Employment Agreement - Castelle and Scott C. McDonald
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on the
twenty-second day of April, 2002, by and between SCOTT C. MCDONALD ("Executive")
and CASTELLE, a California corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The effective date of this Agreement shall be April 22, 2002.
1.2 Subject to terms set forth herein, the Company agrees to employ Executive in
the position of Chief Executive Officer and Executive hereby accepts such
employment effective as of April 22, 2002 (the "Employment Date"). During the
term of his employment with the Company, Executive will devote his best efforts
and substantially all of his business time and attention (except for vacation
periods as set forth herein and reasonable periods of illness or other
incapacities permitted by the Company's general employment policies or as
otherwise set forth in this Agreement) to the business of the Company. Executive
will work at the Company's Morgan Hill, California headquarters.
1.3 Executive shall serve in an executive capacity and shall perform such duties
as are customarily associated with the position of Chief Executive Officer and
such other duties as are assigned to Executive by the Company's Board of
Directors (the "Board"). Executive will report to the Board. Executive shall
continue to serve on the Board and the Company will use its best efforts to
re-elect Executive to the Board.
1.4 The employment relationship between the parties shall also be governed by
the general employment policies and practices of the Company and Executive will
be expected to abide by Company rules and policies, including those relating to
protection of confidential information and assignment of inventions, except that
when the terms of this Agreement differ from or are in conflict with the
Company's general employment policies or practices, this Agreement shall
control.
COMPENSATION.
Salary. Executive shall receive for services to be rendered hereunder an
annualized base salary of two hundred thousand dollars ($200,000), payable
on a semi-monthly basis and subject to standard payroll deductions and
required withholdings.
Bonus. Executive will be eligible to earn quarterly performance bonuses, in a
total amount of up to one hundred thousand dollars ($100,000) per year, if
performance criteria to be developed by the Compensation Committee of the
Board (the "Compensation Committee") are met as determined in the sole
discretion of the Compensation Committee. These performance criteria will
be established by the Compensation Committee prior to the end of the second
quarter of the year. In the event Executive exceeds the performance
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criteria established by the Compensation Committee in a given year (as
determined by the Compensation Committee), Executive will be eligible to
earn bonuses that exceed a total of one hundred thousand dollars ($100,000)
for the year. The performance criteria will be measured quarterly, and the
performance bonuses will be earned and paid (to the extent earned) on a
quarterly basis.. During the first four (4) quarters of Executive's
employment, Executive will receive guaranteed bonus payments of twenty-five
thousand dollars ($25,000) per quarter so long as he remains an employee in
good standing as of the bonus payment date.
Standard Company Benefits. Executive shall be entitled to all rights and
benefits for which he is eligible under the terms and conditions of the
standard Company benefits and compensation practices which may be in effect
from time to time and provided by the Company to its executive employees
generally.
Stock Option Awards. Subject to approval by the Compensation Committee, on April
5, 2002 the Board shall grant Executive a statutory stock option to acquire
two hundred thousand (200,000) shares of the Common Stock of the Company
(the "Initial Option"). The Initial Option shall be granted under the
Company's 1988 Incentive Stock Plan (the "Option Plan"), and the exercise
price per share will be equal to one hundred percent (100%) of the fair
market value of the Company's Common Stock, as determined under the Option
Plan on the date of grant. The Initial Option shall be subject to the terms
and conditions of the Option Plan, any amendments thereto, and the
corresponding grant agreement. Subject to Executive's Continuous Service to
the Company (as defined in the Option Plan), one-fourth (1/4) of the
Initial Option shares shall vest on the date that is six (6) months after
the Employment Date and an additional one-twenty-fourth (1/24) of the
Initial Option shares shall vest each calendar month for eighteen (18)
months thereafter . In addition, at such time as enough shares of Common
Stock become available for grant under the Option Plan or under a new stock
option plan, subject to approval by the Compensation Committee, the Board
shall grant to Executive a second stock option grant to purchase an
additional one hundred thousand (100,000) shares of the Company's Common
Stock (the "Second Option") at an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined under the
applicable option plan. The Second Option shall be subject to the terms and
conditions of the applicable stock option plan, any amendments thereto, and
the corresponding grant agreement. The vesting commencement date for the
Second Option shall be the second anniversary of the Employment Date and,
subject to Executive's Continuous Service to the Company (as defined in the
applicable stock option plan), the Second Option shares will become fully
vested on the third year anniversary of the Employment Date. Vesting of
shares of the Initial Option and Second Option may be accelerated upon a
termination of Executive's employment with the Company to the extent
provided by the provisions of the Executive Severance and Transition
Benefits Agreement that Executive will enter into with the Company.
