Document:

Exhibit 10.1

 

SEVERANCE TERMS AGREEMENT

 

THIS SEVERANCE
TERMS AGREEMENT (the “Agreement”), made this 9th day of January
2006, is entered into by Network Engines, Inc., a Delaware corporation with its
principal place of business at 25 Dan Road, Canton, Massachusetts 02021 (the “Company”),
and Gregory A. Shortell, an individual residing at                                              
(the “Employee”).

 

The Company
has previously delivered, and the Employee has accepted, an Offer Letter dated
November 22, 2005 (the “Offer Letter”) setting forth the general terms of the
Employee’s employment with the Company. 
The Company and the Employee each desire to replace the paragraph of the
Offer Letter titled “Severance” with more thorough and specific terms regarding
the effect of termination of the Employee’s employment with the Company.  In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:

 

1.                                       Employment
at Will.  The Company hereby agrees
to employ the Employee, and the Employee hereby accepts employment with the
Company, upon the terms set forth in the Offer Letter.  The Employee’s employment with the Company
shall be at-will, meaning that either party may terminate the employment
relationship at any time, for any reason, with or without cause or notice
subject to the provisions set forth herein.

 

2.                                       Effect
of Termination.

 

2.1                                 Termination
By the Company for Cause or at the Election of the Employee Without Good Reason.  In the event the Employee’s employment is
terminated for Cause, as defined in Section 3, or at the election of the
Employee for any reason other than Good Reason, as defined in Section 3, the
Company shall pay to the Employee the compensation and benefits otherwise due
and payable to him under the Offer Letter through the last day of his actual
employment by the Company.

 

2.2                                 Termination
for Death or Disability.  If the
Employee’s employment is terminated by death or because of disability, as
defined in Section 3, the Company shall pay to the estate of the Employee or to
the Employee, as the case may be, the compensation that would otherwise be
payable to the Employee up to the end of the month in which the termination of
his employment because of death or disability occurs.

 

2.3                                 Termination
By the Company Without Cause or By the Employee for Good Reason.  If the Employee’s employment is terminated by
the Company without Cause, or is terminated by the Employee for Good Reason,
the Company shall (i) pay the Employee, in accordance with the Company’s
regular payroll practices, severance pay in the form of base salary
continuation (exclusive of any bonus or incentive component) for a period of
six (6) months following termination and (ii) continue to pay the Company’s
share of the premiums for 

 

 

health and dental coverage for
the Employee (in accordance with the applicable benefit plans) to the extent
the Employee is, and continues to be, eligible and participating in such plans,
subject in the each such case of clauses (i) and (ii) to the Employee’s
execution and, if applicable, non-revocation, of a severance agreement and
release drafted by and satisfactory to counsel for the Company.

 

3.                                       Definitions.

 

3.1                                 For
the purposes of this Agreement, “Cause” for termination shall be deemed to
exist upon: (i) a good faith finding by the Board (A) of willful failure of the
Employee after written notice to perform his assigned duties for the Company,
or (B) that the Employee has engaged in dishonesty, gross negligence or
misconduct, which dishonesty, gross negligence or misconduct has had a material
adverse effect on the Company; (ii) the conviction of the Employee of, or the
entry of a pleading of guilty or nolo contendere by the Employee to, any crime
involving moral turpitude or any felony; or (iii) a breach by the Employee of
any material provision of any invention and non-disclosure agreement or
non-competition and non-solicitation agreement with the Company, which breach
is not cured within ten days after written notice thereof.

 

3.2                                 For
the purposes of this Agreement, “Good Reason” shall exist upon (i) mutual
written agreement by the Employee and the Board that Good Reason exists; (ii)
the relocation of the Company’s offices such that the Employee’s daily commute
is increased by at least 50 miles without the written consent of the
Employee; (iii) reduction of the Employee’s annual base salary without the
prior consent of the Employee (other than in connection with, and substantially
proportionate to, reductions by the Company of the annual base salary of more
than 75% of its officers); or (iv) any material breach by the Company or any
successor thereto of any agreement to which the Employee and the Company are
parties, which breach is not cured within ten days of written notice thereof.

 

3.3                                 For
the purposes of this Agreement, the term “disability” shall mean the inability
of the Employee, with reasonable accommodation as may be required by state or
federal law, due to a physical or mental disability, for a period of ninety
(90) days, whether or not consecutive, during any 365-day period to perform the
services contemplated under the Offer Letter. 
A determination of disability shall be made by a physician satisfactory
to both the Employee and the Company, provided  that if the
Employee and the Company do not agree on a physician, the Employee and the
Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties.

 

4.                                       Notices.  All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 4.

 

 

5.                                       Entire
Agreement.  This Agreement, together
with the Offer Letter, constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Agreement.

 

6.                                       Amendment.  This Agreement may be amended or modified
only by a written instrument executed by both the Company and the Employee.

 

7.                                       Governing
Law.  This Agreement shall be
construed, interpreted and enforced as a sealed instrument under and in
accordance with the laws of the Commonwealth of Massachusetts, without
reference to the conflicts of laws provisions thereof.  Any action, suit or other legal proceeding
which is commenced to resolve any matter arising under or relating to any
provision of this Agreement shall be commenced only in a court of the
Commonwealth of Massachusetts (or, if appropriate, a federal court located
within Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.

