31/97 50,000 50,000 $ 4.94 $ 9.13 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ James Sullivan 10/31/97 50,000 50,000 $ 4.94 $ 7.13 $ 4.94 10 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Oliver Szu 10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ 10/31/97 50,000 50,000 $ 4.94 $14.00 $ 4.94 8 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Donald Morrison (1) 1/19/96 50,000 50,000 $ 12.00 $21.88 $12.00 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ Derek Obata (1) 1/19/96 35,000 35,000 $ 12.00 $13.88 $12.00 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ John Chan (1) 1/19/96 60,000 60,000 $ 12.00 $23.00 $12.00 9 years - --------------------- ----------- -------------- ------------- ------------ ------------ ----------- ------------------ (1) Mr. Morrison, Mr. Obata and Mr. Chan terminated their employment with the Company prior to December 31, 1997. Accordingly, these options expired without being exercised. (2)
Chief Executive Officer Compensation The Compensation of the Chief Executive Officer is based upon the same criteria outlined above for the other executive officers of the Company. While the Chief Executive Officer makes recommendations about the compensation levels, goals and performance of the other executive officers, she does not participate in the discussions regarding her compensation or performance. In 1997, Ms. Alker received a base salary of $175,000 and awarded a cash bonus of $149,000 based on her individual performance and the performance of the Company in 1996. In March 1998, the Company and Ms. Alker agreed to terminate her employment and her position as a director of the Company, effective upon the hiring of a successor for those positions. In consideration for Ms. Alker's agreeing to remain in her current positions until such time, and in recognition for her leadership of the Company and seven years of dedicated service to Company, the Committee awarded Ms. Alker severance of one year's base salary. In addition, the Committee agreed to grant immediate vesting of all her outstanding stock options at the time a successor is hired. Qualifying Compensation The Committee has considered the potential impact of Section 162(m) of the Internal Revenue Code ("Section 162(m)") adopted under the Federal Revenue Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any publicly-held corporation for certain executive officers' compensation exceeding $1 million per person in any taxable year unless it is "performance based" within the meaning of Section 162(m). Since to date the cash compensation plus restricted stock vesting of each of the Company's executive officers has been below the $1 million threshold and since the Committee believes that any options granted under the Company's option plan will meet the requirement of being performance-based under the provisions of Section 162(m), the Committee believes that Section 162(m) will not reduce the tax deduction available to the Company for fiscal year 1997 or prior years. The Company's policy is, to the extent reasonable, to qualify its executive officers' compensation for deductibility under the applicable tax laws. STOCK PERFORMANCE GRAPH Five-Year Stockholder Return Comparison The graph below compares the cumulative total return on the Company's Common Stock for the end of each six month periods since the initial public offering in June 1994 compared to the CRSP Total Return Index for the Nasdaq Stock Market (US companies), an indicator of broad market performance, and the CRSP Total Return Index for the Nasdaq Computer Manufacturer Stocks (SIC 357), an indicator of the market performance of this sector. The stock price performance shown on the graph below is not necessarily indicative of future price performance. Cumulative Comparison of Total Return [The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T] [GRAPHIC OMITTED] NPI STOCK PERFORMANCE GRAPH FOR '98 PROXY
- -------------------------------------------------------------------------------------------------------------------------------- 6/28/94 12/30/94 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97 - -------------------------------------------------------------------------------------------------------------------------------- NPI $100 $445 $356 $192 $280 $290 $115 $118 - -------------------------------------------------------------------------------------------------------------------------------- Nasdaq U.S. Market $100 $108 $134 $152 $172 $187 $209 $230 - -------------------------------------------------------------------------------------------------------------------------------- Nasdaq Computer Manufacturers $100 $141 $181 $222 $257 $298 $323 $360 - -------------------------------------------------------------------------------------------------------------------------------- * Assumes $100 invested on June 28, 1994 in the Company's Common Stock and in each index listed above. ** Data points are as of the last business day of the respective month. *** The total return for the Company's Common Stock and the indices used assumes the reinvestment of dividends for securities on which dividends are paid. Dividends have never been declared on the Company's Common Stock.
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The information required by subsections (a)1 and (a)2 of this item are included in the response to Item 8 of Part III of this Annual Report on Form 10-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. 10.14(3) Amendment No. 1, dated June 1, 1994, to Facilities Lease 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. 10.18(4) Purchase Agreement among Network Peripherals Inc., Network Peripherals, Ltd., NuCom Systems, Inc., and the shareholders of NuCom, dated January 31, 1996. 10.22 (5) Line of Credit Agreement with Sumitomo Bank dated October 2, 1996. 10.23 (5) Agreement with Glenn Penisten dated May 15, 1996. 10.26 (7) Purchase Agreement among Network Peripherals Inc., NetVision Corporation, and the shareholders of NetVision , dated April 29, 1997. 10.27 (6) 1997 Stock Option Plan. 10.28 (6) Amended 1994 Outside Directors Option Plan. 10.29 (8) Development and Purchase Agreement with Sun Microsystems, Inc., dated February 25, 1994. 10.30 (8) Corporate Supply Agreement with Sun Microsystems, Inc., dated March 31, 1997. 10.31 (9) Modification Agreement, dated August 29, 1997, to amend certain terms of the Line of Credit Agreement with Sumitomo Bank of California. 10.32 (9) Second Modification Agreement, dated November 17, 1997, to amend certain terms of the Line of Credit Agreement with Sumitomo Bank of California. 10.33 (9) Amended and Restated Salary Continuation Agreement with Pauline Lo Alker dated October 31, 1997. 10.34 (9) Amended and Restated Salary Continuation Agreement with Robert Hersh dated October 31, 1997. 10.35 (9) Salary Continuation Agreement with Glenn Penisten dated October 31, 1997. 10.36 (9) Salary Continuation Agreement with Fred Kiremidjian dated October 31, 1997. 10.37 (9) Salary Continuation Agreement with James Sullivan dated October 31, 1997. 10.38 (9) Consent of Independent Accountants dated March 27, 1998. 27 (9) Financial Data Schedule. 35 (b) Reports on Form 8-K None (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 Registrant's report on Form 8-K filed on March 31, 1996 (File No. 0-23970). (5) Incorporated by reference to the corresponding exhibit in the Registrant's Annual Report on Form 10-K for the year ended December 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, 1997 (File No. 0-23970). (7) Incorporated by reference to the Registrant's report on Form 8-K filed on May 14, 1997 (File No. 0-23970). (8) The Registrant has filed portions of these agreements separately with the Commission and has requested that those portions be afforded confidential treatment. (9) Filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. 36
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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. By: \s\ROBERT HERSH ---------------------------------- Robert Hersh Vice President of Operations and Chief Financial Officer (Authorized Officer) EX-10.29 2 DEVELOPMENT AND PURCHASE AGREEMENT SUN TECHNOLOGY ENTERPRISES, INC. DEVELOPMENT AND PURCHASE AGREEMENT This Agreement is made and entered into by and between Sun Microsystems, Inc., a Delaware corporation having its principal place of business at 2550 Garcia Avenue, Mountain View, California 94043 and acting by and through the SunConnect unit of its subsidiary Sun Technology Enterprises, Inc. ("SunConnect"), and Network Peripherals Inc., a California corporation having its principal place of business at 1371 McCarthy Boulevard, Milpitas, CA 95035 ("NP"). 1.0 DEFINITIONS 1.1 "Administrator(s)" means the individuals listed in Section 28 below, or an individual designated by such Administrator. 1.2 "BOM" means the Bill of Materials describing the OEM Products as they are to be delivered to SunConnect set forth in Exhibit A-4, which may be modified with the mutual written agreement of each party's Administrator. 1.3 "Development Deliverable" means each deliverable required pursuant to the Development Schedule and Deliverables. 1.4 "Development Schedule and Deliverables" means the schedule of tasks, deliverables and completion dates set forth in Exhibit B. 1.5 "Documentation" means the user manual and other written materials related to the OEM Products as described in the Product Specification and Development Deliverables. 1.6 "NP Products" means the OEM Products minus the Sun-Unique Elements. 1.7 "OEM Products" means the FDDI Adapter for the SBbus/Solaris systems product line described in the Product Specification (SunLink FDDI/S 3.x), and any additional products the parties add by mutual consent. The term "OEM Products" shall include Documentation except with respect to those instances where this Agreement separately refers to Documentation. 1.8 "Proprietary Information" means that information which SunConnect and NP desire to protect against unrestricted disclosure or competitive use and which, if disclosed in writing, is designated as such in writing by the disclosing party or, if disclosed orally, is announced as confidential at the time of its disclosure by the disclosing party and within thirty (30) days thereafter is summarized in writing and such summary is provided to the receiving party. 1.9 "Product Specification" means the description of the OEM Products set forth in Exhibits A, A-1 and A-2. 1.10 "SunConnect Modification" means any modification, enhancement, extension or addition of or to the OEM Products, in source or object code form, developed by or on behalf of SunConnect (but excluding modifications developed by NP pursuant to this Agreement). 1.11 "Sun-Unique Elements" means those elements of the OEM Products listed in Exhibit C attached hereto. 1.12 "Service Provider" means an entity which SunConnect has authorized to provide product support to customers, which may include distributors, resellers and support partners. 1 2.0 DEVELOPMENT OF OEM PRODUCTS 2.1 Development of OEM Products. NP and SunConnect will develop and test the OEM Products in accordance with the milestones, delivery dates and testing requirements set forth in the Development Schedule and the pre-FCS "SunLink FDDI/S 3.x Quality Assurance Plan attached hereto as Exhibit A-3. Changes to the Development Schedule and/or the Product Specification may be made with the mutual written consent of the Administrators of both parties. 2.2 * "Confidential portion has been omitted and filed separately with the Commission." 2.3 Acceptance of Deliverables. SunConnect shall acknowledge in writing or by electronic mail its receipt of each Development Deliverable. SunConnect will notify NP as soon as possible whether the Development Deliverable is accepted or rejected, provided that each Development Deliverable will be deemed automatically accepted if SunConnect's Administrator fails to notify NP in writing that SunConnect accepts or rejects such deliverable within thirty (30) days from the date of its delivery. 2.4 Correction of Errors in Deliverables. If, within the thirty (30) day acceptance period, SunConnect notifies NP in writing that an Development Deliverable fails to satisfy the criteria set forth in the Development Schedule or Product Specification and provides NP with a written explanation thereof, NP will have five (5) days to provide SunConnect with a revised schedule for correcting the defect(s) in the non-conforming Development Deliverable and shall promptly institute and diligently execute such corrections. 2.5 FCS Decision. Pursuant to the Development Schedule, SunConnect is responsible for making a "Go/ No Go" decision regarding the first customer ship of the OEM Products. SunConnect will notify NP in writing of the result of the Go/ No Go decision within two days after the decision is made. If the decision is a "go," then this decision will authorize NP to begin the production phase for the OEM Products and to ship the OEM Products to SunConnect under the terms set forth below. 3.0 DOCUMENTATION 3.1 Documentation Deliverables. Development Deliverables related to Documentation are set forth in Exhibit B. 3.2 Post-FCS Documentation. The parties will negotiate in good faith to determine who will be responsible for writing and implementing revisions to the Documentation, and how related costs shall be allocated. NP will not distribute any modified Documentation without the prior written approval of the SunConnect Administrator. 3.3 Quality of Documentation Shipped by NP. The quality of Documentation for the OEM Products shipped by NP at and after FCS must be comparable with the quality of the current SunLink FDDI/S 2.0 documents. (Notwithstanding the foregoing sentence, the documentation to be provided to beta sites by NP may be xeroxed copies of the beta-stage documentation delivered by SunConnect to NP.) Promptly after the Effective Date. NP will develop a quality plan to ensure that the Documentation meets the Quality requirements for post FCS documentation, and shall submit such quality plan to SunConnect's Administrator for approval. After such approval the documentation quality plan shall be attached as part of the Quality Assurance Plan described in Section 8.1 below. SunConnect shall also have the right to approve the quality of the completed Documentation prior to shipment. 2 4.0. OWNERSHIP 4.1 * "Confidential portion has been omitted and filed separately with the Commission." 4.2 * "Confidential portion has been omitted and filed separately with the Commission." 5.0 MAINTENANCE, SUPPORT AND TRAINING. 5.1 Support to Customers. Customer support for OEM Products, SunLink FDDI/S 1.0 and SunLink FDDI/S 2.0 products shall be provided as set forth in Exhibit E. 5.2 OEM Product Repair and Replacements Under Warranty. If a SunConnect Service Provider receives an OEM Product which is eligible for warranty service by NP under NP's warranty set forth in Section 23 below, then the Service Provider will return such OEM Product to NP for repair or replacement, and NP shall repair or replace such OEM Product in accordance with the warranty provided under Section 23. 5.3 OEM Product Repair and Replacements Out of Warranty. Repair and Replacement Prices for OEM Products which are not eligible for service under NP's warranty ("Out of Warranty OEM Products") are set forth in Exhibit F. NP will replace Out of Warranty OEM Products for SunConnect and SunConnect's Service Providers, and will repair Out of Warranty OEM Products for SunConnect, SunConnect's Service Providers, customers, distributors and resellers in accordance with the procedures and prices in Exhibit F. 5.4 TOI. NP will provide SunConnect with the information described in the "Transfer of Information" attached as Exhibit E, and will comply with the procedures set forth therein. NP hereby grants SunConnect an unrestricted, fully-paid license to use, duplicate, and distribute any TOI materials in whatever fashion SunConnect or its Service Providers deem useful to provide traning in the use of the OEM Products. 6.0 * "Confidential portion has been omitted and filed separately with the Commission." 7.0 DISTRIBUTION OF NP PRODUCTS 7.1 No Distribution of OEM Products by NP. NP may not sell or distribute the OEM Products, or any other products containing any SunConnect-Unique Element without the express written consent of the SunConnect Administrator. 3 8.0 PRODUCTION OF OEM PRODUCTS 8.1 Quality Assurance. Attached hereto as Exhibit J is NP's Quality Systems Manual for FCS and subsequent shipments for ensuring quality standards of the OEM Products. 8.2 NP Responsibilities. Except as set for in Section 8.3 below, NP will be responsible for all aspects of manufacturing, assembling, testing, packaging and delivery of the OEM Products to the SunConnect-designated location(s). Each OEM Product delivered to SunConnect will meet the requirements set forth in Exhibits A (Product Specifications), B (Development Schedule and Deliverables), A-4 (BOM), J (Quality Systems Manual), K-1 (Inbound)Outbound Packaging Requirements), K-2 (Engineering Specification for Part Identification Label), K-3 (Corporate Shipping Container Graphics Guideline), K-4 (Shipping Carton Color Standard), K-5 (Specification for A SunConnect Color: SunConnect Medium Purple), K-6 (Routing Guide) and Section 15 (Trademark License). SunConnect shall have the right, on reasonable notice, to audit NP's premises and records to verify compliance with these requirements. At least thirty (30) days prior to NP's distribution of the first copy of each commercial release of an OEM Product bearing the Sun Trademarks and Trade Dress (as defined in Section 15 below), NP shall provide SunConnect's Administrator with written certification that NP has adequately reviewed and tested such OEM Product and that it conforms to the requirements of this Section 8.2. NP shall keep written records of such testing and make them available to SunConnect promptly upon written request. 8.3 Other Responsibilities. a. Compact Disks. SunConnect will initially be responsible for the mastering of the compact disk to be included in the OEM Products. NP will purchase the compact disks from SunConnect's vendor in accordance with Section 8.11. (Nothing herein shall be deemed to limit SunConnect's right to continue to order and purchase products from the vendors fisted in Exhibit M.) After the FCS of the OEM Products, NP will use its best efforts to identify and reach terms with a compact disk manufacturer within nine (9) months of the Effective Date, pursuant to which NP would master compact disks without SunConnect's assistance. NP will promptly provide SunConnect's Administrator with the details of such agreement, including without limitation all pricing terms. SunConnect may, at its option and in its sole discretion, authorize NP to master compact disks directly, subject to SunConnect's approval of content and quality. b. Packaging Artwork. SunConnect shall design the artwork for the OEM Product packaging. The completed artwork is a SunConnect Deliverable to NP. 8.4 Copyright Notices. The Documentation shall bear a copyright notice in the form (C)Sun Microsystems 19__. NP shall put a copyright notice on the software components of the OEM Products and NP Products incorporating the SunLink Source Code stating (C)Network Peripherals 19__, portions (C)Sun Microsystems 19__. NP may put an NP copyright notice on the board component of the OEM Products. 