Executive Severance And Transition Benefits Agreement. Effective as of the
Employment Date, Executive will be eligible to enter into an Executive
Severance and Transition Benefits Agreement with the Company in the form
attached hereto as Exhibit A (the "Severance Agreement"). The Severance
Agreement will provide the sole severance benefits that Executive will be
eligible to receive upon Executive's termination of employment with the
Company for any reason.
PROPRIETARY INFORMATION OBLIGATIONS.
Agreement. As a condition of his employment, Executive agrees to execute and
abide by the Proprietary Information and Inventions Agreement attached
hereto as Exhibit B.
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Remedies. Executive's duties under the Proprietary Information and Inventions
Agreement shall survive termination of his employment with the Company.
Executive acknowledges that a remedy at law for any breach or threatened
breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach
or threatened breach.
OUTSIDE ACTIVITIES.
Except for Executive's current directorship positions with the following two
outside companies (Octant Technologies, Inc. and Epsilon LLC), and with the
prior written consent of the Board, Executive will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise, other than ones in which Executive is a passive
investor. Executive may engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of
his duties hereunder.
During the term of his employment by the Company, except on behalf of the
Company, Executive will not directly or indirectly, whether as an officer,
director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any
other person, corporation, firm, partnership or other entity whatsoever
which were known by him to compete directly with the Company, throughout
the world, in any line of business engaged in (or planned to be engaged in)
by the Company; provided, however, that anything above to the contrary
notwithstanding, he may own, as a passive investor, securities of any
competitor corporation, so long as his direct holdings in any one such
corporation shall not in the aggregate constitute more than one percent
(1%) of the voting stock of such corporation
AT-WILL EMPLOYMENT RELATIONSHIP. Both the Company and Executive shall
have the right to terminate Executive's employment with the Company at any time,
with or without cause or prior notice. If Executive's employment with the
Company is terminated, Executive will be eligible to receive severance benefits
only to the extent provided by the Severance Agreement.
NONINTERFERENCE.
While employed by the Company, and for one (1) year
immediately following his employment termination date, Executive agrees not to
interfere with the business of the Company by soliciting, attempting to solicit,
inducing, or otherwise causing any employee of the Company to terminate his or
her employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company.
GENERAL PROVISIONS.
Notices. Any notices provided hereunder must be in writing and shall be deemed
effective upon the earlier of personal delivery (including personal
delivery by facsimile) or the third day after mailing by first class mail,
to the Company at its primary office location and to Executive at his
address as listed on the Company payroll.
Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provisions had never been contained
herein.
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Waiver. If either party should waive any breach of any provisions of this
Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
Right to Work. As required by law, this Agreement is subject to satisfactory
proof of Executive's right to work in the United States.
Complete Agreement. This Agreement, including its exhibits, constitutes the
complete, final and exclusive embodiment of Executive's employment
agreement with the Company. This Agreement is entered into without reliance
upon any promise, warranty or representation, written or oral, on any
subject concerning Executive's employment with the Company other than those
expressly contained herein, and it supersedes any other such promises,
warranties, representations or agreements. This Agreement cannot be
modified or amended except in a writing signed by the Executive and a duly
authorized member of the Board.
Counterparts. This Agreement may be executed in separate counterparts, any one
of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement. Facsimile
signatures shall suffice as original signatures.
Headings. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except
that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the
Company, which shall not be withheld unreasonably.
Attorneys' Fees. If either party hereto brings any action to enforce his or its
rights hereunder, each party in any such action shall be responsible for
its own attorneys' fees and costs incurred in connection with such action.
Choice of Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State
of California
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
CASTELLE
By: /s/ Donald L. Rich
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Donald L. Rich
CEO
Accepted and agreed this
Twenty-second day of April, 2002
/s/ Scott C. McDonald
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SCOTT C. MCDONALD
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