 

8.                                       Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or into which the
Company may be merged or which may succeed to its assets or business, provided,
however, that the obligations of the Employee are personal and shall not be
assigned by him.

 

9.                                       Acknowledgment.  The Employee states and represents that he
has had an opportunity to fully discuss and review the terms of this Agreement
with an attorney. The Employee further states and represents that he has
carefully read this Agreement, understands the contents herein, freely and
voluntarily assents to all of the terms and conditions hereof, and signs his
name of his own free act.

 

10.                                 Miscellaneous.

 

10.1                           No
delay or omission by the Company in exercising any right under this Agreement
shall operate as a waiver of that or any other right.  A waiver or consent given by the Company on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.

 

10.2                           The
captions of the sections of this Agreement are for convenience of reference
only and in no way define, limit or affect the scope or substance of any
section of this Agreement.

 

10.3                           In
case any provision of this Agreement shall be invalid, illegal or otherwise
unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.

 

 

IN WITNESS WHEREOF, the parties hereto have
executed this Severance Terms Agreement as of the day and year set forth above.

 

	
   

  	
  NETWORK
  ENGINES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/Douglas G. Bryant

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title: Vice
  President of Administration,

  
	
   

  	
  Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Gregory
  A. Shortell

  	
   

  
	
   

  	
  Gregory A.
  ShortellExhibit 10.2

 

NETWORK ENGINES, INC.

25 Dan Road

Canton, MA 02021-2817

 

November 22, 2005

 

Confidential

 

Mr. Gregory A. Shortell

 

Dear Gregory:

 

On behalf of the Board of Directors of
Network Engines, Inc. (the “Company”), I am very pleased to offer you the
position of Chief Executive Officer and President of the Company.  This letter will memorialize our mutual
understanding of the terms of your employment and, upon acceptance of these
terms as evidenced by your signature below, the Company will work to draft an
employment agreement to reflect these terms.

 

Although we have discussed these terms
previously, I wanted to highlight them here for your clarification and
agreement:

 

Title – You will become the Chief Executive
Officer and President of the Company and will report directly to the Board of
Directors.  You will also be appointed as
a Director of the Company for a period of approximately three years, in
accordance with the Company’s by-laws and current staggered board terms.

 

Salary – Your beginning salary will be
$350,000 on an annualized basis.  This
amount will be reviewed periodically but not less than once a year by the Board’s
compensation committee.

 

Bonus – Your target bonus for the first year
of employment will be $175,000.  Your
actual final bonus awarded will be directly tied to the achievement of overall
company objectives as well as individual performance metrics, as determined by
the compensation committee.  The
compensation committee will review these performance results with you after the
final results of each fiscal quarter are known and will make all final senior
staff bonus determinations.  However,
despite Company performance in the first year of your employment, you will be
awarded not less than 50% of your target bonus for that year.

 

Moving Expenses – The Company will reimburse
your actual out of pocket expenses directly related to moving activities,
including travel expenses to the Boston area related to your housing search,
subject to receipt of written documentation evidencing such expenses.  We expect that these expenses will not exceed
$100,000.  In addition, the Company will
reimburse the costs of your temporary housing in the Boston area prior to your
permanent move.  We would expect that
such accommodations will last no more than 8 weeks.

 

 

Stock Options – You will be awarded stock
options to purchase 1,451,782 shares of common stock of the Company.  These options will be exercisable at the
closing price of the Company’s stock on the first day of your employment.  The options will be subject to the Company’s
normal vesting program, which provides for 25% of the shares awarded to be
vested on your first anniversary of employment and the balance of the award to
be equally vested over the subsequent 12 quarters of your employment.  Your stock options will be subject to
acceleration of vesting, in accordance with the Company’s existing stock option
plan provisions, in connection with an Acquisition Event (as defined) involving
the Company.

 

Severance – In the event you are asked to resign
from the Company for reasons other than “cause” (as typically defined in such
agreements), you will be entitled to six months of salary (without bonus)
payable in due course over the subsequent six months from the date of
termination, in accordance with Company payroll practices.

 

Additional Purchase Share Option – In the
event you decide that you would like to purchase shares of the Company’s common
stock, you may purchase up to $1 M worth of “restricted shares” at the closing
price of the Company’s common stock on the trading day just prior to your date
of purchase of the shares.  Such shares
will be restricted from resale for a period of one year from the date of
purchase, but will otherwise be registered for resale, subject to applicable
Company trading policies.  Any such
purchase must be in compliance with applicable Nasdaq rules and securities
laws.

 

Gregory, I believe this covers all the
conditions of your employment that we have discussed.  If you are in agreement and accept these
conditions, please sign this document below.

 

	
  Welcome aboard.

  
	
   

  
	
  Sincerely,

  
	
   

  
	
  /s/ Robert M. Wadsworth

  	
   

  
	
   

  
	
  Robert M. Wadsworth

  
	
  Director on Behalf of the Board of
  Directors

  
	
  Network Engines, Inc.

  
	
   

  
	
   

  
	
  Accepted by

  
	
   

  
	
   

  
	
  /s/ Gregory A. Shortell

  	
   

  
	
  Gregory A. Shortell

  
			

 

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