8.5 NP Improvements. NP agrees to keep SunConnect informed of any improvements to of replacements for existing NP Products or OEM Products planned to be made available during the term of this Agreement. NP agrees to notify SunConnect's Administrator of such improvements in writing not less than 90 days prior to shipment of NP Products incorporating such improvements to third parties or customers and shall make available such improvements for OEM Products at no charge to SunConnect, provided that such improvements do not significantly affect the form, fit and function of the OEM Product in ways that differ from any change in the form, fit or function of the corresponding NP Product. SunConnect may elect to incorporate such improvements into the OEM Products by notifying NP in 4 writing within 30 days after notification of such improvements. If SunConnect so notifies NP within the 30 day period, then NP will ensure that any NP Improvements are incorporated into OEM Products at least as early as they am incorporated into NP Products. The terms of Section 10.2 * "Confidential portion has been omitted and filed separately with the Commission." will continue to apply to any improved OEM Products. 8.6 NP Modifications. NP will not implement any changes in design or manufacture that might affect form, fit or function of the OEM Products, including without limitation, changes in performance, maintenance procedures, interchangeability, interconnectability, reliability or compatibility of OEM Products, without the prior written consent of a SunConnect Administrator and such consent shall not be unreasonably withheld. 8.7 Mandatory Changes. a. "Mandatory Changes," as used herein means any change necessary to ensure that OEM Products comply with the following standards, as such standards are constituted on the date of shipment: (1) the Product Specification; (2) applicable laws or regulations; or (3) recognized and accepted commercial safety standards for similar products. NP will. at its own expense, supply SunConnect or SunConnect's Service Providers (as directed by SunConnect) parts kits and detailed rework instructions for all OEM Products purchased by SunConnect affected by any Mandatory Change, regardless of whether such OEM Products have been delivered to SunConnect, its customers, resellers or distributors. b. If a Mandatory Change requires replacement of products already delivered to SunConnect's customers, resellers and distributors, then SunConnect or SunConnect's Service Provider(s) shall implement such replacements in accordance with the reasonable instructions provided by NP. NP shall be responsible for all necessary and reasonable costs incurred by SunConnect or its Service Provider(s) in any replacement of products delivered to SunConnect's customers, distributors and resellers which is required by Section 8.7(a). 8.8 O/S and Platform Changes. (a) "Systems Changes," as used herein means any change necessary to ensure that NP Products remain compatible with new versions of the Sun Operating System and new versions of the Sun platform. NP will use its best commercial efforts to develop Systems Changes. NP agrees to notify SunConnect within a reasonable period of time after the release of a new version of the Sun Operating System or Sun Platform of Systems Changes planned for the NP Products and shall make available such System Changes for OEM Products at no charge to SunConnect. SunConnect may elect to incorporate System Changes into the OEM Products by notifying NP in writing within 30 days after notification of such System Changes. If SunConnect so notifies NP within the 30 day period, than NP will ensure that any System Changes are available incorporated into OEM Products at least as early as they are incorporated into NP Products. The terms of Section 10.2 * "Confidential portion has been omitted and filed separately with the Commission." will continue to apply to any revised OEM Products. (b) When Systems Changes am not planned for the NP Products, then SunConnect may request such changes in accordance with Section 8.9 and the parties will mutually develop a development schedule. (c) NP will perform all required compatibility testing for all new Sun Operating Systems and new Sun platforms at NP's expense. SunConnect will provide NP with the necessary equipment and operating system software to perform such testing. 5 8.9 SunConnect Requested and Required Changes. a. SunConnect may, at any time, require changes in writing to any of the following: method of shipment or packing; place of delivery, or the Exhibits marked with an * in Section 29.8 ("Required Change"). In addition, SunConnect may, at any time, request changes to applicable drawings, designs or specifications, or to ensure compatibility with other new or modified SunConnect products ("Requested Change"). b. If a Required or Requested Change causes an increase in the cost or the time required by NP for performance of any purchase order issued under this Agreement and NP so notifies SunConnect in writing, then if SunConnect wishes such Requested or Required Change to be made, an equitable adjustment will be made in the price or delivery schedule or both and the Agreement and/or any applicable purchase order will be modified accordingly in writing. Claims by NP for adjustment due to a SunConnect Requested or Required Change order must be made within fifteen (15) days from the date of NP's receipt of the change order; provided, however, that such period may be extended upon the written approval of SunConnect. c. If any SunConnect Requested or Required Change requires reworking of any OEM Product already delivered to SunConnect, NP will, at SunConnect's expense, supply components for all OEM Products purchased by SunConnect affected thereby. 8.10 NP Purchase from SunConnect Suppliers. NP may purchase specific components for the OEM Products from specified SunConnect suppliers as SunConnect's authorized sub-contractor as set forth on Exhibit M. NP shall comply with all applicable provisions of the SunConnect contract with such suppliers. SunConnect agrees to provide NP with the text of applicable provisions. All items so purchased must be used in OEM Products, and may not be used in NP Products or other products without the express written consent of SunConnect. 8.11 NP Sub-Contractors. NP may subcontract the production of components of the OEM Products to suppliers, provided that each such supplier agrees to and fulfills all quality and compliance requirements set forth in this Agreement and its Exhibits. 8.12 Future Cooperation. The parties agree to work together to evaluate and develop new technologies and products for FDDI network interface cards as mutually agreed to. If new products are developed, the parties will negotiate an agreement with terms as similar as possible to this Agreement, except that product specifications, pricing and leadtimes may be different for such new products. 9.0 PURCHASE OF OEM PRODUCTS 9.1 Orders. SunConnect shall order OEM Products by telecopier, telephone, electronic data interchange ("EDI") as specified in Section 16.3, and/or in writing on SunConnect's standard purchase order form. Each telephone order shall be confirmed by a hard-copy purchase order within five (5) days after the placement of such telephone order. All orders for OEM Products will be governed by this Agreement and shall not be governed by the terms of SunConnect's or NP's purchase order, acceptance or other form documents. This Agreement does not constitute a purchase order SunConnect shall be liable under this Agreement only for those OEM Products covered by a SunConnect purchase order. 9.2 Sale to SunConnect Subcontractors. NP shall sell and license OEM Products under the pricing and terms set forth in this Agreement to SunConnect-designated subcontractors ("Subcontractors") upon express written authorization by SunConnect. SunConnect shall be liable to pay only for OEM Products ordered by and invoiced directly to SunConect and shall not be liable to pay for 6 any OEM Products ordered by Subcontractors. All purchases made by Subcontractors shall be added to SunConnect's cumulative volume of OEM Products purchased. 9.3 Forecasts. SunConnect shall supply a six month rolling forecast by the 10th day of each month, with the first two months broken out by week. The first two months shall be backed by a purchase order which is non-cancelable. The third month of the forecast is a firm commitment, which may be rescheduled as specified in Section 14.1. 9.4 SoftwarelFirmware License. With respect to OEM Products which contain NP software and/or firmware (Software'). NP hereby grants to SunConnect a perpetual, nontransferable, nonexclusive license to use, market, distribute and sublicense the use of the Software in object code form only, and to authorize others to do the foregoing, solely in conjunction with the sale, license, loan of distribution of the OEM Products. 9.5 * "Confidential portion has been omitted and filed separately with the Commission." 10.0 PRICE OF OEM PRODUCT(S). 10.1 Pricing. The prices and applicable discounts for the OEM Products are specified in Exhibit N. The prices set forth in Exhibit N do not include freight or taxes, and all applicable federal, state and local sales or use taxes shall be separately stated on NP's invoice. SunConnect shall be liable to NP for the payments of such sales or use taxes only if SunConnect has failed to comply with the statutory resale tax certificate requirements of states where appropriate. 10.2 * "Confidential portion has been omitted and filed separately with the Commission." 7 10.3 * "Confidential portion has been omitted and filed separately with the Commission." 10.4 Price Notification. During the tenth week of each calendar quarter, NP will provide to a SunConnect Administrator a written confirmation of the price of each OEM Product and component thereof, as such price has been determined in accordance with Sections 10.1 10.3. NP will provide such price confirmation whether or not any price has changed from the previous quarter. The prices set forth in such notification will be deemed accepted if SunConnect fails to notify NP in writing of any disagreement within 10 days after receipt of the notification by the SunConnect Administrator. 10.5 Special Requests. If SunConnect requests NP to manufacture or deliver OEM Products to SunConnect on special terms which will cause an increase in the manufacturing cost to NP, then NP shall notify the SunConnect Administrator in writing, specifying the additional costs and available options. SunConnect shall have 10 day to accept or reject such additional costs. Failure to respond shall be deemed a rejection of such additional costs and such special terms. 11.0 SHIPMENT AND DELIVERY 11.1 Leadtimes and Delivery Dates. Leadtimes for OEM Products are set forth in Exhibit N. NP agrees to accept and deliver the full quantity of OEM Products ordered on the delivery dates requested by SunConnect, to the extent that such dates are in conformance with leadtimes set forth in Exhibit N, or otherwise mutually-agreed to delivery dates ("Agreed Delivery Date"). If SunConnect requests delivery dates earlier than the leadtimes set forth in Exhibit N, NP agrees to use commercially reasonable efforts to meet such requested delivery dates or to propose the earliest possible alternate delivery dates. 11.2 Delayed Delivery Dates. If NP is unable to deliver OEM Product on the Agreed Delivery Date, NP shall promptly notify the appropriate SunConnect materials management personnel (as identified by the SunConnect Administrator), giving SunConnect a new delivery date. SunConnect may, at its option, (1) accept the new delivery date, (2) reschedule the purchase order, (3) require NP, at NP's expense, to use any expedited transportation methods that are available to deliver the OEM Products to SunConnect or a designated customer via Drop Ship as quickly as possible, or, if new date is greater than 5 days after Agreed Delivery Date, (4) cancel the purchase order without liability. In all cases, NP agrees to respond to SunConnect's purchase orders within 3 days after receipt. Time is of the essence with respect to this agreement. 11.3 Overshipments. SunConnect will pay only for quantities ordered. At SunConnect's option, overshipments will be returned to NP at NP's risk freight collect. NP shall credit SunConnect with the amount of outbound freight attributable to such returned overshipments. 11.4 Early Shipments. For OEM Products delivered more than five (5) days in advance of the Agreed Delivery Date(s), SunConnect may (i) return such OEM Products to NP freight 8 collect, or (ii) accept such OEM Products with payment based upon the Agreed Delivery Date(s) and not the date of receipt by SunConnect. 11.5 Partial Deliveries. NP shall use reasonable efforts to deliver the full number of OEM Products ordered by SunConnect on the Agreed Delivery Date(s). If NP is unable to deliver the full number of OEM Products ordered, NP shall notify SunConnect promptly, and SunConnect shall consent to such partial delivery provided that the Agreed Delivery Date is met for the deliverable portion. Partial deliveries shall be separately invoiced by NP and paid for by SunConnect without regard to subsequent deliveries. The undelivered portion of the order shall be subject to the terms of Section 11.2. 11.6 * "Confidential portion has been omitted and filed separately with the Commission." 11.7 Shipping Documents and Markings. a. Shipping labels and containers must comply with the requirements set forth in Section 8.2 above. b. Shipping documentation must be complete and accurate. This documentation must include the SunConnect part number, the manufacturer's part number, the total quantity shipped, the SunConnect purchase order number, the number of shipping containers in the delivery, the quantity per shipping container, indication of partial/complete shipment and the waybill/Bill of Lading number. 11.8 Shipping Reports. NP will deliver to SunConnect shipping reports specified in Exhibit O. 11.9 * "Confidential portion has been omitted and filed separately with the Commission." 11.10 * "Confidential portion has been omitted and filed separately with the Commission." 9 11.11 Import and Export Licenses. NP shall provide all information under its control which is necessary or useful for SunConnect to obtain any export or import licenses required for SunConnect to ship or receive OEM Products, including, but not limited to, U.S. customs certificates of delivery, affidavits of origin, and U.S. Federal Communications Commissions identifier, if applicable. The parties agree not to export or re-export, or cause to be exported or re-exported, the OEM Product, any technical data of any kind received hereunder, or the direct product of such technical data, without complying with the laws of the United States, regulating the same. 11.12 End of Term Orders. Purchase orders placed by SunConnect prior to the end of the Term for which the Agreed Delivery Date(s) are after the end of the Term shall continue to be governed by the terms and conditions of this Agreement. 12.0 PAYMENT 12.1 Invoice Contents. Upon shipment of OEM Products ordered, NP will submit an invoice showing invoice number and date, remit to address, the purchase order number, SunConnect part number, description of each OEM Product, quantity of each OEM Product, unit prices, each applicable tax and extended totals. 12.2 Payment of Invoice. SunConnect shall be invoiced upon shipment of OEM Product and shall pay each invoice when due. Payment terms are * "Confidential portion has been omitted and filed separately with the Commission." days after shipment to SunConnect's "Ship to" location of the OEM Product covered by the invoice, unless SunConnect notifies NP prior to the payment due date that such OEM Products am defective or nonconforming in any manner. 12.3 Payment Not Acceptance. SunConnect's payment of an invoice does not constitute acceptance of OEM Products. Invoices will be subject to adjustment for errors, shortages, defects in OEM Products or other failure of NP to meet the requirements of this Agreement. 13.0 ACCEPTANCE AND QUALITY 13.1 Compliance with Standards. Each OEM Product delivered to SunConnect shall meet all requirements set forth in Section 8.2. SunConnect shall not be required to accept any such OEM Product which does not meet such standards. 13.2 Audits. SunConnect or its agent may perform reasonable source inspection and quality assurance audits at NP's facility. SunConnect retains the right to periodically audit NP's facilities and records to validate incoming quality data, test yield data and manufacturing yield data. 13.3 Quality Reports. Within 7 days after the end of each month, NP shall provide to a SunConnect Administrator a written quality report in a form approved by a SunConnect Administrator for the immediately preceding month. 13.4 Effect of Defects. If any of the OEM Products are defective in material or workmanship or are otherwise not in conformity with the requirements of this Agreement, NP and SunConnect will work together to develop a plan to correct such defects or nonconformities. If a plan has not been agreed to within five (5) business days, then SunConnect may either: a. Reject and return an entire lot(s) for replacement in which event NP shall, at NP's expense, replace Product(s) within twenty (20) working days; b. Perform one-hundred percent (100%) testing, at NP's expense, retain all conforming Product and reject all nonconforming Product. Any Product that has been rejected or 10 required to be corrected must be replaced or corrected by and at the expense of NP promptly after notice; or c. Accept it with a mutually agreed-upon adjustment in price. 13.5 Returns. NP shall issue a Return Material Authorization ("RMA") within two (2) business days after SunConnect's request to return defective OEM Products pursuant to the product warranty procedure as described under Section 23. Any additional terms of the RMA procedure shal1 be mutually agreed to between the parties. SunConnect shall include the RMA number with all returns. 14.0 RESCHEDULING AND CANCELLATION. 14.1 Rescheduling. SunConnect may reschedule all or any part of any purchase order or forecast under this Agreement for a new delivery date up to ninety (90) days after the Agreed Delivery Date in accordance with the limits as follows:
- ------------------------------------- ---------------------------------- ----------------------------------- Number of Days Prior to Agreed Maximum Dollar Value of Purchase Date on Which Delivery Must Be Delivery Date Reschedule Notice is Order Which May Be Rescheduled Accepted Received - ------------------------------------- ---------------------------------- ----------------------------------- 61 - 90 Days * "Confidential portion has been omitted and filed separately with the Commission." - ------------------------------------- ---------------------------------------------------------------------- 0 - 60 Days * "Confidential portion has been omitted and filed separately with the Commission." - ------------------------------------- ----------------------------------------------------------------------
Purchase orders may not be rescheduled more than twice. 14.2 * "Confidential portion has been omitted and filed separately with the Commission." 14.3 * "Confidential portion has been omitted and filed separately with the Commission." 14.4 * "Confidential portion has been omitted and filed separately with the Commission." 15.0 TRADEMARK LICENSE 15.1 Trademarks And Trade Dress. The packaging, artwork. documentation and other materials provided to NP by SunConnect hereunder may contain Sun Microsystems, Inc. ("Sun") trademarks and or trade dress requirements ("Sun Trademarks and Trade Dress"). 15.2 Grant Of License. SunConnect grants to NP a non-exclusive, royalty-free, nontransferable license for the term of this Agreement to reproduce the Sun Trademarks and Trade Dress in the United States (the "territory") solely for the purpose of producing the OEM Products for delivery to 11 SunConnect hereunder. NP is granted no other right, title or license. In particular, NP shall not use the Sun Trademarks or Trade Dress on any item other than the OEM Products; shall not deliver any item marked with the Sun Trademarks or Trade Dress to any entity other than SunConnect or its affiliated companies unless specifically directed in writing by SunConnect's Administrator; and shall have no right to sublicense the Sun Trademarks or Trade Dress. 15.3 Territory. NP shall not use the Sun Trademarks or Trade Dress outside the United States (the "Territory") without the prior written consent of Sun's Administrator. SunConnect may refuse to extend the Territory in its sole discretion. 15.4 Quality Standards. NP shall use the Sun Trademarks and Trade Dress only on Software Products that conform to the standards set forth in Section 8.2, including the certification requirement therein. 15.5 Trademark Usage. NP shall not modify the Sun Trademarks or Trade Dress in any fashion whatsoever without written instructions from Sun's Administrator. NP will not place any NP or third party trademark, trade name, logo or other identifying material on the OEM Products without the written consent of SunConnect's Administrator. 15.6 Protection Of The Sun Trademarks. Sun is the sole owner of the Sun Trademarks and Trade Dress and all goodwill associated therewith. NP's use of the Sun Trademarks and Trade Dress inures solely to the benefit of Sun. NP shall not do anything that might harm the reputation or goodwill of the Sun Trademarks or Trade Dress. NP shall not challenge Sun's rights in or attempt to register the Sun Trademarks or Trade Dress, or any other name or mark owned by Sun or substantially similar thereto. NP shall take no action inconsistent with Sun's ownership of the Sun Trademarks and Trade Dress. if it at any time NP acquires any rights in, or registration or application for, the Sun Trademarks or Trade Dress by operation of law or otherwise, it will immediately upon request by Sun or SunConnect and at no expense to Sun or SunConnect, assign such rights, registrations, or applications to Sun, along with any and all goodwill associated with the Sun Trademarks and Trade Dress. The parties agree and acknowledge that Sun remains responsible for the protection and maintenance of the Sun Trademarks and Trade Dress. NP will, if requested by SunConnect, provide assistance in matters relating to this Trademark License, including but not limited to (a) giving prompt written notice to SunConnect's Administrator of any known or potential infringement of the Sun Trademarks or Trade Dress, and (b) cooperating with SunConnect in the preparation and execution of any documents necessary to record this Trademark License with the appropriate trademark authorities. SunConnect shall reimburse NP for the reasonable costs associated with providing such assistance, except to the extent that any such costs result from a breach of this Agreement by NP, NP shall not commence any action regarding the Sun Trademarks or Trade Dress without SunConnect's prior written consent. 15.7 Disclaimer Of Warranties By SunConnect. SUNCONNECT MAKES NO WARRANTIES OF ANY KIND RESPECTING THE SUN TRADEMARKS OR TRADE DRESS, INCLUDING THE VALIDITY OF SUN'S RIGHTS IN THE SUN TRADEMARKS OR TRADE DRESS IN ANY COUNTRY, AND DISCLAIMS ANY AND ALL WARRANTIES RELATING TO THE SUN TRADEMARKS AND TRADE DRESS THAT MIGHT OTHERWISE BE IMPLIED BY APPLICABLE LAW 15.8 * "Confidential portion has been omitted and filed separately with the Commission." 12 16.0 PROGRAMS AND SERVICES 16.1 POU/DTS Program. The parties will negotiate in good faith to develop with NP a POU/DTS Program. Such program shall be designed to supply SunConnect with OEM Product(s) that meets established quality levels and eliminate incoming inspection. 16.2 Just In Time Delivery Program. The parties will negotiate in good faith to develop with NP a Just In Tune delivery program ("JIT"). Such JIT shall be designed to supply SunConnect with the OEM Product(s) at the time at which SunConnect requires such OEM Product(s) so as to reduce the inventory which SunConnect is required to retain in order to meet its production needs. 16.3 Electronic Data Interchange (EDI) Program. Should SunConnect and NP enter into an EDI Program which is designed to allow SunConnect and NP to transmit electronically all data and information necessary to conduct business between the two companies, it shall be pursuant to the terms and conditions set forth in Exhibit P. 16.4 Score Card Criteria. The Score Card is a measurement tool used to rate NP's overall performance, including, but not limited to, quality, delivery, technology, price and service. NP acknowledges that, at SunConnect's option, NP may be evaluated in accordance therewith and agrees to cooperate with SunConnect in this process. A copy of SunConnect's Score Card criteria and a sample of the ScoreCard has been provided to NP. 16.5 Co-Marketing. The parties may enter into agreements regarding co-marketing of the OEM Products. 17.0 SAFETY COMPLIANCE AND STANDARDS 17.1 Specification. NP warrants that each OEM Product delivered to SunConnect will meet the requirements of Section 1.4 (Compliance with standards) of Exhibit A-1 throughout the Term. Design changes on OEM Products which affect compliance status, and design changes which may be required due to a change in the compliance standards, shall be submitted by NP for reapproval at NP's cost. NP shall provide confirmation of such approvals to SunConnect's Administrator or Administrator's designee within thirty (30) days after execution of this Agreement or receipt of approval, as applicable. Such approvals must specifically identify the OEM products as SunConnect products. 17.2 Applicable Law. NP warrants and represents that OEM Products comply with all applicable federal, state, administrative and foreign laws, statutes and regulations for all countries to which NP distributes its products. NP agrees to notify SunConnect of any post-sale warnings, retrofits or recalls which NP implements with respect to any of the OEM Products. 17.3 ISO Certification. NP will use its best efforts to become ISO 9001 certified within 18 months from the Effective Date of this Agreement, and to remain ISO - certified throughout the term of this Agreement. 13 18.0 DISCONTINUED PRODUCTS 18.1 Product Discontinuance by NP. NP will not discontinue any of the OEM Products during the Initial Term of this Agreement without the prior written consent of SunConnect's Administrator. During any renewal term, NP may discontinue the manufacture and sale of an OEM Product upon six (6) month's prior written notice to SunConnect, so long as NP does not sell such OEM Product to any other of its customers after it stops selling such OEM Product to SunConnect. Within sixty (60) days after receipt by SunConnect of written notice of such discontinuance ("Notice Date"), SunConnect may place and NP shall accept a binding. non-cancelable written commitment for such discontinued OEM Product for delivery over a one (1) year period following the Notice Date. OEM Products to be delivered during this one year period may be rescheduled as specified in Section 14.1, provided that no OEM Product may be rescheduled for delivery after the first anniversary of the Notice Date. Discontinuance of any OEM Product shall also be subject to the provisions of Section 19 of this Agreement. 18.2 Component Discontinuance by NP's Vendors. If NP learns that any of the components in an OEM Product is being discontinued and cannot be replaced with a component with similar functionality at the same or lesser cost, then NP shall notify the SunConnect Administrator. NP will use all reasonable commercial efforts to develop an appropriate solution, subject to SunConnect's reasonable approval. 18.3 Product Discontinuance by SunConnect. SunConnect may discontinue any OEM Product on six (6) months notice to NP. 19.0 * "Confidential portion has been omitted and filed separately with the Commission." 14 20.0 PROPRIETARY INFORMATION 20.1 Duty of Non-Disclosure. Each party shall, at all times during the term of this Agreement and for five (5) years thereafter, keep in confidence and trust all of the other's Proprietary Information disclosed to it and shall not use such Proprietary Information other than as permitted under the terms of this Agreement, nor shall either party disclose Proprietary Information of the other to any third party except as permitted hereunder without the prior written consent of the disclosing party. Both parties acknowledge that information disclosed orally and announced at the time of such disclosure which is specific to the design and properties of the SunLink Source Code and the Escrow Materials (as defined in Section 19.4) shall be considered Proprietary Information without the need for a subsequent writing summarizing the contents of the disclosure. 20.2 Standard of Care. Each party shall use the same standard of care to prevent disclosure of the Proprietary Information of the other party which it uses to safeguard its own valuable confidential information and/or trade secrets, and in no event km than a reasonable degree of care for such information; provided, however, that neither party shall be liable for any inadvertent or unauthorized disclosure of Proprietary Information occurring if it exercises at least the standard of care set forth above to prevent disclosure and takes reasonable steps to mitigate any damage and prevent further disclosure. Each party shall promptly notify the other if it becomes aware that the other party's Proprietary Information has been or is likely to be disclosed without authorization under this Agreement. 20.3 Advising Employees. Each party dull inform its employees having access to the Proprietary Information of such party's limitations, duties and obligations regarding non-disclosure and copying of the Proprietary Information and shall obtain their agreement, whether by means of existing or new agreements, to comply with those limitations, duties and obligations. 15 20.4 Exceptions. Notwithstanding any provisions herein concerning non-disclosure and non-use of the Proprietary Information, neither party shall have any obligations concerning the disclosure or use of any such information which: (a) is already known to receiving party other than by previous disclosure under an obligation of confidentiality; (b) is or becomes publicly known through publication, inspection of product or otherwise and through no wrongful act of the receiving party, (c) is received from a third party without similar restriction and without breach of this Agreement, (d) is disclosed or released for disclosure by the disclosing party to others without restriction, (e) is disclosed in accordance with the specific written approval of the disclosing party; or (f) has been independently developed by the receiving party. 20.5 Disclosure Required by Law. Either party may disclose any Proprietary Information to the extent necessary to comply with any law, regulation or other governmental requirement provided that such party previously notifies the other party so that it may take appropriate protective measures. 20.6 Future Development. Each party to this Agreement understands that the party receiving Proprietary Information may now or in the future be developing proprietary information internally, or receiving proprietary information from third parties in confidence that may be similar to disclosed Proprietary Information. Accordingly, nothing in this Agreement shall be construed as a representation or inference that the receiving party will not develop products, for itself or others, that compete with the products, processes, systems or methods contemplated by the disclosed Confidential Information. 20.7 Inventions. a. All discoveries. improvements and inventions conceived or first reduced to practice, as those terms are used before the U.S. Patent and Trademark Office, in the performance of this Agreement ("Inventions") by SunConnect's personnel shall be the sole and exclusive property of SunConnect and SunConnect shall retain any and all rights to file any patent applications thereon. All Inventions of NP's personnel shall be the sole and exclusive property of NP and NP shall retain any and all rights to file any patent applications thereon. b. * "Confidential portion has been omitted and filed separately with the Commission." c. The provisions of this Section 20.7 regarding rights of ownership * "Confidential portion has been omitted and filed separately with the Commission.", sharing of expenses and licenses shall also apply to work of the parties and results obtained with respect to copyrightable subject matter, mask work rights and trade secrets. 21.0 * "Confidential portion has been omitted and filed separately with the Commission." 16 22.0 INSURANCE. During the term of this Agreement, NP, at its sole cost and expense, shall carry and maintain Commercial General Liability Insurance with an "A" rated company or companies insuring NP, its agents, employees or associates covering all operations of NP including, but not limited to, Products/Completed Operations and Blanket Contractual Liability specifically covering the indemnification provisions in Section 21.0, against claims for personal and bodily injury and property damage with a combined single limit of $2,000,000. 23.0 WARRANTY. 23.1 Non-Infringement. NP hereby warrants that: (i) has the right and power to enter into this Agreement and to grant the rights and licenses granted to SunConnect hereunder; and (ii) the OEM Products will not infringe any patent, copyright, trade secret or other intellectual property right of any third party. 23.2 Product Warranty. NP warrants that all OEM Products delivered hereunder are new, unused and will perform in accordance with the Documentation, and will achieve any function described therein, will be free from defects in design, material and workmanship and will substantially 17 comply with the requirements of this Agreement for a period of * "Confidential portion has been omitted and filed separately with the Commission." from the date of acceptance by SunConnect of OEM Products. When any OEM Products do not meet the foregoing warranty, and SunConnect or its Service Providers so notifies NP in writing within the warranty period, NP will repair or replace the OEM Product as quickly as possible, but in no event later than twenty (20) days after receipt of notification or as otherwise agreed to between the parties. NP shall have no obligation hereunder to make repairs or cause replacements required through normal wear and tear. 23.3 Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS AGREEMENT, NP MAKES NO ADDITIONAL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED. NO PERSON IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION ON NP'S BEHALF CONCERNING THE PERFORMANCE OF THE OEM PRODUCTS OTHER THAN AS PROVIDED IN THIS AGREEMENT. 24. TERM AND TERMINATION 24.1 Term. Subject to the provisions of Section 24.1 ("Assignment"), this Agreement shall commence on the Effective Date and shall continue for * "Confidential portion has been omitted and filed separately with the Commission." ("Initial Term"), and thereafter this Agreement shall be automatically renewed for additional one (1) year periods unless either party gives written notice of termination at least sixty (60) days before any anniversary of the execution date after the end of the Initial Term or unless sooner terminated in accordance with the provisions hereof (the "Term"). 24.2 Termination by Either Party. Either party may, by written notice, and/or suspend its performance under this Agreement, or cancel any purchase hereunder without penalty, if the other party: a. fails to comply with any of the material terms and conditions of this Agreement, the other party may terminate this Agreement upon thirty (30) days' written notice to the defaulting party specifying any such breach, unless within the period of such notice, all breaches specified therein shall have been remedied or, for breaches which by their nature require more than thirty (30) days to remedy, the parties shall have agreed upon a plan for the defaulting party to remedy such breaches. b. becomes bankrupt, becomes the subject of any proceedings seeking relief or reorganization which are not stayed within 60 days, or makes an assignment for the benefit of creditors. 24.3 Negotiation of Disputes. Both parties agree to negotiate in good faith the settlement of any dispute that may wise under this Agreement. Pending negotiations toward settlement of any dispute, NP agrees to continue to develop, fabricate, and deliver OEM Products under the terms of this Agreement and SunConnect agrees to make payments on invoices due in accordance with Section 12. 24.4 Effect of Termination. If this Agreement is terminated for NP's default, SunConnect may, at its sole option require NP to transfer title and to deliver to SunConnect, in the manner and to the extent directed by SunConnect, (i) all completed OEM Products not yet delivered and (ii) any partially completed OEM Products and materials that NP has produced or acquired for the performance of the terminated portion. Payment for OEM Products and materials delivered to and accepted by SunConnect under this Section will be at a price (not to exceed the contract price) agreed upon by NP and SunConnect. 