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Exhibit 10.1

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Procera Networks, Inc.  |  100-C Cooper Court  |  Los Gatos, CA 95032
p. 408-890-7100  |  f. 408-354-7211  |  www.proceranetworks.com

September 12, 2008

Via Hand-Delivery

David E. Stepner
c/o Procera Networks, Inc.
100C Cooper Court
Los Gatos, CA 95032

Re:  Separation and Consulting Agreement
 
Dear David:
 
This letter sets forth the terms and conditions of the separation and consulting
agreement (the “Agreement”) that Procera Networks, Inc. (the “Company”) is
offering to you to aid in your employment transition.
 
1.            Separation Date.  Your last day of employment with the Company
will be October 1, 2008 (the “Separation Date”).
 
2.            Accrued Salary and Vacation.  On the Separation Date, the Company
will pay you all accrued salary, and all accrued and unused vacation earned
through the Separation Date, subject to standard payroll deductions and
withholdings.  You are entitled to these payments by law. 
 
3.            Health Insurance.  To the extent provided by the federal COBRA law
or, if applicable, state insurance laws (collectively, “COBRA”), and by the
Company’s current group health insurance policies, you will be eligible to
continue your group health insurance benefits at your own expense after the
Separation Date.  Later, you may be able to convert to an individual policy
through the provider of the Company’s health insurance, if you wish.  You will
be provided with a separate notice describing your rights and obligations under
the applicable state and/or federal insurance laws on or after the Separation
Date.
 
4.            Expense Reimbursement.  You shall submit, within ten (10) days
after the Separation Date, expense reports to the Company seeking reimbursement
for any business expenses incurred through the Separation Date.  The Company
will reimburse you for these business expenses, pursuant to its standard
policies and practices.
 
5.            Consulting Relationship.  If you timely sign, date and return this
Agreement to the Company, and allow the releases contained herein to become
effective, and you fully comply with your obligations under this Agreement, the
Company will engage you as a consultant, and you hereby agree to serve as a
consultant, under the following terms and conditions (the “Consulting
Relationship”).
 
(a)           Consulting Period.  The Consulting Relationship shall commence on
the first day following the Separation Date and shall continue until the
earliest to occur of the following events (the “Consulting Period”): (i) the
date you terminate the Consulting Relationship for any reason upon written
notice to the Company; (ii) the date the Company terminates the Consulting
Relationship due to your material breach of this Agreement or any other
agreements or policies of the Company, upon written notice to you; or (iii) on
December 31, 2008.  In the event that both you and the Company wish to continue
the Consulting Relationship beyond the Consulting Period, it will done only by
mutual consent in a written amendment to this Agreement signed by both parties.
 
 
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(b)           Consulting Services.  During the Consulting Period, you agree to
provide consulting services to the Company in any area of your experience or
expertise at the request of the Chief Technology Officer (“CTO”) of the Company
(the “Consulting Services”).  The Consulting Services will include providing
engineering advice and operational assistance to the Company.  You agree to make
yourself available to perform such Consulting Services throughout the Consulting
Period, up to a maximum of 50 hours per month.  You shall exercise the highest
degree of professionalism and utilize your expertise and creative talents in
performing the Consulting Services.  In addition, you will continue to abide by
all of your continuing obligations to the Company, including your obligations
under this Agreement and your continuing obligations under your Employee
Confidentiality and Non-Solicitation Agreement and Proprietary Information and
Inventions Agreement (discussed in Section 9 below).
 
(c)           Consulting Fees.  During the Consulting Period, you will receive
as consulting fees $150.00 per hour for each hour or portion thereof that you
actually provide services to the Company (the “Consulting Fees”).  You will
submit detailed invoices of your Consulting Services on a monthly basis, and the
Company will provide payment of any owed Consulting Fees within fifteen (15)
days after receipt of such invoices.  The Company will not withhold from the
Consulting Fees any amount for taxes, social security, or other payroll
deductions.  The Company will report your Consulting Fees on an IRS Form
1099.  You acknowledge that you will be entirely responsible for payment of any
taxes that may be due with regard to the Consulting Fees, and you hereby agree
to indemnify and hold harmless the Company from any liability for any taxes that
may be assessed by any taxing authority with respect hereto.
 
