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                                                                    EXHIBIT 10.4

                                   May 7, 2002

Mr. Jerry Shanahan
2 Strout Lane.
Durham, NH 03824

         Re:      Separation Agreement and Release

Dear Jerry:

         As we have discussed, your employment with Enterasys Networks, Inc.
(the "Company") will terminate effective May 31, 2002 (the "Separation Date").
The purpose of this letter is to confirm the agreement between you and the
Company concerning your severance arrangements, as follows:

         1.       RESIGNATION. You hereby resign, as of the Separation Date,
your employment and all positions, offices and directorships held with the
Company or any of its Affiliates (as defined below) and your resignation has
been accepted by the Company on its own behalf and on behalf of its Affiliates.
You agree to sign and return any additional documentation which the Company may
request to confirm your resignation.

         2.       FINAL SALARY AND VACATION PAY AND OUTSTANDING BUSINESS
EXPENSES. You will be paid, at your current base rate, for all work you have
performed for the Company during the current payroll period, through the
Separation Date, to the extent not previously paid, as well as pay, at your
final base rate of pay, for any paid time off you had earned, but not used, as
of the Separation Date. If you have outstanding business expenses incurred prior
to the Separation Date which are eligible for reimbursement under Company
policy, they will be reimbursed, provided that you submit the required
documentation and substantiation on or before May 31, 2002.

         3.       SEVERANCE BENEFITS. In consideration of your acceptance of
this Agreement and subject to your meeting in full your obligations under it and
under the agreement between you and the Company captioned
"Confidentiality/Non-Disclosure Agreement" which you signed on February 1, 2001
(the "Confidentiality Agreement"), the Company will provide you the following
severance pay and benefits:
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                  (a)      The Company will pay you your salary, at your final
base rate of pay, for the period from the Separation Date through August 31,
2002 (the "Severance Pay Period"). Payments will made in the form of salary
continuation and will begin on the next regular Company payday which is at least
five business days following the later of the effective date of this Agreement
or the date it is received by the Chief Legal Officer of the Company. The first
payment will be retroactive to the day following the Separation Date.

                  (b)      Within ten (10) days following the Severance Pay
Period, the Company will pay you a single lump sum equal to your annual base
salary at the rate in effect on the Separation Date.

                  (c)      If you were enrolled in the Company's medical and
dental plans on the Separation Date, you may elect to continue your
participation and that of your eligible dependents in those plans for a period
of time under the federal law known as "COBRA." If you do so by signing and
returning the COBRA election form no later than the date you sign and return
this Agreement, then, until the conclusion of the Severance Pay Period or, if
earlier, until the date you become eligible for coverage under the health plan
of another employer, the Company will contribute to the premium cost of your
coverage and that of your eligible dependents under those plans the same amount
that it contributes to the premium cost of coverage of active employees and
their eligible dependents. To be eligible for these Company premium
contributions, however, you must pay the remainder of the premium cost by
payroll deduction. You agree to notify the Company immediately if you become
eligible for coverage under the health plan of another employer during the
Severance Pay Period and to repay promptly any excess contributions made by the
Company. After the Company's contributions end, you may continue coverage for
the remainder of the COBRA period, if any, by paying the full premium cost plus
a small administrative fee. In the alternative, the Company will reimburse you
for the premium cost of your coverage and that of your eligible dependents under
the Company's health benefit offerings in your home country in the same amount
that the Company contributes to the premium cost of coverage for health benefits
of active employees and their eligible dependents in that country.

                  (d)      In connection with your repatriation, you will
receive the benefits set forth in the Company's International Relocation Policy,
a copy of which is attached as Exhibit A, provided that the benefits set forth
therein under the heading "Travel and Temporary Living" shall be provided for a
period of ninety (90) days, and further provided that you will be eligible to
receive tax preparation assistance in connection with tax returns for the period
that you were on international assignment.