18 24.5 No Damages for Termination. Neither party shall have the right to recover damages or indemnification of any nature, whether by way of lost profits, expenditures for promotion, payment for goodwill or otherwise made in connection with the business contemplated by this Agreement, due to the expiration or permitted or lawful termination of this Agreement. EACH PARTY WAIVES AND RELEASES THE OTHER FROM ANY CLAIM TO COMPENSATION OR INDEMNITY FOR TERMINATION OF THE BUSINESS RELATIONSHIP UNLESS SUCH TERMINATION IS IN BREACH OF THIS AGREEMENT. 25.0 LIMITATION OF LIABILITY. EXCEPT FOR DAMAGES ARISING UNDER SECTION 21 * "Confidential portion has been omitted and filed separately with the Commission.", IN NO EVENT WILL EITHER SUNCONNECT OR NP BE LIABLE TO THE OTHER FOR THE OTHER'S SPECEAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. 26.0 RELATIONSHIP OF PARTIES. Neither party shall have, or shall represent that it has, any power, right or authority to bind the other party, or to assume or create any obligation or responsibility, express or implied, on behalf of the other party or in the other party's name. Nothing stated in this Agreement shall be construed as constituting NP and SunConnect as partners, joint venturers, or as creating the relationships of employer and employee, franchiser and franchisee, master and servant, or principal and agent. 27.0 PUBLICITY. Neither party shall publicize or disclose the existence or terms and conditions of this Agreement, or any transactions hereunder, without the express, prior written consent the other party, except as required by applicable law or regulation. 28.0 ADMINISTRATION. SunConnect and NP shall, each assign a primary and secondary individual to administer this Agreement throughout its term. Each party shall inform the Administrator of the other in writing of a change of Administrator or such Administrator's address or telephone number. SunConnect's Administrators shall be: PRIMARY ADMINISTRATOR Michael Hutchings SunConnect Technology Enterprises, Inc. 2475 Garcia Avenue, M/S MTV 14-40 Mountain View, CA 94043 Ph: (415) 336-1005 Fax: (415) 336-3156 SECONDARY ADMINISTRATOR Philippe Monot Sun MicroSystems, Inc. 32, chemin du Vieux Chene 38240 MEYLAN FRANCE Ph: (011) 33.76.41.42.43 Fax: (011) 33.76.41.42.41 NP's Administrators shall be: PRIMARY ADMINISTRATOR Mitch Strobin Network Peripherals, Inc. 19 Milpitas, Ca. 95035 Ph: (408) 321-7300 Fax: (408) 321-9218 SECONDARY ADMENISTRATOR William F. Kelly Network Peripherals Inc. Milpitas, Ca. 9503 Ph: (408) 321-7300 Fax: (408) 321-9218 29.0 GENERAL. 29.1 Entire Agreement. This Agreement and all of its referenced Exhibits, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersede all prior proposals, negotiations and communications, oral or written, between the parties with respect to the subject matter hereof. No deviation from these provisions shall be binding unless in writing and signed by an authorized representative of the party to be charged. 29.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and wholly to be performed in California by residents of California. The parties specifically agree that the 1980 United Nations Convention on the International Sale of Goods shall not apply to this Agreement. The parties agree that the exclusive jurisdiction and venue of any action between the parties arising out of this business relationship, including disputes that may arise following termination of this Agreement, shall be the Superior Court of California for the County of Santa Clara or the United States District Court for the Northern District of California and each of the parties hereby submits itself to the exclusive jurisdiction and venue of such courts for purposes of such action. 29.3 Assignment. The rights, duties and obligations either party under this Agreement may not be assigned in whole or in part by operation of law or otherwise without the prior express written consent of the other party, which consent shall not be unreasonably withheld, and any attempted assignment of any rights, duties or obligations hereunder without such consent shall be null and void, except that SunConnect may assign its rights and obligations without NP's consent, to a corporation or other entity which is controlled by, under common control with, or controls SunConnect Microsystems, Inc. This Agreement shall be binding on the parties and their respective successors and permitted assigns. 29.4 Notices. Any notice required or permitted to be given under this Agreement shall be given in writing and shall be deposited, postage prepaid, certified mail return receipt requested, in the United States mail, addressed to SunConnect or NP as the case may be, at the address set forth above or at such other address as may be given in writing. 29.5 Waivers, Severability. All rights and remedies conferred under this Agreement or by any other instrument or law shall be cumulative and may be exercised singularly or concurrently. Failure by either party to enforce any provision shall not be deemed a waiver of future enforcement of that or any other provision. In the event that any portion of this Agreement shall be held to be unenforceable, the remaining portions of this Agreement shall remain full force and effect. 29.6 Force Majeure. Neither party shall be liable for any delay or failure in performance hereunder caused by acts of God or other cause beyond the parties control and without fault or negligence of such party. In the event NP fails to deliver OEM Product due to such causes, SunConnect may suspend this Agreement in whole or in part for the duration of the delaying cause, and at SunConnect's option, buy the OEM Product(s) elsewhere and deduct from any milestone or commitment to NP the quantity so purchased. NP shall resume performance under this Agreement immediately after the delaying 20 cause ceases and, at SunConnect's option, extend the Initial Term and/or Term for a period equivalent to the length of time the excised delay endured. 29.7 Survival. Notwithstanding the termination or expiration of the term of this Agreement or any renewal period thereof, it is acknowledged and agreed that those rights and obligations which by their nature are intended to survive such expiration or earlier termination shall survive including, without limiting the foregoing, Sections 15.7, 15.8, 20, 21, 23, 25, and 29. 29.8 Exhibits. The following is the list of Exhibits which are attached hereto and incorporated herein by this reference as if set forth in full: Exhibits A, A-1 and A-2: Product Specification A-3 Pre-FCS Quality Assurance Plan A-4 BOM B. Development Schedule C. Sun-Unique Elements D. * "Confidential portion has been omitted and filed separately with the Commission." E. Support * F. Procedures for Board Replacement (In and out of warranty) G. [This Exhibit does not exist] H. [This Exhibit does not exist] I. * "Confidential portion has been omitted and filed separately with the Commission." J. Quality Systems Manual K.-1 Inbound/Outbound Packaging Requirements * K-2 Engineering Specification for Part Identification Label * - K-3 Corporate Shipping Container Graphics Guideline * K-4 Shipping Carton Color Standard * K-5 Specification for A SunConnect Color SunConnect Medium Purple * K-6 Routing Guide * L. [This Exhibit does not exist] M. List of SunConnect Suppliers from whom NP can purchase 21 N. Pricing and Leadtimes 0. Shipping Reports R EDI * Q. Information Required for Contingent Manufacturing IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. Accepted for SunConnect: Accepted for NP: SUN TECHNOLOGY ENTERPRISES, INC. NETWORK PERIPHERALS INC. BY: ____________________________ BY: ________________________ NAME: ____________________________ NAME: ________________________ TITLE: ____________________________ TITLE: ________________________ DATE: ____________________________ DATE: ________________________ 22 Exhibit A: SunLink FDDI/S3.x Product Specifications ______________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." Exhibit A-1: SunLink FDDI/S3.0 Product Specifications ______________________________________________________ This document defines the SunLink FDDI/S 3.0 product line. Please refer to the exhibit A for general description of the product line. A more detailed specification is given below. * "Confidential portion has been omitted and filed separately with the Commission." Exhibit A-2: SunLink FDDI/S3.1 Product Specifications ______________________________________________________ This document defines the SunLink FDDI/S 3.1 product line. Please refer to the exhibit A for general description of the product line and to the exhibit A-1 for general description of the SunLink FDDI/S 3.0 products. As a general policy, the SunLink FDDI/S 3.1 products are a superset of the SunLink FDDI/S 3.0 products. All the hardware, driver, compatibility, performance, security, compliance, packaging, documentation, etc., features described in the SunLink FDDI/S 3.0 specifications are applicable to the SunLink FDDI/S 3.1 products. This document only describes new additional features which may not be included in the SunLink FDDI/S 3.1 products. All the functionalities described in this specification are already described as optional features in the SunLink FDDI/S 3.0 specification. Therefore, they may already be included in the SunLink FDDI/S 3.0 products. Depending on the number and the importance of the features which are not included in the SunLink FDDI/S 3.0 products and remain to be implemented, SunConnect may decide not to require the release of the SunLink FDDI/S 3.1 product line. * "Confidential portion has been omitted and filed separately with the Commission." Exhibit A-3: SunLink FDDI/S3.x Pre-FCS Quality Assurance Plan ______________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT A-4 FDDI/S 3.0 PRODUCT DEFINITION for OEM Products including Derivative Products * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B: SunLink FDDI/S 3.x Development Schedule and Deliverables ______________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." Exhibit C: SunLink FDDI/S3.x Sun Unique Elements ______________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT D * "Confidential portion has been omitted and filed separately with the Commission." SCHEDULE D-1 * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT E SUPPORT REQUIREMENTS 1. DEFINITIONS 1.1 "Supported Products" means the SunLink FDDI/S v. 1.0 and 2.0 (both software and hardware components) and the OEM Products. 1.2 "Enhancement Release" means a hardware or software product which typically includes incremental improvements to a product's functionality or performance. An Enhancement Release is generally characterized by a single digit change to the right of the decimal point (tenths) of an existing version of a software product, i.e., X.(X).X. 1.3 "Escalation" means a bug, error or other problem with the Supported Products that is referred by SunConnect to NP. Escalations are rated according to their severity (urgency for response) as follows: o Meltdown/Priority 1 Escalations are problems which require an immediate response, such as the customer's system being down. o Hot/Priority 2 Escalations are problems which require a very prompt but not an immediate response, such as the customer's system being operational but with significant degradation or loss of features. o Warm/Priority 3 Escalations are problem which do not require as immediate or prompt a response as Meltdown/Priority 1 or Hot/Priority 2 Escalations because they have a less severe impact on the customer. 1.4 "Maintenance Release" means a release of a software product or component typically to correct errors to enable the product or component to meet its published functionality. A Maintenance Release is usually developed to incorporate error corrections and/or patches. A Maintenance Release is typically characterized by a change in the digit to the extreme right of the decimal point (hundredths) of an existing version of a software product, i.e., X.X.(X). 1.5 "Services" means the on-call support, escalation management, problem determination, maintenance and other software support services. 1.6 "Workaround" means a method a customer can use to avoid a problem. Provides a customer with short term approach to dealing with known problems. 2. NP SUPPORT OBLIGATIONS 2.1 On-Call Support and Escalation Management. Escalations will be referred to NP only by the SunConnect designated contact person(s). NP shall provide engineering support for Supported Products and shall have available sufficient trained and qualified support engineers to perform Services within the response times set forth as follows:
- -------------------------- -------------------------- ------------------------- --------------------------- SunConnect Callback; NP Engineer Assigned; Fix, Workaround, or Initial action Plan to Long-Term Action Plan Call Priority SunConnect Status Reports to SunConnect - -------------------------- -------------------------------------------------------------------------------- 1 * "Confidential portion has been omitted and filed separately with the Commission." - -------------------------- -------------------------------------------------------------------------------- 2 * "Confidential portion has been omitted and filed separately with the Commission." - -------------------------- -------------------------------------------------------------------------------- 3 * "Confidential portion has been omitted and filed separately with the Commission." - -------------------------- --------------------------------------------------------------------------------
Days and hours shall be measured according to continuous business hours. Defined as: Monday through Friday; 8:00 am to 5:00 pm Pacific Time, excluding US nationally recognized holidays. NP shall meet response time requirements for at least 90% of calls or reports from SunConnect. EXHIBIT E (con't) 2.2 Support Information Access: The SunConnect Contact Person will be responsible for assigning Escalations to NP and for providing NP with appropriate background information related to such Escalations. Such information may include prior analysis or traces performed on the problem, and any relevant bug track entries. All requests by NP for additional information relating to a particular Escalation shall be addressed to and responded to by SunConnect's Contact Person or such other person as may be designated by SunConnect. 2.3 Problem Determination. NP is responsible for (i) determining the nature and cause of an Escalation; and (ii) creating a problem/solution synopsis for each Escalation. The initial action plan shall include the responsible engineer assigned, results of the initial investigation, verifying that it is a bug and a fix/workaround will be provided, what will be the next steps taken, when a fix/workaround and update will be provided. 2.4 Workarounds. NP shall attempt to provide Workarounds wherever appropriate in response to Escalations until a Modification can be created. Appropriate documentation/integration notes are required. Information regarding Workarounds shall be submitted by NP to SunConnect. 2.5 Error Corrections/Patches. NP shall use reasonable efforts to create Patches to fix Supported Product defects and test and integrate any such fix in a format acceptable to SunConnect. NP shall provide Patches to SunConnect in an object code master copy for duplication and distribution. NP will maintain a copy of all Patches and problem workarounds produced and will make backup tapes containing all then current source and patch directories for the Supported Products available for inclusion into the Escrow Account. 2.6 Transfer of Responsibility. If ongoing support will be provided by someone other than NP, NP agrees to make reasonable efforts to notify SunConnect to preliminary details of the transition agreement a minimum of 90-days in advance of the transaction of SunConnect to verify the new owner is prepared to assume the responsibility. NP shall make best efforts to address issues that impact SunConnect's support operations. 2.7 * "Confidential portion has been omitted and filed separately with the Commission." 2.8 * "Confidential portion has been omitted and filed separately with the Commission." 2.9 Inability to Support FDDI 1.0 and 2.0. If, after the diligent exercise of all reasonable commercial efforts NP is unable to provide support, workarounds; or spares for SunLink 1.0 or 2.0 products, then NP may notify SunConnect's Administrator and shall provide SunConnect with all information relating to the problem and NP's efforts to resolve such problem. Upon receiving the required notice and information from NP, SunConnect shall assume responsibility for developing a solution, with NP's reasonable assistance. EXHIBIT E (con't) 3. TRAINING AND CONSULTATION 3.1 Transfer of Information (TOI). This Section 3.1 shall not apply to Maintenance Releases. For each new Enhancement Release, NP shall ensure SunConnect receives Transfer of Information (TOI) ten (10) weeks prior to product release. The Initial TOI will be completed by FCS Code Freeze. NP shall offer one train-the-trainer session at a central SunConnect designated facility, and agrees to videotape the session for SunConnect duplication and distribution. The Initial TOI will be ready within seven (7) days following FCS Code Freeze. Content of the TOI must include the following to a sufficient level of detail: Product Overview Features Limitations File Descriptions External Specification (Functional Spec) Theory of Operation - detail of installation, configuration Walk through of product install, config, deinstall Troubleshooting/Diagnostics Known Bugs Common User Errors Troubleshooting tools and Diagnostic techniques Support Center requirements Recommended Support Strategy 3.2 Customer Training. Upon SunConnect's specific request and with NP's agreement, NP shall be available to participate in training of SunConnect's distributors and resellers in providing support services for the Supported Products. Such training may include both creating and conducting training programs. 3.3 Responses to Questions. NP shall answer technical questions on the Supported Products from SunConnect's "support" alias, or other such restricted access aliases for support purposes. Until NP is provided access to such aliases SunConnect shall monitor such aliases and provide NP the questions that require answers. NP agrees to use reasonable commercial efforts to meet such response time guidelines that might exist for such aliases. Upon SunConnect's specific request, NP agrees to assist, as appropriate, in responding to technical questions from Sunconnect's other aliases for the Supported Products, including without limitation questions received via the "net amb" and "fddi-interest" email aliases. 