(d)           Independent Contractor Relationship.  During the Consulting
Period, your Consulting Relationship with the Company will be that of an
independent contractor, and nothing in this Agreement is intended to, or should
be construed to, create a partnership, agency, joint venture or employment
relationship.  Other than as expressly provided in this Agreement, as an
independent contractor during the Consulting Period, you will not be entitled
to, and will not receive, any of the benefits which the Company may make
available to its employees, including, but not limited to, group health or life
insurance, other than any rights you may otherwise have with respect to such
benefits due to your status as a former employee (including your rights to
continued group health insurance coverage pursuant to COBRA).
 
(e)           Restricted Shares.  Pursuant to your May 21, 2007 Employment
Agreement (the “Employment Agreement”), the Company’s board of directors
approved the award to you of 300,000 shares of restricted common stock of the
Company, which as of the Separation Date have vested as to 150,000 shares, with
the remaining 150,000 shares unvested.  A certificate evidencing the currently
vested 150,000 shares will be issued to you by the Company, subject to
appropriate arrangements being made by you to satisfy all applicable Company
federal and state income and employment withholding taxes.  As additional
consideration for your provision of Consulting Services, the remaining unvested
shares of restricted stock (150,000 shares) will vest on October 21, 2008 (the
“Vesting Date”), and a certificate evidencing these shares will be issued to you
(subject to appropriate arrangements being made by you to satisfy all applicable
Company federal and state income and employment withholding taxes), provided
that you deliver all requested Consulting Services during the period between the
Separation Date and the Vesting Date and otherwise remain in compliance with the
terms of this Agreement.  Notwithstanding any provisions in your stock option
agreements or the governing stock option plan, all options that you hold to
purchase shares of the Company’s common stock shall cease vesting as of the
Separation Date.  Your right to exercise your option(s) for any vested shares,
and all other rights and obligations with respect to your stock options(s), will
be as set forth in your stock option agreement, grant notice and applicable plan
documents.
 
 
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(f)            Expenses.  The Company will reimburse you, pursuant to its
regular business practices, for reasonable, documented business expenses
incurred in performing the Consulting Services, provided that these expenses are
approved in advance by the Company.
 
(g)           Limitations on Authority.  After the Separation Date, you have no
authority to bind the Company to any contractual obligations, whether written,
oral or implied without the express authorization of the Chief Executive Officer
(“CEO”).  You hereby agree that you will have no responsibilities or authority
as a consultant to the Company other than as provided above.  As a consultant,
you agree not to represent or purport to represent the Company in any manner
whatsoever to any third party unless expressly authorized by the CEO, in
writing, to do so.  Access to and use of the Company facilities or equipment to
perform the Consulting Services will be coordinated with the CEO.
 
(h)           Protection of Information.  You agree that, during the Consulting
Period and thereafter, you will not use or disclose any confidential or
proprietary information or materials of the Company that you obtain or develop
in the course of performing the Consulting Services, except with permission of
the CEO.  Any and all work product you create in the course of performing the
Consulting Services will be the sole and exclusive property of the Company. You
hereby assign to the Company all right, title, and interest in all inventions,
techniques, processes, materials, and other intellectual property developed in
the course of performing the Consulting Services.
 
(i)            Other Work Activities.  Throughout the Consulting Period, you
retain the right to engage in employment, consulting, or other work
relationships in addition to your work for the Company, provided that such other
employment, consulting, or work relationships do not interfere with your
continuing obligations to the Company or otherwise create a conflict of interest
with the Company.  The Company will make reasonable arrangements to enable you
to perform the Consulting Services at such times and in such a manner so that it
will not interfere with other activities in which you may engage.  In order to
protect the trade secrets and confidential and proprietary information of the
Company, you agree that, during the Consulting Period, you will notify the
Company, in writing, before you obtain competitive employment, perform
competitive work for any business entity, or engage in any other work activity
that is competitive with the Company, and you will obtain the Company’s written
consent before engaging in any such competitive activity.  If you engage in such
competitive activity without the Company’s express written consent, or otherwise
materially breach this Agreement, then, in addition to any other remedies, the
Company’s obligation to pay you Consulting Fees will cease immediately, and your
shares of restricted Company common stock will not vest after the Separation
Date as provided in Section 5(e).
 