         4.       WITHHOLDING. All payments made by the Company under this
Agreement shall be reduced by any tax or other amounts required to be withheld
by the Company under applicable law and all other deductions authorized by you.
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         5.       ACKNOWLEDGEMENT OF FULL PAYMENT. You acknowledge and agree
that the payments to be provided in accordance with paragraph 2 of this
Agreement are in complete satisfaction of any and all compensation due to you
from the Company, whether for services provided to the Company or otherwise,
through the Separation Date and that, except as expressly provided under this
Agreement, no further compensation is owed to you. Further, it is agreed that
severance pay and other benefits to which you are entitled under Paragraph 3 of
this Agreement shall be reduced by any other payments or benefits to which you
may be entitled under applicable law as a result of termination of your
employment, including without limitation any federal, state or local law with
respect to plant closings, mass layoffs or group benefit plan continuation
following termination or the like, but exclusive of any unemployment benefits to
which you are eligible under applicable law.

         6.       STATUS OF EMPLOYEE BENEFITS, PAID TIME OFF AND STOCK OPTIONS.
Except as otherwise expressly provided in paragraph 3(b) of this Agreement, your
participation in all employee benefit plans of the Company will end as of the
Separation Date, in accordance with the terms of those plans. You will not
continue to earn paid time off after the Separation Date. Your rights and
obligations with respect to any stock options granted to you by the Company
which had vested as of the Separation Date shall be governed by the applicable
stock option plan and any agreements or other requirements applicable to those
options. All stock options which are unvested as of the Separation Date shall be
cancelled and shall terminate as of that date.

         7.       NON-COMPETITION, CONFIDENTIALITY AND NON-DISPARAGEMENT.

                  (a)      You agree that the following restriction on your
activities are necessary to protect the goodwill, Confidential Information (as
defined in the Confidentiality Agreement) and other legitimate business
interests of the Company:

                           (i)      You agree that, except with the prior
         written consent of the Board or its designee, for a period of one year
         following the Separation Date, you will not, directly or indirectly,
         compete, or undertake any planning to compete, with the Company or any
         of its Affiliates, anywhere in the world, whether as an owner, partner,
         investor, consultant, employee or otherwise. Specifically, but without
         limiting the foregoing, you agree not to work or provide services, in
         any capacity, whether as an employee, independent contractor or
         otherwise, whether with or without compensation, to any person or
         entity who is engaged in any business that is competitive with the
         business of the Company or any of its Affiliates for which you have
         provided services, as conducted or in active planning during your
         employment. It is agreed that the foregoing shall not prevent your
         passive ownership of five percent (5%) or less of the equity securities
         of any publicly traded company.

                           (ii)     You also acknowledge and agree that, were
         you to breach the provisions of the paragraph set forth immediately
         above, the harm to the Company would be irreparable. You therefore
         agree that in the event of such a breach or threatened breach the
         Company shall, in addition to any
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         other remedies available to it, have the right to obtain preliminary
         and permanent injunctive relief against any such breach without having
         to post bond. You further agree that, in the event that any provision
         of the paragraph immediately above shall be determined by any court of
         competent jurisdiction to be unenforceable by reason of its being
         extended over too great a time, too large a geographic area or too
         great a range of activities, such provision shall be deemed to be
         modified to permit its enforcement to the maximum extent permitted by
         law.

                  (b)      You agree that you will not disclose this Agreement
or any of its terms or provisions, directly or by implication, except to members
of your immediate family and to your legal and tax advisors, and then only on
condition that they agree not to further disclose this Agreement or any of its
terms or provisions to others. You also agree that, during the Severance Pay
Period and thereafter, you will not disparage or criticize the Company or its
Affiliates, their business, management or products, and that you will not
otherwise do or say anything that could reasonably be expected to harm the
business interests or reputation of the Company or its Affiliates.

         8.       RETURN OF COMPANY DOCUMENTS AND OTHER PROPERTY. In signing
this Agreement, you represent and warrant that you have returned to the Company
any and all documents, materials and information (whether in hardcopy, on
electronic media or otherwise) related to business (whether present or
otherwise) of the Company or any of its Affiliates and all keys, access cards,
credit cards, computer hardware and software, telephones and telephone-related
equipment and all other property of the Company and its Affiliates in your
possession or control. Further, you represent and warrant that you have not
retained any copy of any Company documents, materials or information (whether in
hardcopy, on electronic media or otherwise). You acknowledge that you have
disclosed to the Company all passwords necessary or desirable to enable the
Company to access all information which you have password-protected on any of
its computer equipment or on its computer network or system.