4. NEW OEM PRODUCT RELEASE SUPPORT DELIVERABLES 4.1 Support Deliverables. This Section 4.1 shall not apply to Maintenance Releases nor to the initial release of the OEM Products. For each new Enhancement Release of the OEM Products, NP shall ensure that support deliverables are provided to SunConnect within the time frame required to ensure support readiness at product introduction: Deliverable: Weeks Prior to FCS: Product/Doc Evaluation Copy * "Confidential Product/Structure Information portion has been Business Information & TOI Information omitted and filed Electronic copy of SW/Docs separately with the Commission." EXHIBIT E (con't) 5. FDDI/S 1.0 and 2.0 Support 5.1 Level of Support. NP shall provide hardware and software support for the FDDVS 1.0 and 2.0 products to the extent of Maintenance Releases only. NP shall not be required to manufacture or make substantial changes to the hardware. If hardware changes are required and SunConnect requests NP to manage the change process then SunConnect will be responsible for all SunConnect approved expenses incurred by NP. 5.2 Platforms Supported. The following system platforms shall be supported: * "Confidential portion has been omitted and filed separately with the Commission." 5.3 Operating Systems Supported. The following Sun Operating Systems shall be supported: * "Confidential portion has been omitted and filed separately with the Commission." Exhibit F _________________________________________________________________ Network Peripherals Out of Warranty Repair Policy 1 Hardware Service Details 1 Network Peripherals reserves the right to change any portion of this policy in the future. 2 Network Peripherals will update records to reflect the shipment of a replacement product. In this case the * "Confidential portion has been omitted and filed separately with the Commission." warranty will be in effect for the replacement product. 3 International deliveries will be via the standard service available through the current carrier. EXHIBIT I NETWORK PERIPHERALS INC. SOURCE CODE LICENSE AGREEMENT * "Confidential portion has been omitted and filed separately with the Commission." Exhibit N: Pricing and Lead Time (all prices in US dollars) ________________________________________________________________________________ 1. Standard OEM Products * "Confidential portion has been omitted and filed separately with the Commission." 2. Derivative Products * "Confidential portion has been omitted and filed separately with the Commission." Exhibit N: Pricing and Lead Time (all prices in US dollars) ________________________________________________________________________________ 3. Lead-time for Standard OEM Products will be * "Confidential portion has been omitted and filed separately with the Commission." 4. Flexibility of increases to Standard OEM Product orders. Table 3 Lead-time vs. % Increase --------------------- --------------------- Lead-time Max. % Increase --------------------- --------------------- 12 weeks + * "Confidential 8 to 12 weeks portion has been 6 to 8 weeks omitted and filed 4 to 6 weeks separately with the 0 to 4 weeks Commission." --------------------- --------------------- 5. Support of SunConnect's 1.0 and 2.0 FDDI Sbus product line. * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT O SHIPPING REPORTS A. NP shall provide the appropriate SunConnect materials management personnel (as identified by the SunConnect Administrator) with the following reports. 1. Weekly Performance Against Schedule ("PAS") Reports on the first business day of each week, even if there has not been any change in the information since the last PAS Report. The PAS Report shall include the information specified below. A. Product Information. Open purchase orders and line numbers, SunConnect's manufacturing part numbers, order date, open quantity, balance due and order status. B. Shipping Information. Agreed Delivery Dates, actual ship dates, date of arrival, shipping method, and airbill or bill of lading number, if possible. 2. Outbound Shipment Report within twenty-four (24) hours of the date of any shipment of OEM Products to SunConnect. The Outbound Shipment Report shall include the information specified below. A. Product Information. Purchase order and line numbers, part number, quantity B. Shipping Information. Airbill or bill of lading number, carrier, expected delivery date, and name of contact person at NP to contact B. The parties will work together to develop a prototype form of monthly summary report prior to shipment of the beta version of the OEM Products, and a final form of monthly summary report prior to FCS of the OEM Products. EXHIBIT P ELECTRONIC DATA INTERCHANGE TRADING PARTNER 1.0 Definitions. For the purposes of this Exhibit, the following definitions shall apply: 1.1 "EDI" means electronic data interchange. 1.2 "Transaction Set" is the collection of data that is exchanged in order to convey meaning between the parties engaged in EDI 1.3 "Third Party Network Service Provider" or "Provider" is a business entity that provides the service of moving and routing EDI transmissions between trading partners. 1.4 "Enhanced Security" is a process for providing additional security, beyond what is offered by the Provider, that the trading partners may agree to use. 1.5 "Transaction Set Control Number" or "Header Control Number" is an identifying number in the beginning of a Transaction Set that can be referenced in exchanging information. 1.6 "Transaction Set Control Number" or "Trailer Control Number" is an identifying number at the end of a Transaction Set that must have a corresponding Header Control Number. 1.7 "Functional Group" is a group of similar Transaction Sets that is bounded by a Functional Group header arid a Functional Group trailer. 1.8 `Interchange Control Number' is an identifying number that is contained in the interchange header and trailer and that is used by the receiving party to acknowledge receipt of this inter-change header and trailer. 1.9 "Data Interchange Control Number" is an identifying number that is contained in the Functional Group header segment and Functional Group trailer segment and is used by the receiving party to acknowledge receipt of a Functional Group to the sending party. This Data Element in the header and trailer segments provides the control information needed by the trading partners associated with the exchange of Functional Group information. 1.10 "Data Element" is the smallest named unit of information in the Transaction Set. 1.11 "Segment" or "Data Segment" is an intermediate unit of information in a Transaction Set. Segments are defined in the segment directory. The segment directory defines each Segment by its name, purpose and identifier. 1.12 "Line Item" is a Data Element in the Transaction Set that is used to provide a specific type of Hash Total. 1.13 "Hash Total" is the sum of values of a specific Data Element. 1 2.0 Prerequisites. 2.1 Documents, Standards. Each party may electronically transmit to or receive from the other party any of the Transaction Sets listed in Exhibit P-1 and Transaction Sets which the parties, by written agreement, add to said Exhibit. All Transaction Sets shall be transmitted in accordance with the standards set forth in Exhibit P-1. Any transmission of data which is not a Transaction Set shall have no force or effect between the parties. Precise procedures to be used in handling Transaction Sets are incorporated in Exhibit P-1. These procedures include assignment of confidential and unique access codes for each party which will then be used to authenticate each Transaction Set, along with such other matters as the parties consider appropriate. 2.2 Third Party Network Service Providers. Transaction Sets will be transmitted electronically to each party through any Provider with which either party may contract. The Provider for each party is identified in Exhibit P-1. Either party may change its designated Provider upon thirty (30) days prior written notice to the other party. Each party shall be responsible for the costs of any Provider with which it contracts. 2.3 System Operations. Each party, at its own expense, shall provide and maintain the equipment, software, services and testing necessary to effectively and reliably transmit and receive documents. If Provider is down and this prevents either party from meeting the pickup or delivery frequency agreed to, that party must notify the other party the same day. 2.4 Security Procedures. Each party shall properly use security procedures which are reasonably anticipated to: (a) ensure that all transmissions of Transaction Sets are authorized and (b) protect its business records and data from improper access. Both parties agree to preserve and safeguard the confidentiality of all data exchanged via EDI, and will not disclose any data to any third party, individual or corporation without the owning party's prior written consent. 2.5 Electronic Signatures. The parties may agree to apply special protection, where permissible, by encryption or by other means, to some or all data exchanged between them. If special protection is required, it will be identified in Exhibit P-1. 3.0 Transmissions. 3.1 Proper Receipt. Transaction Sets shall not be deemed to have been property received, and no Transaction Set shall give rise to any obligation, until accessible to the receiving party at such party's electronic mailbox. 2 3.2 Verification. Upon receipt of any Transaction Set, the receiving party shall promptly and properly transmit a functional acknowledgment in return within one (1) business day after receipt of a Transaction Set. 3.3 Acceptance. An electronic transmission of data shall be deemed complete and a Functional Group accepted, when the receiver of the transmission verifies by functional acknowledgment that: A. The standards specified in Exhibit P-1 are met; B. The actual quantity of Functional Groups, Transaction Sets, Segments, Line Items and Hash Totals received within the transmission equals the quantity the party has identified as being included, using the appropriate control fields specified in Exhibit P-1. 3.4 Garbled Transmissions. If any Transaction Set is received in an unintelligible or garbled form, the receiving party shall promptly notify the originating party (if identifiable from the received Transaction Set) in a reasonable manner. In the absence of such notice, the originating party's records of the contents of such Transaction Set shall control. 3.5 Erroneous Transmissions. If either party receives a Transaction Set from the other party which differs from the applicable terms and conditions, (e.g., an Order with a price, quantity or schedule different than that mutually agreed upon), the receiving party shall promptly contact the sending party to confirm the accuracy of the Transaction Set. 3.6 Faulty Transmissions. In the event either party receives a Transaction Set which contains any evidence of faulty transmission, the receiving party shall contact the sending party, reject the Transaction Set and request that the Transaction Set be re-sent. 4.0 Terms and Conditions. 4.1 Validity, Enforceability. This Exhibit evidences the mutual intent of the parties to create a binding purchase and sale obligation pursuant to the electronic transmission and receipt of documents, specifying certain of the applicable terms. During the term of the Agreement, all obligations concerning the delivery of such Transaction Sets in written form may be fulfilled by a transmission. pursuant to the terms of this Exhibit. However, either party shall have the option, at its discretion, to transmit Transaction Sets in written form to the other party. 3 Any Transaction Set properly transmitted pursuant to this Exhibit, including without limitation Exhibit P-1 ("Signed Documents"), shall be considered. in connection with any transaction, or this Exhibit, to be a "writing" and to have been "signed" and to consume an "original" when printed from electronic files or records established and maintained in the normal course of business. The parties agree that the provisions of the Uniform Commercial Code, Section 2-201 ("Formal Requirements: Statute of Frauds"), shall not apply to Transaction Sets covered by this Exhibit since hard copies of Transaction Sets will not be issued, and the parties further agree that said Transaction Sets shall be deemed to satisfy any statutory or legal formalities requiring that agreements be in writing, including, but not limited to the Statute of Frauds. The conduct of the parties pursuant to this Exhibit, including the use of Signed Documents properly transmitted pursuant to this Exhibit, shall, for all legal purposes, evidence a course of performance accepted by the parties in furtherance of this Exhibit. The parties agree not to contest the validity or enforceability of Signed Documents under the provisions of any applicable law relating to whether certain agreements be in writing and signed by the party to be bound thereby. Signed Documents, if introduced as evidence on paper in any judicial, arbitration, mediation or administrative proceedings, will be admissible as between the parties to the same extent and under the same conditions as other business records originated and maintained in documentary form. Neither party shall contest the admissibility of copies of Signed Documents under either the business records exception to the hearsay rule or the best evidence rule on the basis that the Signed Documents were not originated or maintained in documentary form. 4 EXHIBIT P-1 1.0 Transaction Sets. All Transaction Sets contemplated by this Agreement shall be transmitted and formatted in accordance with the American National Standard Institute Business Data Interchange (ANSI X12) Standard, as reflected in the number, version and date column set forth below beside each Transaction Set. This also includes the data dictionary, segment directory, and transmission controls published as X12 standards. 1.1 Transaction Sets to be transmitted by Seller to Sun. Communication Number Version Date ------------- ------ ------- ---- 1.2 Transaction Sets to be transmitted from Sun to Seller. Communication Number Version Date ------------- ------ ------- ---- 2.0 Providers. All Transaction Sets contemplated by this Agreement will be channeled through Providers. Sun and Seller shall each assign a Provider as follows: 2.1 Sun's Provider. _________________________________ _________________________________ _________________________________ _________________________________ 2.2 Seller's Provider. _________________________________ _________________________________ _________________________________ _________________________________ 3.0 Transmission Requirements. For each Transaction Set, the Header Control Number Data Element must have an identical corresponding value in the Trailer Control Number Data Element for all control Segments as follows: 1 1 The value for the Interchange Control Number contained in Data Element ISA13 for a transmission must equal the value for Data Element IEA02 that is contained in the transmission. 2. The value for the Data Interchange Control Number contained in Data Element GS06 must equal the value for Data Element GE02 that is contained in that Functional Group. 3. The value for the Transaction Set Control Number contained in Data Element ST02 for a Transaction Set must equal the value for Data Element SE02 contained in that Transaction set. In addition, the following requirements must be met: A. The actual quantity of Functional Groups received within the transmission must equal the quantity the trading partner has identified as being included, As contained in the IEA01 Data Element; B. The actual quantity of Transaction Sets received with the transmission must equal the quantity the trading partner has identified as being included, as contained in the GE01 Data Element; C. The actual quantity of Segments included within each Transaction Set must equal the quantity the trading partner has identified as being included, as contained in the SE01 field; D. The actual quantity of Line Items included within each Transaction Set must equal the quantity the trading partner has identified as being included, as contained in the CTT01 field; and E. The Hash Totals contained in the CTT02 field must equal the sum of values as defined in each Transaction Set. 2 Exhibit Q * "Confidential portion has been omitted and filed separately with the Commission." AMENDMENT #1 TO SUN MICROSYSTEMS, INC. DEVELOPMENT AND PURCHASE AGREEMENT Sun Microsystems, Inc. ("Sun") and Network Peripherals Inc. ("NP") hereby agree to amend the Development and Purchase Agreement between them dated 2/25/94 ("Agreement") as follows: 1. SunSoft, Inc., a subsidiary of Sun Microsystems, Inc., hereby transfers administration of the above referenced agreement to Sun Microsystems Computer Company, a division of Sun Microsystems, Inc. 2. All references to "SunConnect" in the Agreement are replaced by "Sun". 3. In all sections, where applicable, reference to "Sunlink FDDI/S" is changed to "Sun FDDI(TM)". 4. In the event of a conflict between the terms and conditions of this Amendment No. 1 and the Agreement as it relates to the OEM Products listed in Exhibit N, this Amendment No. 1 shall take precedence. 5. Reference Section 1.4, 2.3 and 2.4. There are no "Development Deliverables" associated with the OEM Products set forth in Exhibit N. 6. Reference Section 1.11. Sun-unique Elements. Delete reference to "Exhibit C" and substitute "Exhibit G". 7. Reference Section 1.12. For the purpose of this Agreement "Service Providers" shall include "Sun-authorized third party maintainers (TPMs)". 8. In the third line of Section 3.3 after "documents" add "and Sun FDDI documents". 9. Add at the end of Paragraph 5. 1: "In the event of a conflict between the terms and conditions of Exhibits E and R, Exhibit R (Customer Support Provisions) attached hereto and incorporated hereby by this reference. Exhibit R shall take precedence." 10. Delete Paragraph 5.3 in its entirety. 11. Add at the end of Section 8. 1: "NP agrees to comply with the provisions of Exhibit C, Supplier's Quality Program, attached hereto. In the event of a conflict between Exhibit C and any other exhibits regarding quality of the OEM Products, Exhibit C shall take precedence." 12. In the ninth line of Section 8.2 after "(Trademark License)" insert "and Exhibit C". 13. Delete the 4th and 5th sentence of Section 8.3.a in their entirety and substitute the following: "By the release of Sun FDDI 5.0, NP will identify and reach terms with a compact disk manufacturer. Sun will provide the necessary copyright information and product disclaimers to be included. Sun must approve the initial procedures and file organization before CD masters are created. Sun agrees to reimburse Supplier for the costs of CD mastering which are estimated at $2500 to $3000." 14. Delete Section 8.4 in its entirety and substitute the following: "8.4 Copyright Notices. Documentation shall bear copyright notice(s) as provided by Sun." 15. In Section 8.6 after "interconnectability" insert "serviceability". 