7.            Other Compensation and Benefits.  You acknowledge that, except as
expressly provided in this Agreement, you have not earned and are not entitled
to receive from the Company any additional compensation, severance, or benefits
on or after the Separation Date, with the exception of any vested right you may
have under the express terms of a written ERISA-qualified benefit plan (e.g.,
401(k) account).  You further acknowledge and agree that you are not currently
entitled to receive any Change in Control benefits nor shall you be entitled to
receive any Change in Control benefits in the future (including without
limitation any accelerated vesting of your stock options or restricted stock
provided for in your Employment Agreement), notwithstanding your continued
service as a consultant.  Any such provisions in your Employment Agreement
providing for accelerated vesting of stock options or restricted stock in the
event of a Change in Control are hereby superseded and shall have no further
force or effect.
 
 
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8.            Return of Company Property.  On the Separation Date, you agree to
return to the Company all Company documents (and all copies thereof) and other
property of the Company in your possession or control, including, but not
limited to, Company files, notes, correspondence, memoranda, notebooks,
drawings, records, reports, lists, compilations of data, clinical data,
proposals, agreements, drafts, minutes, studies, plans, forecasts, purchase
orders, financial and operational information, product and training information,
research and development information, contact lists or directories, sales and
marketing information, personnel and compensation information, vendor
information, promotional literature and instructions, product specifications and
manufacturing information, computer-recorded information, electronic information
(including e-mail and correspondence), other tangible property and equipment
(including, but not limited to, computer equipment, facsimile machines, and
cellular telephones), credit cards, entry cards, identification badges and keys;
and any materials of any kind that contain or embody any proprietary or
confidential information of the Company (and all reproductions thereof in whole
or in part).  You agree to make a diligent and timely search to locate any such
documents, property and information.  In addition, if you have used any
personally owned computer, server, or e-mail system to receive, store, review,
prepare or transmit any Company confidential or proprietary data, materials or
information, then you agree to provide the Company, no later than ten (days)
following the Separation Date, with a computer-useable copy of all such
information and then permanently delete and expunge such Company confidential or
proprietary information from those systems without retaining any reproductions
(in whole or in part).  Your timely compliance with this Section 8 is a
precondition to your receipt of the Severance Payment.  The Company will provide
you with access to its confidential and proprietary information or materials to
the extent needed for you to perform your Consulting Services.
 
9.            Proprietary Information Obligations.  You hereby acknowledge and
reaffirm your continuing obligations to the Company under your Employee
Confidentiality and Non-Solicitation Agreement and Proprietary Information and
Inventions Agreement both during and after the Consulting Period (the
“Confidentiality Agreement”).  A copy of the Confidentiality Agreement is
attached hereto as Exhibit A for your reference.
 
10.          Nondisparagement.  You agree not to disparage the Company and its
current and former officers, directors, employees, shareholders and agents, in
any manner likely to be harmful to them or their business, business reputations
or personal reputations; provided that you may respond accurately and fully to
any request for information to the extent required by legal process.

12.          No Admissions.  The promises and payments in consideration of this
Agreement shall not be construed to be an admission of any liability or
obligation by either party to the other party, and neither party makes any such
admission.
 