         9.       EMPLOYEE COOPERATION.

                  (a)      You agree that, during the Severance Pay Period, and
without additional compensation, you will provide advice and consultation to the
Company upon request with respect to your former duties and responsibilities and
otherwise support the Company's management transition and that you will be
supportive of the Company's policies and operational and sales activities.

                  (b)      You also agree, during the Severance Pay Period and
thereafter, to cooperate with the Company hereafter with respect to all matters
arising during or related to your employment, including but not limited to all
matters in connection with any governmental investigation, litigation or
regulatory or other proceeding which may have arisen or which may arise
following the signing of this Agreement. As part of the cooperation agreed to
herein, you shall provide complete and truthful information to the Companies and
their attorneys with respect to any matter arising during or related to your
employment. Specifically, you shall make yourself available to meet with the
Companies'
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personnel and attorneys and shall provide to the Companies and their attorneys
any and all documentary or other physical evidence pertinent to any such matter.
Finally, you shall promptly notify the Companies, within three business days, of
your receipt from any third party or governmental entity of a request for
testimony and/or documents, whether by legal process or otherwise, relating to
any matter arising during or relating to your employment. You will not be
entitled to additional compensation for your compliance with your obligations
hereunder, but the Company will reimburse your out-of-pocket expenses incurred
in complying with Company requests hereunder, provided such expenses are
authorized by the Company in advance.

         10.      RELEASE OF CLAIMS.

                  (a)      In exchange for the special severance pay and
benefits provided you under this Agreement, to which you would not otherwise be
entitled, on your own behalf and that of your heirs, executors, administrators,
beneficiaries, personal representatives and assigns, you agree that this
Agreement shall be in complete and final settlement of any and all causes of
action, rights or claims of every type and description, whether known or
unknown, that you have had in the past, now have, or might now have, in any way
related to, connected with or arising out of your employment or its termination
or pursuant to Title VII of the Civil Rights Act, the Americans with
Disabilities Act, the Age Discrimination in Employment Act, the fair employment
practices statutes of the state or states in which you have provided services to
the Company or any of its Affiliates or any other federal, state or local law,
regulation or other requirement and you hereby release and forever discharge the
Company and its Affiliates all of their respective past and present directors,
shareholders, officers, members, managers, partners, joint venturers, employees,
agents and representatives, their successors and assigns, and all others
connected with any of them, both individually and in their official capacities,
from any and all such causes of action, rights or claims.

                  (b)      This Agreement, including the release of claims set
forth immediately above, creates legally binding obligations and the Company
advises you to consult an attorney before signing this Agreement. In signing
this Agreement, you give the Company assurance that you have signed it
voluntarily and with a full understanding of its terms; that you have had
sufficient opportunity, before signing this Agreement, to consider its terms and
to consult with an attorney, if you wished to do so, or to consult with any
other of those persons to whom reference in made in the first sentence of
paragraph 7(b) above; and that, in signing this Agreement, you have not relied
on any promises or representations, express or implied, that are not set forth
expressly in this Agreement.

         11.      MISCELLANEOUS.

                  (a)      This Agreement constitutes the entire agreement
between you and the Company and supersedes all prior and contemporaneous
communications, agreements and understandings, whether written or oral, with
respect to your employment, its termination and all related matters, excluding
only the Confidentiality Agreement and your obligations with respect to the
securities of the
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Company, all of which shall remain in full force and effect in accordance with
their terms.

                  (b)      This Agreement may not be modified or amended, and no
breach shall be deemed to be waived, unless agreed to in writing by you and the
Chairman of the Board of the Company or his expressly authorized designee. The
captions and headings in this Agreement are for convenience only and in no way
define or describe the scope or content of any provision of this Agreement.

                  (c)      The obligation of the Company to make payments to
you or on your behalf under this Agreement is expressly conditioned upon your
continued full performance of your obligations under this Agreement and under
the Confidentiality Agreement.

         If the terms of this Agreement are acceptable to you, please sign, date
and return it to me, at which point this letter will take effect as a
legally-binding agreement between you and the Company on the basis set forth
above. The enclosed copy of this letter, which you should also sign and date, is
for your records.

                                    Sincerely,

                                    ENTERASYS NETWORKS, INC.

                                    By: /s/ Gerald M. Haines II
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                                        Gerald M. Haines II
                                        Executive Vice President

Accepted and agreed:

Signature:  /s/ Jerry Shanahan
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Date:          May 7, 2002
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