16. Delete Section 9.3 in its entirety and substitute the following: "9.3 Forecast: Sun shall provide Supplier with a * "Confidential portion has been omitted and filed separately with the Commission." rolling forecast of its intended purchases by the first Monday of each month, with the first * "Confidential portion has been omitted and filed separately with the Commission." broken out by week. Such forecast is for Supplier's convenience only and shall in no way create an obligation on Sun's part to meet such forecast. Sun acknowledges that in order to support the agreed upon leadtime, Supplier may be required to acquire certain unique and/or long lead time materials ("Materials") well in advance of receipt of Sun's purchase orders and to support Sun's forecast. The description of Materials and their respective leadtimes are set forth in Exhibit N-1. Sun's liability for Materials is limited to those conforming materials ordered in the minimum quantities and leadtimes which were strictly necessary to build Product in order to meet Sun's purchase orders and forecast. 17. Delete the last sentence of Section 10.4 and substitute the following: "Sun agrees to respond to NP within ten (10) days after receipt of such notification by Sun's Administrator whether Sun accepts or rejects the price changes." January 16, 1996 ff 1 Network Peripherals, Inc. 18. Delete Section 14.1 in its entirety and substitute the following: "14.1 Rescheduling: Sun may reschedule delivery of all or part of any purchase order, at no charge, to a date after the agreed delivery date as follows: Notice Maximum Reschedule Period Maximum Reschedules 0-30 days * "Confidential portion has been omitted and filed separately with the Commission." 30+ days * "Confidential portion has been omitted and filed separately with the Commission." * "Confidential portion has been omitted and filed separately with the Commission." 19. Delete Section 14.2 in its entirety and substitute the following: "14.2 Cancellation: * "Confidential portion has been omitted and filed separately with the Commission." 20. Delete Section 18.3 in its entirety and replace with " 18.3 Product Discontinuance by Sun. Sun agrees to give NP * "Confidential portion has been omitted and filed separately with the Commission." notice prior to discontinuing an OEM Product. NP shall use its best efforts to control inventory levels and costs during Product phase-out." 21. * "Confidential portion has been omitted and filed separately with the Commission." 22. * "Confidential portion has been omitted and filed separately with the Commission." 23. * "Confidential portion has been omitted and filed separately with the Commission." 24. * "Confidential portion has been omitted and filed separately with the Commission." 25. In the sentence of Section 23.2 delete "twenty (20) days after receipt of notification or as otherwise agreed to between the parties" and substitute "the number of days specified in Exhibit R". 26. In the first line of Section 24 delete "Subject to the provisions of Section 24.1 ("Assignment")". 27. Section 24, Administration. Delete Sun's and NP's Administrators and replace with. "Primary Administrator Secondary Administrator Yoshikazu (Roy) Hirotsuka Flora Ford Sun Microsystems Inc. Sun Microsystems Inc. 2550 Garcia Avenue, UMIL01-120 2550 Garcia Avenue, UMIL01-103 January 16, 1996 ff 2 Network Peripherals, Inc. Mountain View, CA 94041 Mountain View, CA 94041 Ph:(408)276-2186 Ph: (408) 276-3945 Fax: (408) 263-0807 Fax: (408) 263-3592 Meena Bhatia Dane Iverson Gegal Department) Network Peripherals, Inc. Network Peripherals, Inc. 1371 McCarthy Boulevard 1371 McCarthy Boulevard Milpitas, CA 95035 Milpitas, CA 95035 Ph:(408)321-7206 Ph: (408) 321-7300 Fax: (408) 321-9218 Fax: (408) 321-9218" 28. In Section 29.7 add at the end "and Exhibits C and R". 29. Add at the end of Section 29.8: "C - Supplier's Quality Program* G - Sun-Unique Elements N-1 - Pricing and Leadtimes for New OEM Products R - Customer Support Provisions * 30. Add a new Section 29.9 as follows: "29.9 Environment. Consistent with the U.S. Clean Air Act of 1990, Supplier shall use reasonable efforts to give Sun as much notice as is practicable in the event Supplier uses ozone depleting chemicals in the manufacture of the Products. Sun reserves the right to reject any Products manufactured utilizing or containing such materials if Sun has not previously been notified of the same." 31. Exhibit A titled "Sun FDDI SBus Adapter 4.0 Product Specifications" is attached hereto and incorporated herein by this reference. 32. Exhibit C dated November 27, 1995 is attached hereto and incorporated herein by this reference. Exhibit C-1 dated November 29. 1995 is attached hereto and incorporated herein by this reference. 33. Exhibit G-1 dated December 20, 1995 is attached hereto and incorporated herein by this reference. 34. Exhibit F is deleted in its entirety. 35. Exhibit N dated 2/24/94 is deleted in its entirety and replaced by Exhibit N dated November 27, 1995 attached hereto and incorporated herein by this reference. Except as so amended, the Agreement is confirmed in its entirety. SUN MICROSYSTEMS, INC., NETWORK PERIPHERALS INC. acting by and through its division, Sun Microsystems Computer Company BY: __________________________ BY: ____________________________ NAME: __________________________ NAME: ____________________________ TITLE: __________________________ TITLE: ____________________________ DATE: __________________________ DATE: ____________________________ SUNSOFT, INC. BY: __________________________ NAME: __________________________ TITLE: __________________________ DATE: __________________________ January 16, 1996 ff 3 Network Peripherals, Inc. Exbihit A: Sun FDDI Sbus Adapter 4.0 Product Requirements _______________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT C SUPPLIER'S QUALITY PROGRAM * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT C-1 ADDITIONAL CUSTOMER SUPPORT REQUIREMENTS * "Confidential portion has been omitted and filed separately with the Commission." Exhibit G-1: Sun FDDI 4.0 SUN UNIQUE ELEMENTS * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT N Pricing and Leadtime * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT N-1 Materials and Leadtimes * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R Customer Support Provisions * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R-1 NP's Repair Facilities * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R-2 Sun's Repair Depots and TPMs * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R-3 Out of Warranty Repair * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R-4 NTF Charges * "Confidential portion has been omitted and filed separately with the Commission." AMENDMENT #2 TO SUN MICROSYSTEMS, INC. DEVELOPMENT AND PURCHASE AGREEMENT Sun Microsystems, Inc. ("Sun") and Network Peripherals Inc. ("NP") hereby agree to amend the Development and Purchase Agreement between them dated 2/25/94 ("Agreement") as follows: 1. In the event of a conflict between the terms and conditions of this Amendment No. 2 and the Agreement as it relates to the OEM Products listed in Exhibit N-2, this Amendment No. 2 shall take precedence. 2. Reference Section 1.4, 2.3 and 2.4. There are no "Development Deliverables" associated with the OEM Products set forth in Exhibit N-2. 3. Within thirty (30) days after execution of this Amendment No. 2, NP will deliver all materials described in 19.2 related to SunFDDI 5.0 to Sun's designated Escrow Agent. 4. In Section 24, Administration, change Sun's primary administrator to: "Mayita Sanchz Sun Microsystems, Inc. 2550 Garcia Avenue, UMIL01-118 Ph: (408) 276-2797 Fax: (408) 945-6498" 5. Exhibit A-1 titled "SunFDDI 5.0 Product Specification", Sun Part Number * "Confidential portion has been omitted and filed separately with the Commission.", is attached hereto and incorporated herein by this reference. 6. In Exhibit C, Section 2.0. insert the following after the headings indicated: * "Confidential portion has been omitted and filed separately with the Commission." 7. Exhibit F dated 4/1/93 is deleted in its entirety. 8. Exhibit G, SunFDDI 5.0 Sun Unique Elements is attached hereto and incorporated herein by this reference. 9. Exhibit N-1 dated January 18, 1996 is deleted in its entirety and replaced by Exhibit N-1 dated September 18, 1996 10. Exhibit N-2 dated November 11, 1996 is attached hereto and incorporated herein by this reference. 11. Exhibit R-3 dated December 5, 1995, is deleted in its entirety and replaced by Exhibit R-3 dated October 3, 1996 attached hereto. Except as so amended, the Agreement is confirmed in its entirety. SUN MICROSYSTEMS, INC., NETWORK PERIPHERALS INC. BY: __________________________ BY: ____________________________ NAME: __________________________ NAME: ____________________________ TITLE: __________________________ TITLE: ____________________________ DATE: __________________________ DATE: ____________________________ November 11, 1996 ff 1 Network Peripherals, Inc. Sun FDDI 5.0 Product Specification Exhibit A-1 _________________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." Sun FDDI Sbus Adapter 5.0 Product Requirements __________________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." Exhibit G: Sun FDDI 5.0 Sun Unique Elements __________________________________________________________ * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT N-1 Materials and Leadtimes * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT N-2 Pricing and Leadtime * "Confidential portion has been omitted and filed separately with the Commission." Exhibit R-3 Out of Warranty Repair * "Confidential portion has been omitted and filed separately with the Commission." EX-10.30 3 CORPORATE SUPPLY AGREEMENT Corporate Supply Agreement This Agreement is made on and as of the 31st day of March, 1997 by and between Sun Microsystems, Inc. a Delaware corporation, with offices at 2550 Garcia Ave., Mountain View, CA 94043 (herein "Sun") and Network Peripherals, Inc., a California corporation, with offices at 1371 McCarthy Boulevard, Milpitas, CA 95035 (herein "Supplier"). WHEREAS Supplier is a seller of certain component parts, materials or finished goods, and WHEREAS Sun is a manufacturer of computing devices and platforms that incorporate such component parts, materials and finished products, and WHEREAS Sun and Supplier desire to establish and agree upon a set of terms and conditions that will apply to the purchase of Supplier's products by Sun. NOW THEREFORE in consideration of the mutual promises and undertakings of the parties hereto the parties agree as follows: 1. Definitions: Award Letter shall mean that document delivered by Sun to, and accepted by, Supplier setting out the particular commitments of the parties with respect to specific Products, prices, Product Leadtimes, and other terms relative to the purchase of specific Products, but shall not constitute a contract for the purchase of any particular quantity of Product. Leadtime shall mean the number of days, or fractions thereof, from placement of a Purchase Release to the date of delivery to the F.O.B. point. Leadtimes shall be set out in the Award Letter. Notice shall mean the giving of notice in the following manner: notices or communications made in writing and hand delivered, or sent by registered mail return receipt requested, or sent by overnight courier service to the receiving party at the address specified in the Award Letter, or such other address as a party may specify. Product(s) shall mean those component parts, materials or finished goods offered for sale by Supplier and as further described in the Award Letter. Purchase Release shall mean an offer from Sun received by Supplier, whether in written or other form, or in electronic form pursuant to Exhibit 1, attached hereto and incorporated herein, to purchase or schedule delivery of a particular amount of Products. The Purchase Release shall specify the relevant information such as quantity, price and proposed delivery dates of the Products. When acknowledgement of receipt and acceptance thereof is made by Supplier the Purchase Release shall be deemed a commitment to purchase and sell the Products pursuant to the terms of this Agreement and the Purchase Release. Specifications shall mean the applicable product specifications for Products, which may be changed from time to time by written agreement of the parties, as set out in the Award Letter. 2. Purchase Of Product(s): This Agreement does not constitute a contract to purchase any quantity of Products from Supplier. In the event that Sun elects to purchase Products from Supplier Sun shall issue and deliver to Supplier an Award Letter and subsequent Purchase Releases. Supplier shall accept Sun's Purchase Releases to the extent that such Purchase Releases are consistent with Sun's forecast and Leadtimes as set out in the Award Letter. The parties agree that Purchase Releases therefor may be issued and shall be deemed received in the manner provided in Exhibit 1. 3. * "Confidential portion has been omitted and filed separately with the Commission." 4. Payment Terms: Sun shall make payment to Supplier in the manner and at the times set out in the Award Letter. 5. Delivery: Unless otherwise set out in the Award Letter delivery shall be * "Confidential portion has been omitted and filed separately with the Commission.". 6. Cancellation/Rescheduling: * "Confidential portion has been omitted and filed separately with the Commission." 7. Upside Support: When requested by Sun from time to time, Supplier shall use best efforts to sell and deliver to Sun Product(s) (i) in excess of the then latest forecast or (ii) at an accelerated delivery schedule (collectively "Upside Support"). The particulars of Supplier's obligation to provide Upside Support shall be set out in the Award Letter. 8. * "Confidential portion has been omitted and filed separately with the Commission." 9. Product Discontinuance: Supplier shall provide Sun with * "Confidential portion has been omitted and filed separately with the Commission." written notice prior to discontinuing the manufacture or sale of a Product. 10. * "Confidential portion has been omitted and filed separately with the Commission." 11. * "Confidential portion has been omitted and filed separately with the Commission." 12. * "Confidential portion has been omitted and filed separately with the Commission." 13. Confidential Information: 13.1. "Confidential Information" means information of a party, which information is conspicuously marked with "Confidential". or "Proprietary" or other similar legend. If Confidential Information is orally disclosed it shall be identified as such at the time of disclosure and a brief written description and confirmation of the confidential nature of the information shall be sent to the recipient within thirty (30) days after the disclosure. Quantities, schedules and pricing shall be considered Confidential Information hereunder whether disclosed orally or in writing, or whether or not marked "Confidential" or "Proprietary". 13.2. The receiving party shall protect the confidentiality and secrecy of such Confidential Information and shall prevent any improper disclosure or use thereof by its employees, agents, contractors or consultants, in the same manner and with the same degree of care (but in no event less than a reasonable degree of care) as it uses in protecting its own information of a confidential nature for a period of three (3) years from the date of such disclosure. 13.3. Confidential Information does not include information that: (a) was in the possession of, or was known by, the receiving party prior to its receipt from the disclosing party, without an obligation to maintain its confidentiality; (b) is or becomes generally known to the public without violation of this Agreement; (c) is obtained by the receiving party from a third party, without an obligation to keep such information confidential; or (d) is independently developed by the receiving party without use of Information. 13.4. Each party understands that the party receiving Confidential Information may now or in the future be developing proprietary information internally, or receiving proprietary information from third parties in confidence that may be similar to disclosed Confidential Information. Nothing in this Agreement shall be construed as a representation or inference that the receiving party will not develop products, for itself or others, that compete with the products, processes, systems or methods contemplated by disclosed Confidential Information. 14. Subsidiaries: All current and future subsidiaries of Sun Microsystems, Inc., and contractors of Sun, designated by Sun, may purchase Product pursuant to this Agreement. 15. Compliance with Law: Supplier shall comply with all laws applicable to the manufacture and sale of the Products, including, by way of example and not limitation, Executive Order 11246 as amended by Executive Order 11375 (non-discrimination in employment) and the U.S. Clean Air Act of 1990. Supplier shall use reasonable efforts to give Sun as much notice as is practicable in the event Supplier uses ozone depleting chemicals in the manufacture of the Products. Sun reserves the right to reject any Products manufactured utilizing or containing such materials if Sun has not previously been notified of the same. 16. Attorney's Fees: In the event of any litigation arising out of this Agreement or its enforcement by either party, the prevailing party shall be entitled to recover as part of any judgement, reasonable attorneys' fees and court costs. 17. Integration: This Agreement and, when awarded, the Award Letter, constitute the entire agreement between Supplier and Sun relating to the subject matter hereof and: (i) supersede all prior or contemporaneous oral or written communications, proposals and representations with respect to its subject matter; and (ii) prevail over any conflicting or additional terms of any quote, the preprinted terms of any Purchase Release or acknowledgement, or similar communication between the parties during the term of this Agreement. No modification to this Agreement will be binding unless in writing and signed by a duly authorized representative of each party. 18. Invalidity: In the event any one or more of the provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall remain in effect and the Agreement shall be read as though the offending provision had not been written or as the provision shall be determined by such court to be read. 19. Survival of Terms: The parties further agree that the rights and obligations set forth in Sections 8, 9, 10, 11, 12, and 13 shall survive the termination of this Agreement for any reason and enforcement thereof pursuant to this Section shall not be subject to any conditions precedent. IN WITNESS WHEREOF the parties have set their hand on and as of the day and date first set out above. SUN MICROSYSTEMS, INC. NETWORK PERIPHERALS, INC. _____________________________ _____________________________ By By _____________________________ _____________________________ Name Name _____________________________ _____________________________ Title Title _____________________________ _____________________________ Date Date EXHIBIT 1 ELECTRONIC DATA INTERCHANGE (EDI) TERMS 1. Definitions: 1.1 "EDI" means electronic data interchange. 1.2 "Adopted Format" is the accepted method for the interchange of Documents under this Agreement based on the EDIFACT, ANSI ASC X12 OR CII standards for the presentation and structuring of the electronic transmission of Documents, or other such format as may be agreed to in writing by the parties. 