 
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13.          Cooperation and Assistance.  You agree to cooperate fully with the
Company in connection with its actual or contemplated defense, prosecution, or
investigation of any claims or demands by or against third parties, or other
matters arising from events, acts, or failures to act that occurred during the
period of your employment by the Company.  Such cooperation includes, without
limitation, making yourself available to the Company upon reasonable notice,
without subpoena, to provide complete, truthful and accurate information in
witness interviews, depositions, and trial testimony.  The Company will
reimburse you for reasonable out-of-pocket expenses you incur in connection with
any such cooperation (excluding foregone wages, salary, or other compensation)
and will make reasonable efforts to accommodate your scheduling needs.  In
addition, you agree to execute all documents (if any) necessary to carry out the
terms of this Agreement.
 
14.          Release of Claims.

(a)           General Release.  In exchange for the consideration provided to
you under this Agreement to which you would not otherwise be entitled, including
but not limited to the Severance Payment and Consulting Relationship, you hereby
generally and completely release the Company and its current and former
directors, officers, employees, shareholders, partners, agents, attorneys,
predecessors, successors, parent and subsidiary entities, insurers, affiliates,
and assigns (collectively, the “Released Parties”) from any and all claims,
liabilities and obligations, both known and unknown, that arise out of or are in
any way related to events, acts, conduct, or omissions occurring prior to or on
the date you sign this Agreement (collectively, the “Released Claims”).

(b)           Scope of Release.  The Released Claims include, but are not
limited to: (i) all claims arising out of or in any way related to your
employment with the Company, or the termination of that employment; (ii) all
claims related to your compensation or benefits from the Company, including
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any other ownership interests in
the Company; (iii) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (iv) all tort
claims, including claims for fraud, defamation, emotional distress, and
discharge in violation of public policy; and (v) all federal, state, and local
statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of
1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”),
the California Labor Code (as amended) and the California Fair Employment and
Housing Act (as amended).

(c)           Excluded Claims. Notwithstanding the foregoing, the following are
not included in the Released Claims (the “Excluded Claims”): (i) any rights or
claims for indemnification you may have pursuant to any written indemnification
agreement with the Company to which you are a party or under applicable law;
(ii) any rights which are not waivable as a matter of law; and (iii) any claims
for breach of this Agreement.  In addition, nothing in this Agreement prevents
you from filing, cooperating with, or participating in any proceeding before the
Equal Employment Opportunity Commission, the Department of Labor, the California
Department of Fair Employment and Housing, or any other government agency,
except that you acknowledge and agree that you hereby waive your right to any
monetary benefits in connection with any such claim, charge or proceeding.  You
represent and warrant that, other than the Excluded Claims, you are not aware of
any claims you have or might have against any of the Released Parties that are
not included in the Released Claims.

 
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15.          ADEA Waiver.  You acknowledge that you are knowingly and
voluntarily waiving and releasing any rights you may have under the ADEA, and
that the consideration given for the waiver and release in the preceding
paragraph hereof is in addition to anything of value to which you are already
entitled.  You further acknowledge that you have been advised, as required by
the ADEA, that:  (i) your waiver and release do not apply to any rights or
claims that may arise after the date that you sign this Agreement; (ii) you
should consult with an attorney prior to signing this Agreement (although you
may choose voluntarily not to do so); (iii) you have twenty-one (21) days to
consider this Agreement (although you may choose voluntarily to sign it
earlier); (iv) you have seven (7) days following the date you sign this
Agreement to revoke the Agreement (by providing written notice of your
revocation to the CEO); and (v) this Agreement will not be effective until the
date upon which the revocation period has expired, which will be the eighth day
after the date that this Agreement is signed by you provided that you do not
revoke it (the “Effective Date”).
 
16.          Waiver of Unknown Claims. In giving the releases set forth in this
Agreement, which include claims which may be unknown to you at present, you
acknowledge that you have read and understand Section 1542 of the California
Civil Code which reads as follows: “A general release does not extend to claims
which the creditor does not know or suspect to exist in his or her favor at the
time of executing the release, which if known by him or her must have materially
affected his or her settlement with the debtor.”  You hereby expressly waive and
relinquish all rights and benefits under that section and any law or legal
principle of similar effect in any jurisdiction with respect to your release of
claims herein, including but not limited to the release of unknown and
unsuspected claims.
 
17.          Representations. You hereby represent that you have been paid all
compensation owed and for all hours worked, have received all the leave and
leave benefits and protections for which you are eligible, and have not suffered
any on-the-job injury for which you have not already filed a workers’
compensation claim.
 
18.          Dispute Resolution.  To ensure rapid and economical resolution of
any disputes regarding this Agreement, the parties hereby agree that any and all
claims, disputes or controversies of any nature whatsoever arising out of, or
relating to, this Agreement, or its interpretation, enforcement, breach,
performance or execution, your employment with the Company, or the termination
of such employment, shall be resolved, to the fullest extent permitted by law
exclusively first, by mediation using a mediator mutually selected from Judicial
Arbitration and Mediation Services, Inc. (“JAMS”), and if not thereby resolved,
by final, binding and confidential arbitration in San Jose, California conducted
before a single arbitrator by JAMS, or its successor, under the then applicable
JAMS arbitration rules.  The parties each acknowledge that by agreeing to this
arbitration procedure, they waive the right to resolve any such dispute, claim
or demand through a trial by jury or judge or by administrative proceeding.  You
will have the right to be represented by legal counsel at any arbitration
proceeding.  The arbitrator shall: (i) have the authority to compel adequate
discovery for the resolution of the dispute and to award such relief as would
otherwise be available under applicable law in a court proceeding; and (ii)
issue a written statement signed by the arbitrator regarding the disposition of
each claim and the relief, if any, awarded as to each claim, the reasons for the
award, and the arbitrator’s essential findings and conclusions on which the
award is based.  The arbitrator, and not a court, shall also be authorized to
determine whether the provisions of this paragraph apply to a dispute,
controversy, or claim sought to be resolved in accordance with these arbitration
procedures.  Nothing in this Agreement is intended to prevent either you or the
Company from obtaining injunctive relief in court to prevent irreparable harm
pending the conclusion of any arbitration.
 
 
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19.          Miscellaneous.  This Agreement, including Exhibit A, constitutes
the complete, final and exclusive embodiment of the entire agreement between you
and the Company with regard to its subject matter.  It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties or representations, including but not limited to any promises,
warranties or representations contained in the Employment Agreement.  This
Agreement may not be modified or amended except in a written agreement signed by
both you and a duly authorized officer of the Company.  This Agreement will bind
the heirs, personal representatives, successors and assigns of both you and the
Company, and inure to the benefit of both you and the Company, and their heirs,
successors and assigns.  If any provision of this Agreement is determined to be
invalid or unenforceable, in whole or in part, this determination will not
affect any other provision of this Agreement and the provision in question shall
be deemed modified so as to be rendered enforceable in a manner consistent with
the intent of the parties, insofar as possible under applicable law.  Any
ambiguity in this Agreement shall not be construed against either party as the
drafter.  Any waiver of a breach of this Agreement, or rights hereunder, shall
be in writing and shall not be deemed to be a waiver of any successive breach or
rights hereunder.  This Agreement shall be deemed to have been entered into, and
shall be construed and enforced, in accordance with the laws of the State of
California without regard to conflicts of law principles.  This Agreement may be
executed in counterparts, each of which shall be deemed to be part of one
original, and facsimile signatures shall be equivalent to original signatures.
 
If this Agreement is acceptable to you, please sign and date below within
twenty-one (21) days after your receipt, and then send the fully signed
Agreement to the CEO.  The Company’s offer contained herein will automatically
expire if we do not receive the fully signed Agreement from you within this
timeframe.
 
We wish you the best in your future endeavors.
 
Sincerely,
 
Procera Networks, Inc.

By:
/s/ James Brear
   
James Brear
   
Chief Executive Officer
 

Exhibit A–Confidentiality Agreement

Understood and Agreed:

 
/s/ David E. Stepner
 
David E. Stepner
     
September 18, 2008
 
Date
 

 
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Exhibit A
 
Confidentiality Agreement
 
 
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