1.3 "Document" is data structured in accordance with the Adopted Format and transmitted electronically between the parties. 2. Prerequisites: 2.1 Documents, Standards. Each party may electronically transmit to or receive from the other party any Document which the parties have mutually agreed to Test. The content of Test Documents will be considered "dummy" data unless otherwise agreed to by the parties. All documents which are intended to evidence a transaction shall be transmitted in accordance with the Adopted Format. 2.2 Providers. Documents will be transmitted electronically to each party through any Provider with which either party may contract and/or the Internet. The Provider for each party shall be communicated to the other party. Either party may change its designated Provider upon thirty (30) days prior written notice to the other party. Each party shall be responsible for the costs of any Provider with which it contracts. 2.3 System Operations. Each party, at its own expense, shall provide and maintain the equipment, software, services and testing necessary to effectively and reliably transmit and receive Documents. If Provider is down and this prevents either party from meeting the pickup or delivery frequency agreed to, that party must notify the other party the same day. 2.4 Security Procedures. Each party shall use security procedures which are reasonably anticipated to: (a) ensure that all transmissions of Documents are authorized and (b) protect its business records and data from improper access. 2.5 Signatures. Each party may adopt as its signature an electronic identification consisting of symbol(s) or code(s) which are to be affixed to or contained in each Document transmitted by such party ("Signatures"). Each party agrees that any Signature of such party affixed to or contained in any transmitted Document shall be sufficient to verify such party originated such Document. Neither party shall disclose to any unauthorized person the Signatures of the other party. 3. Transmissions. 3.1 Proper Receipt. Documents shall not be deemed to have been properly received, and no Document shall give rise to any obligation, until accessible to the receiving party at such party's electronic mailbox. 3.2 Verification. Upon receipt of any Document, the receiving party shall promptly and properly transmit a functional acknowledgement in return within one (1) business day after receipt of a Document. 3.3 Acceptance. If a transmitted document requires acceptance by the receiving party, any such Document which has been properly received shall not give rise to any obligation unless and until the party initially transmitting such Document has properly received in return an acceptance Document. 3.4 Garbled Transmissions. If any document is received in an unintelligible or garbled form, or otherwise contains evidence of faulty transmission, the receiving party shall promptly notify the originating party (if identifiable from the received Document) in a reasonable manner. In the absence of such notice, the originating party's records of the contents of such Document shall control. 3.5 Erroneous Transmissions. If either party receives a Document from the other party which differs from the applicable terms and conditions, (e.g. an order with a price, quantity or schedule different than that mutually agreed upon), the receiving party shall promptly contact the sending party to confirm the accuracy of the Document. 1 4. Transaction Terms. 4.1 Order Placement. Each Purchase Release electronically transmitted shall reference the Sun Purchase Release number, and the Sun EDI number. 4.2 Validity, Enforceability. The parties acknowledge their mutual intent to create binding purchase, sale and payment obligations by means of electronic transmission and receipt of Documents specifying certain of the applicable terms. During the term of the Agreement, all obligations concerning the delivery of such Documents in written form may be satisfied by a transmission pursuant to the terms of this Exhibit. However, either party shall have the option, at its discretion, to transmit Documents in written form to other party. Any Document properly transmitted pursuant to these terms shall be deemed ("Signed Documents") and shall be considered, in connection with any transaction, to be a "writing" or "in writing" and to have been "signed" and to constitute an "original" when printed from electronic files or records established and maintained in the normal course of business. The parties agree that the provisions of the Uniform Commercial Code, Section 2-201 ("Formal Requirements: Statue of Frauds"), shall not apply to Documents covered by this Exhibit since hard copies of Documents will not be issued and the parties further agree that said Documents shall be deemed to satisfy any statutory or legal formalities requiring that agreements be in writing, including, but not limited to the Statute of Fraud. The conduct of the parties pursuant to this Exhibit, including the use of Signed Documents properly transmitted, shall, for all legal purposes, evidence a course of dealing an a course of performance accepted by the parties in furtherance of this Agreement and Document. The parties agree not contest the validity or enforceability of Signed Documents under the provisions of any applicable law relating to whether certain agreements be in writing or signed by the party to be bound thereby. Signed Documents, if introduced as evidence on paper in any judicial, arbitration, mediation or administrative proceedings, will be admissible as between the parties to the same extent and under the same conditions as other business records originated and maintained in documentary form. Neither party shall contest the admissibility of copies of Signed Documents under either the business records exception to the hearsay rule or the best evidence rule on the basis that the Signed Documents were not originated or maintained in documentary form. 2 Award Letter March 27, 1997 Mark Wolter Network Peripherals, Inc. 1371 McCarthy Boulevard Milpitas, CA 95035 Dear Mark, Sun is pleased to notify you that Network Peripherals, Inc. ("Supplier") has been selected as a supplier of FDDI PCI products ("Product") subject to your agreement to the following terms ("Agreement"): 1. Pricing: Product descriptions and pricing are set forth in Exhibit A attached hereto. Prices are exclusive of freight and taxes. Currency: U.S. dollars. 2. Forecast: Sun shall use its reasonable efforts to provide Supplier with a six (6) month rolling forecast of its intended purchases updated quarterly. Such forecast is for Supplier's convenience only and shall in no way create an obligation on Sun's part to meet such forecast. 3. Leadtime: * "Confidential portion has been omitted and filed separately with the Commission." 4. Payment Terms: * "Confidential portion has been omitted and filed separately with the Commission." 5. Shipping Point: * "Confidential portion has been omitted and filed separately with the Commission." 6. Rescheduling: Sun may reschedule delivery of all or part of any purchase order, at no charge, to a date after the agreed delivery date as follows: Notice Maximum Reschedule Period Maximum Reschedules 0-30 days * "Confidential portion has been omitted and filed separately with the Commission." 30+ days * "Confidential portion has been omitted and filed separately with the Commission." "Confidential portion has been omitted and filed separately with the Commission." 7. Cancellation: * "Confidential portion has been omitted and filed separately with the Commission." 8. Upside Support: "Upside" is defined as the maximum percentage increase set forth below beyond Sun's requirements for the current quarter which Supplier commits to manufacture and deliver to Sun, upon Sun's written request, at no additional cost to Sun, within the timeframe indicated after such request. Notice Maximum % Increase 8+ weeks * "Confidential portion has been omitted and filed separately with the Commission." 6-8 weeks * "Confidential portion has been omitted and filed separately with the Commission." 4-6 weeks * "Confidential portion has been omitted and filed separately with the Commission." 0-4 weeks * "Confidential portion has been omitted and filed separately with the Commission." 9. Extraordinary Transportation for Late Deliveries: If it should be reasonably expected that a shipment of Product will not be delivered on the agreed delivery date, upon Sun's request Supplier shall, at its expense, use any extraordinary transportation to deliver Product at the earliest possible date. 10. Quality: Supplier shall deliver Product(s) which conforms to (Sun/Supplier)'s specifications ("Product Specification(s)") attached as Exhibit D and shall comply with Supplier's Quality Program attached hereto as Exhibit C. The quantity of Product(s) which fails to conform to the Product Specification at the time of delivery to Sun or during the term of the warranty shall not exceed the following Defects Per Million ("DPW) levels set forth in Exhibit C. Sun shall not be required to accept any Product which is not qualified by Sun for use in Sun's products. 11. Warranty: The warranty period is * "Confidential portion has been omitted and filed separately with the Commission." from the date of Sun's acceptance of Product. 12. Customer Support: During the term of this Agreement, and thereafter for the period of time set out in Exhibit B, Supplier will provide warranty and non-warranty customer service and support for Product as set forth in Exhibit B, attached hereto. 13. Manufacturing Rights: * "Confidential portion has been omitted and filed separately with the Commission." 14. Notices: Sun and Supplier shall each assign an individual to administer this Agreement throughout its term. Sun's Administrator shall be: Supplier's Administrator shall be: Debra Rossebo Mark Wolter Sun Microsystems, Inc., Network Peripherals, Inc. 2550 Garcia Avenue (mailing address), 1371 McCarthy Boulevard M/S UMPK14-309 Milpitas, CA 95035 Mountain View, CA 94043 Ph: (408) 321-7399 Ph: (415) 786-5634 Fax: (408) 321-9218 Fax: (415) 786-6981 Each party shall inform the Administrator of the other in writing of a change of Administrator or such Administrator's address or telephone number. 15. Survival of Terms: The parties further agree that the rights and obligations set forth in Sections 11, 12 and 13 and Exhibits B and C shall survive the termination of this Agreement for any reason and enforcement thereof pursuant to this Section shall not be subject to any conditions precedent. 16. Exhibits: The following is the list of Exhibits and Attachments which are attached hereto and incorporated herein by this reference as if set forth in full: Exhibit A - Product Description & Pricing Exhibit A-1 - Unique and Long Lead Time Materials Exhibit B - Customer Support Provisions Exhibit C - Supplier's Quality Program Exhibit D - Product Specification Please indicate your agreement to these terms by signing both copies in the space provided below and returning to my attention. Upon execution of this Agreement by Sun I will return an original to you. Thank you. Sincerely, Debra Rossebo Commodity Manager Sun Microsystems, Inc. Network Peripherals, Inc. _____________________________ _____________________________ By By _____________________________ _____________________________ Name Name _____________________________ _____________________________ Title Title _____________________________ _____________________________ Date Date EXHIBIT A Product Description & Pricing * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT A-1 Unique and Long Lead Time Materials * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B Customer Support Provisions * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B-1 Supplier's Repair Facilities * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B-2 Sun's Repair Depots and TPMs * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B-3 Out of Warranty Repair * "Confidential portion has been omitted and filed separately with the Commission." Exhibit B-4 NTF Charges * "Confidential portion has been omitted and filed separately with the Commission." EXHIBIT C SUPPLIER'S QUALITY PROGRAM 1.0 Purpose This Exhibit defines Sun's requirements for NP's ("Supplier's") quality program ("Quality Program") and Supplier's responsibilities for manufacturing, inspecting, testing and supplying production Product(s) to Sun. Additional Customer Support requirements are set forth in Exhibit C-1 attached hereto. 2.0 Scope This Exhibit describes Sun's requirements for the Quality Program for the manufacture of Product(s) for Sun. The term "quality" as used herein means conformance to the following applicable Product Specifications: Product Specifications Title Dated Sun Part No. Exhibit A: SunFDDI SBus Adapter N/A N/A 4.0 Product Specifications which are attached hereto and incorporated herein by this reference. Supplier shall address any concerns regarding requirements of the Quality Program with the designated Sun supplier representatives. 2.1 Objective Sun's objective is to achieve "ship to stock" status for all Products shipped to Sun as a result of Supplier consistently meeting the Quality Program defined in this Exhibit. 2.2 Applicable Documents Sun's Product Specification Supplier's Product Specification MIL-STD-105E MIL-HDBK-217E (or equivalent) Supplier Scorecard Procedure IS0 9000 3.0 Precedence of Documents In the event of a conflict between the terms and conditions of this Agreement, Sun's Product Specification, and this Exhibit C, the order of precedence shall be as follows: (1) this Agreement, (2) Sun's Product Specification, (3) this Exhibit C. 4.0 Supplier Process Requirements Supplier shall adhere to a quality/manufacturing plan (including a data collection/tracking/reporting system) ("the Process"), that will ensure compliance with the requirements of the terms and conditions of this Agreement and ISO 9000. The Process and procedures developed by Supplier shall be documented. Sun will review this Process during the Process Certification period (see Section 5.5 of this Exhibit). Supplier is solely responsible for the quality of Product(s) and/or components procured or manufactured for Sun. Approval of Supplier's Process by Sun does not relieve Supplier of this responsibility. 1 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. 4.1 Process Flow Charts Supplier shall provide a general process flowchart for the Product(s) and major subassemblies as agreed to by both parties and shall identify all assembly, test, and inspection subprocesses. 4.2 Data Collection Systems The Data Collection System will show where failure data is collected and detailed process yield targets. Supplier shall provide on-going reports of current yields at Sun's option. This will be reviewed during the Process Certification. 4.3 Control of Purchases The Supplier will have a Quality Program that provides a reliable means of determining the quality and reliability levels of all purchased supplies, material, and components used in the manufacture of Product(s). In the event Supplier desires to change the vendor or selected source of a component used in the manufacturing of Product(s), Supplier shall collect quality/evaluation data to support and justify the change (data must show that quality levels are sustained and/or improved). The quality data will be made available to Sun upon request. Section 4.6 below details what source changes require prior notification. In the event that a problem is identified in the availability or quality of purchased supplies, materials or components used in the manufacture of Product(s), upon Sun's request, Supplier agrees to permit Sun to participate in the development of a corrective action plan, which may include Sun personnel accompanying Supplier's person I to vendor sites to perform process and design audits and view corrective actions. 4.4 Defect Free Program/Corrective Actions Sun's goal is to receive Product(s) that are defect free. Supplier shall document and implement a defect free program as part of the Process which constantly reduces the defect rate of its Product(s) to a level which achieves zero defects. Sun shall not be obligated to accept any defective Product(s) shipped by Supplier. Supplier will establish a program to ensure the performance of effective corrective actions. This program will be based upon information derived from failure reporting and analysis and will ensure that parts, components or assemblies are corrected so as to properly perform their intended function. Supplier shall maintain records of corrective actions indicating the frequency of defect during fabrication of Product(s), the proposed corrective change in process, evaluation of its effectiveness. and an effective date for implementation. Such records are subject to review by Sun 4.5 Changes in Manufacturing Process In the event that Supplier desires to change the fundamental manufacturing process in such a way as to affect the mechanical fit, electrical performance, serviceability, or safety requirements of such Products. Supplier shall notify Sun in writing within a reasonable period (no less than thirty (30) days) prior to the effective date of the proposed change. Examples of changes which require notification include, but are not limited to, the following: 2 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. o Changes in major test equipment o Changes in burn-in time or environment o Change in manufacturing facility locations Supplier agrees to provide verbal notification to the appropriate Sun Supplier Engineer of all other process changes which do not affect form, fit, function, serviceability or safety. Supplier shall implement such changes in the process only if collected quality/evaluation data verifies that quality and reliability levels would be sustained and/or improved as a result of such change. The quality data will be submitted to Sun for review before implementing the change. 4.6 Changes to Product Supplier shall notify Sun in writing thirty (30) days prior to implementing any of the following types of changes to the Product(s): o Any changes that affect the form, fit or function of the Product(s). o Any change of a programmed part on the Product(s). o Any change to the Product affecting clock speeds. o Any change to a custom or semi-custom I.C. o Any change made to correct a problem in a Sun application, made at the request of Sun. o Any change made to the board fab. o Supplier shall supply Sun copies of all ECO's affecting the Product. 4.7 Re-Qualification Major changes in manufacturing process or product construction/design will require re-qualification and/or process re-certification to the Product Specification. Sun may require, at its sole discretion. that Supplier perform reliability tests to confirm an equivalent or improved reliability of the Product(s). Supplier shall coordinate notification of planned major changes with Sun. At Sun's request. Supplier shall run a pilot production. 5.0 Product Qualification Program This section describes a series of reviews and tests that Supplier must accomplish during the product development and pilot build of its Product(s). 5.1 Design Review Supplier will present to Sun engineering, upon request, a comprehensive review consisting of: Theory of Operation Thermal Review Mechanical Review EMI/Safety Data Environmental Test Results Field Service Manual Specification Performance Data 3 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. The Sun review team will consist of the Development Engineer and Supplier Engineer. Supplier shall submit appropriate documentation to Sun one (1) week prior to the scheduled review. 5.2 Reliability Prediction Supplier shall perform an MTMF reliability prediction in accordance with Mil-Hdbk-217D (or E) or Bell Core based on the preliminary Bill of Material. Results of the reliability prediction shall be submitted to Sun for review. 5.3 First Prototype Shipments Supplier shall submit preliminary design documents to Sun, upon request, with the first pass prototypes. Electrical and mechanical drawings and Specifications Schematics Bill of Material 5.4 Second Prototype Shipments "Second prototype" shipments will be used at Sun to run a reliability demonstration test. Supplier will demonstrate the reliability goal at an 80% confidence level. Supplier will start design validation testing, reliability testing, and life testing at Supplier's site prior to "second prototype" shipment. Supplier is responsible for conducting and documenting a complete Design Validation Test ("DVT"). The DVT must show that the Product is capable of meeting all of Sun's specifications. (The Product Specification contains a complete listing of those specifications and the Sun reference part numbers.) Supplier shall submit for Sun approval the reliability test plan to be used by Supplier to demonstrate that the MTBF meets the Product Specification. 5.5 Process Certification Sun will conduct a Process Certification Test prior to the start of Sun Production. The purpose of this test is to have Supplier demonstrate that the Manufacturing process is stable and capable of producing high quality product in volume. Required documentation will include, but not be limited to, the following: o Parts lists, schematics. and mechanical drawings that have been released to manufacturing for production build. o Procedures for all phases of the production assembly and test of the Product. o Demonstration that test/burn-in times am adequate to eliminate residual infant mortality. o Yield and pareto data for all test and inspection points covering a sample quantity defined by Sun. Pareto, as defined herein, shall mean a list of failures. At Sun's option, a representative of Sun may be sent to Supplier's factory to observe the build. 4 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. 5.6 Pilot Run at Sun As part of any new product introduction, or changes to existing Products, Sun will conduct a manufacturing pilot build. The purpose of the manufacturing pilot is to ensure manufacturability of Sun's product. During the manufacturing pilot Sun will monitor the acceptance rates of all purchased components and assemblies through the assembly and test process. Sun will determine if the minimum acceptable yields for the components have been achieved. Failure to meet the minimum yield goals could result in Sun not introducing the Product(s). If the Product(s) fail to meet the minimum pilot yield goals, Sun may, at its option, cancel this Agreement and any purchase orders issued hereunder for default Any failure occurring in the pilot build will require Supplier to perform root cause failure analysis and corrective actions. The time frames as specified in section 7.3 below are applicable for all failures. 5.7 Acceptance Rates at Sun * "Confidential portion has been omitted and filed separately with the Commission." 5 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. 6.0 Supplier Audit Program Supplier shall perform a series of monitoring tests to ensure that its Product(s) conform to Sun's requirements. A brief description of each test requirement follows. 6.1 On-Going Reliability Test (ORT) Supplier shall conduct on-going reliability tests in accordance with mutually agreed upon criteria. The testing will be conducted at Supplier's site in a manner mutually agreed upon between the parties. The ORT test results shall be delivered to Sun on a monthly basis and shall include details of any corrective actions taken to address any ORT failure. Supplier shall report ORT failures to Sun within twenty-four (24) hours. 6.2 Outgoing Quality Audit Sun and Supplier shall agree to a statistically valid method for estimating the out-going quality level of every shipment prior to delivery to Sun. Any lots not meeting the agreed upon quality level will be 100% screened by Supplier to ensure their conformance to the Product Specification. At Sun's request, Supplier shall conduct Sun application-specific process monitoring tests. The purpose of this testing is to monitor the ongoing performance of manufacturing processes and product designs and to identify Supplier's manufacturing process and design problems at Supplier's site, rather than in the Sun manufacturing processes. Testing will be conducted on equipment as specified by Sun. Sun shall provide procedures, equipment lists, and analysis of test results. Supplier shall set up the test, maintain the equipment, analyze the root cause of all failures and take appropriate corrective actions. 6.3 Periodic Specification Testing (PST) Supplier shall retest the Product to the full Sum Product Specification on a periodic basis to confirm ongoing performance to this specification. The specific timing of this test will be determined upon the start of production, and jointly agreed upon between the parties. Supplier shall put forward a plan, for Sun's approval, which shall not be less than once per year. 7.0 Sun Audit Programs After the Product(s) have been introduced to manufacturing, Sun may choose to conduct the following tests to ensure conformance to the Product Specification. 7.1 Source Inspection Sun may elect to source inspect lots prior to shipment from Supplier's factory during initial stages of production or until a reasonable confidence level has been established. Source inspection may be initiated or terminated at Sun's option. Supplier shall permit a Sun employee or representative to visit the factory to source inspect finished lots. Inspection shall be performed and lot acceptance shall be determined in accordance with a pre-agreed upon sample plan. Supplier shall assist the source inspector in unpackaging, staging, inspecting, testing, and re-packaging sample units. 6 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. Supplier shall screen rejected lots for discrepant parameter(s) and re-submit for source inspection. Acceptance at source inspection does not limit Supplier's responsibilities for failures. Product quality and reliability is at all times the responsibility of the Supplier. If source inspection is required for more than three (3) months, Supplier will incur this expense. 7.2 Supplier Process Audits Sun may conduct quality audits at any time of Supplier's facility during normal business hours to determine Supplier's compliance with Sun's quality requirements. These audits will include review of all aspects of the Process. 7.3 Sun Out of Box Audit Program Sun performs Out of Box quality audits on all Product shipments. If any failure occurs in this audit testing, Supplier shall analyze the root cause and take all appropriate corrective actions. In the event Supplier's part(s) are determined to be cause of audit failure, Supplier shall: 1) Provide confirmation of failure within twenty-four (24) hours of receipt of failing part. 2) Provide root cause analysis of failure within seventy-two (72) hours of receipt of failing part. 3) Implement corrective actions to prevent recurrence of failure as necessary. Corrective actions shall be implemented as soon as possible, but in no event more than thirty (30) days after the discovery of the failure. 7.3 Sun Process Yield/Pareto Reports Sun shall send monthly yield and pareto reports to Supplier. Supplier shall review the reports and investigate any product in-process for the top three (3) failures listed and advise Sun of the results. Supplier shall provide detailed root cause failure analysis and Supplier pareto information on a monthly basis in response to the Sun report. Semi-annual meetings will be conducted to review Supplier's progress in improving its yields. Summaries of this information will be distributed to management in both companies. Sun will use this information as a basis for awarding future business. 8.0 Supplier Test Systems Program As referenced in Sections 5 & 6 above, Supplier is responsible for both initial and on-going testing to ensure the quality of its products. Where this testing requires the use of Sun Systems, Sun has implemented the "Supplier Test Systems Program." This program enables Supplier to rent systems through third party rental companies at a Sun negotiated below market rental rate or to purchase systems at significant savings. To be entitled to the above referenced discounts, Supplier must use these systems exclusively for the testing of Product supplied to Sun. Sun and Supplier agree to work together to determine the need for Sun systems to be used in the testing process and Sun will at that time provide the program details to Supplier. 7 February 15, 1995 - Exhibit C - Generic November 27, 1995 ff Document, Rev. D Network Peripherals, Inc. EXHIBIT C-1 ADDITIONAL CUSTOMER SUPPORT REQUIREMENTS 1.0 Acceptance Rates Refer to Section 6.0 below. 2.0 Applicable Documents Title Dated Sun Part No. * "Confidential portion has been omitted and filed separately with the Commission." 3.0 Supplier Process Requirements 3.1 General All requirements in Exhibit C applicable to Manufactured Product are also applicable to Repaired or replacement Product shipped to SunService. Changes made to the requirements in Exhibit C must also have SunService approval. 3.2 Reports Supplier shall provide monthly repair quality reports as specified in Q16.1 "Vendor Data Reporting Specification". 3.3 Marking A Supplier identification marking may be required on Product in accordance with "CMFG CS Labeling Procedure for Repaired FRUs" and "Multiple Return ID Process". If required, the location will be specified by SunService in writing. 3.4 ECOs Supplier must have the capability to manage ECO levels on Product. No verbal changes will be authorized; i.e. all changes must be according to Sun approved documentation, either by an issued ECO, released drawing or an approved deviation. All deviations must be approved by SunService Quality, Test Engineering, and Purchasing. Supplier shall provide copies of its ECOs affecting Product to SunService as they are released. July 18, 1994 November 29, 1995 ff 1 Network Peripherals, Inc. 3.5 Packaging Specific packaging requirements beyond the standard process will be supplied by Sun as required. In all cases, packaging must be provided by Supplier to ensure all material arrives at Sun undamaged. Packaging in single-pack Sun labeled boxes is required for Product shipped to SunService unless otherwise agreed to in writing. 3.6 Changes in Manufacturing/Repair Process Further to Section 4.5 of this Exhibit C, other changes which require notification are: o Packaging o Cosmetic ("like new" conditions) 3.7 Corrective Action Supplier's corrective action response shall be in accordance with the requirements of Q14.3 "Supplier Corrective Action". This is applicable to defects identified during Source Inspection, Receiving Inspection, Out-of-Box Audit, or when Product is received Dead-on-Arrival (DOA) at customer's site. Supplier shall notify SunService in writing of any discrepancy discovered by Supplier which could have a detrimental effect on previously shipped Products. In conjunction therewith, Supplier will make recommendations regarding the disposition of such previously shipped material and agrees, at Sun's request, to sort all such affected material located at SunService Distribution Centers. 3.8 Product Returning For Repair Multiple Times Supplier shall have the capability to recognize any returned Product which was previously repaired by Supplier. Supplier will notify SunService if the Product is returned within the warranty period and if the Product will not be repaired at no charge, explain to SunService the reasons for the decision. In any event, Supplier must ensure that the Product undergoes a reliable repair process. 3.9 No Trouble Found (NTF) Returned Product which includes a specific complaint or failure mode and which is initially determined to be NTF by Supplier must be processed through a more strenuous, documented test process tailored to duplicate the reported failure mode. 4.0 Supplier Audit Programs 4.1 Process Monitoring Testing (PMT) At Sun's request Supplier shall conduct Sun application-specific process monitoring tests. The purpose of this testing is to monitor the ongoing performance of repair processes to identify Supplier's repair process problems at Supplier's site. Testing will be conducted on equipment as specified by Sun. Sun shall provide procedures, equipment lists, and analysis of test results. Supplier shall set up the test, maintain the equipment, analyze the root cause of all failures and take appropriate corrective actions to prevent reoccurrence. July 18, 1994 November 29, 1995 ff 2 Network Peripherals, Inc. Supplier shall maintain and calibrate test equipment to a documented calibration procedure and all calibration checks must be traceable to the National Bureau of Standards or to an equivalent multinational agency. All test equipment or measuring devices not subject to periodic calibration shall be so marked, with reference to the equipment vendor specification exempting such calibration. 5.0 Sun Audit Programs 5.1 Source Inspection All source inspection will be at .25 AQL in accordance with Q 10.2 "Repaired Product Inspection Procedure". Supplier is required to take corrective action for the non-conforming items prior to shipment of succeeding lots in accordance with Q14.3 "Supplier Corrective Action". 5.2 Discovery/Specification Conformance Testing Sun may conduct random audits of repaired or replacement Product(s) at any time. 6.0 Supplier DTS Repair Qualification Program-Outline 6.1 Objective Sun's objective is for Supplier to achieve Dock-to-Stock (DTS) status for all Products shipped to Sun in accordance with Q10.4, "Supplier Dock-to-Stock Qualification Process". It is the intent under a DTS program that Products received are defect free thereby eliminating the need for incoming inspection. 6.2 Supplier Qualification Program consists of the following sequential steps: * "Confidential portion has been omitted and filed separately with the Commission." 6.3 DTS Requirements Sun's goal is to receive Product(s) that are defect free to support a DTS program without adverse affect to Sun's repair stock and customer support operations. Supplier shall document and implement a defect free program as part of the Process which constantly reduces the defect rate of its Product(s) to a level which achieves zero defects. Sun shall not be obligated to accept any defective Product(s) shipped by Supplier. July 18, 1994 November 29, 1995 ff 3 Network Peripherals, Inc. Failure to meet an average of 99.8% yield per month during the last three months of Phase 3 shall result in Supplier paying for the cost of the third-party source inspection activity until measured results meet agreement specifications over a thirteen (13) week period. The third party source inspector must be pre-approved by Sun and perform inspections under Sun procedures and direction. Third party inspection results shall be communicated to Sun on a weekly basis and be included in Sun's Quality Reporting Database. In no event shall the cost of this source inspection activity be passed on to Sun. Phases I through 3 above may take as long as seven (7) months to complete for a new supplier. Sun will pay for source inspection for Phase 1, followed by source inspection for a maximum of six (6) months (during Phase 2 & 3) on Product repaired by Supplier to ensure that the repair process meets Sun's quality requirements. 6.4 DTS Process Upon written notification from Sun of Supplier's DTS approval, the following requirements shall apply. All DTS Products will be released by Supplier by stamping the packing list on the front side with a SimService Quality approved DTS stamp (or other Sun approved identification means). Each packing list will contain information which will facilitate traceability to Supplier's quality control document for dud Product shipped. Supplier shall maintain a log of lots shipped to SunService Distribution Centers as DTS Product. This log shall be available to Sun for inspection/review. Supplier will continue to be responsible for the requirements outlined in previous sections of this Exhibit. Following DTS approval status, any Supplier repaired Product found to be defective will require timely failure analysis and corrective action as specified in Section 7.3 of this Exhibit C and Q 14.3 "Supplier Corrective Action". Failure to maintain a quality level of 99.8% based on thirty (30) calendar days worth of repaired Product will disqualify Supplier from DTS status and lead to reinstituting third-party source inspection which will be paid for by Supplier. Supplier will then be required to repeat the DTS qualification process. July 18, 1994 November 29, 1995 ff 4 Network Peripherals, Inc. Sun FDDI/PCI Adapter Product Specifications __________________________________________________________ This document defines the Sun FDDI/PCI product line. The adapter is referred to Sun FDDI/PCI in the remainder of this specification. A more detailed specification is given below. * "Confidential portion has been omitted and filed separately with the Commission." AMENDMENT TO SUN MICROSYSTEMS, INC. CORPORATE SUPPLY AGREEMENT Sun Microsystems, Inc. ("Sun") and Network Peripherals, Inc. ("Supplier") hereby agree to amend the Corporate Supply Agreement between them of even date ("Agreement") as follows: 1. Add the following at the end of the first paragraph of Section 8: * "Confidential portion has been omitted and filed separately with the Commission." 2. Section 12 is deleted in its entirety and replaced by the following: * "Confidential portion has been omitted and filed separately with the Commission." Except as so amended, the Agreement is confirmed in its entirety. SUN MICROSYSTEMS, INC. NETWORK PERIPHERALS, INC. BY: _________________________ BY: _________________________ NAME: _________________________ NAMES: _________________________ TITLE: _________________________ TITLE: _________________________ DATE: _________________________ DATE: _________________________ March 3, 1997 ff 1 -----END PRIVACY-ENHANCED MESSAGE-----