Executive Severance and Transition Benefits Agreement - Castelle and Scott C. McDonald
EXECUTIVE SEVERANCE AND
TRANSITION BENEFITS AGREEMENT
THIS EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT (the "Agreement") is
entered into effective as of the 22nd day of April, 2002, between SCOTT C.
MCDONALD, ("Executive") and CASTELLE, a California corporation (the "Company").
This Agreement is intended to provide Executive with the compensation and
benefits described herein upon the occurrence of specific events. Certain
capitalized terms used in this Agreement are defined in Article 5.
The Company and Executive hereby agree as follows:
article 1
EMPLOYMENT BY THE COMPANY
1.1 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive (i) in the event
Executive's employment with the Company terminates, or (ii) in the event there
is a Change in Control of the Company, under the circumstances described herein.
1.2 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company, and Executive's
execution of the general waiver and release described in Section 3.2.
1.3 This Agreement shall remain in full force and effect so long as
Executive is employed by the Company; provided, however, that Executive's rights
to payments and benefits under Article 2 shall continue until the Company's
obligation to provide such payments and benefits is satisfied.
1.4 This Agreement shall supersede any other agreements relating to
Executive's termination of employment with the Company.
ARTICLE 2
SEVERANCE, CHANGE IN CONTROL AND TRANSITION BENEFITS
2.1 Severance Benefits. If Executive's employment terminates due to an
Involuntary Termination Without Cause or a Voluntary Termination for Good Reason
after the date of execution of this Agreement, and without regard to any Change
in Control of the Company, the termination of employment will be a Covered
Termination. Executive shall receive Base Pay and bonus that have accrued but
are unpaid as of the date of such Covered Termination, and, within thirty (30)
days following such Covered Termination, Executive shall also receive a lump sum
payment equal to one hundred percent (100%) of Executive's Base Pay, all of the
foregoing subject to applicable tax withholding. In addition, following a
Covered Termination, Executive and Executive's covered dependents will be
eligible to continue their health care benefit coverage as permitted by COBRA
(Internal Revenue Code Section 4980B) at the same cost to Executive as in effect
immediately prior to the Covered Termination for the one (l)-year period
following the Covered Termination.
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2.2 Transition Bonus.
(a) In the event there is a Change in Control of the Company and
Executive continues to render services to the Company for ninety (90) days
following the closing of the transaction resulting in such Change in
Control, then, if:
(i) Executive's employment has been terminated and such
termination is not a Covered Termination, Executive shall be entitled
to a lump-sum payment equal to fifty percent (50%) of Executive's Base
Pay, subject to applicable withholding; or
(ii) Executive's employment has been terminated and such
termination is a Covered Termination, Executive shall be entitled to a
lump-sum payment equal to the Severance Benefits set forth in Section
2.1 of this Agreement, subject to applicable withholding.
(b) If Executive does not terminate employment with the successor
company on or before the ninetieth (90th) day after the closing of the
transaction resulting in a Change in Control and continues to render
services to the Company from and after the ninetieth (90th) day following
such closing, then Executive shall be entitled to a lump-sum payment equal
to fifty percent (50%) of Executive's Base Pay, subject to applicable
withholding, and without regard to any payment that might be received by
Executive with respect to a Covered Termination.
2.3 Acceleration of Vesting of Outstanding Options.
(a) If Executive's employment terminates and such termination is a
Covered Termination, the vesting of any options to purchase common stock of
the Company then held by Executive shall accelerate and such options shall
become immediately vested as to fifty percent (50%) of the total number of
unvested shares of common stock subject to such options.
2.4 Mitigation. Executive shall not be required to mitigate damages or
the amount of any payment provided under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for
under this Agreement be reduced by any compensation earned by Executive as
a result of employment by another employer or by any retirement benefits
received by Executive after the date of the Covered Termination, or
otherwise.
2.5 Possible Outcomes. The chart attached hereto as Exhibit B is
intended to summarize the possible cash benefits payable under this Article
2 in the circumstances indicated and is incorporated into this Agreement
for the convenience of the parties.
ARTICLE 3
LIMITATIONS AND CONDITIONS ON BENEFITS
3.1 Withholding of Taxes. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment
taxes from any payments hereunder.
3.2 Employee Agreement and Release Prior to Receipt of Benefits. On or
promptly after the occurrence of a Covered Termination and prior to the
receipt of any benefits under this Agreement on account of the occurrence
of such Covered Termination, and prior to his receipt of any payments
pursuant to Sections 2.2(a)(ii) or 2.2(b), Executive shall execute the
Employee Agreement and Release (the "Release") in the form attached hereto
as Exhibit A (or, at the Company's election, in any other form
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provided by the Company). Such Release shall specifically relate to all of
Executive's rights and claims in existence at the time of such execution
(both known and unknown) and shall confirm Executive's obligations under
the Company's standard form of proprietary information agreement. It is
understood that Executive will have, as determined by the Company, either
twenty-one (21) or forty-five (45) days to consider whether to execute such
Release, and Executive may revoke such Release within seven (7) calendar
days after execution. In the event Executive does not execute such Release
within the required time period, or if Executive revokes such Release
within the subsequent seven (7) calendar day period, no benefits shall be
payable under this Agreement and this Agreement shall be null and void.
ARTICLE 4
OTHER RIGHTS AND BENEFITS
4.1 Nonexclusivity. Except as otherwise expressly provided herein,
nothing in the Agreement shall prevent or limit Executive's continuing or
future participation in any benefit, bonus, incentive or other plans,
programs, policies or practices provided by the Company and for which
Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under other agreements
with the Company. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to
receive under any plan, policy, practice or program of the Company at or
subsequent to the date of a Covered Termination shall be payable in
accordance with such plan, policy, practice or program.
4.2 Parachute Payments. If the severance and other benefits provided
to Executive under this Agreement (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 4.2, such severance and
other benefits would be subject to the excise tax imposed by Section 4999
of the Code, then Executive's benefits under this Agreement shall be
payable either:
(a) in full; or
(b) as to such lesser amount which would result in no portion of
such severance and other benefits being subject to excise tax under
Section 499 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Executive, on an after-tax basis, of the greatest amount of
severance benefits under this Agreement. Unless the Company and Executive
otherwise agree in writing, any determination required under this Section 4.2
shall be made in writing by independent public accountants agreed to by the
Company and Executive (the "Accountants"), whose determination shall be
conclusive and binding upon Executive and the Company for all purposes. For
purposes of making the calculations required by this Section 4.2, the
Accountants may make reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section 4.2. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 4.2.
ARTICLE 5
DEFINITIONS
For purposes of the Agreement, the following terms are defined as follows:
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5.1 "Base Pay" means Executive's annual base pay at the rate in effect
during the last regularly scheduled payroll period immediately preceding
any termination of Executive's employment or, if higher, Executive's annual
base pay in effect as of the date of this Agreement if subsequent to that
time Executive has agreed to a reduction in base pay in connection with a
general reduction in the base pay of other similarly situated employees of
the Company.
5.2 "Change in Control" means (1) a dissolution, liquidation or sale
of all or substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise; or (4) the acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of
the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors.
5.3 "Covered Termination" means an Involuntary Termination Without
Cause or a Voluntary Termination for Good Reason.
5.4 "Involuntary Termination Without Cause" means Executive's
dismissal or discharge for reasons other than fraud, misappropriation,
embezzlement or intentional misconduct on the part of Executive which
resulted in material loss, damage or injury to the Company. The termination
of Executive's employment will not be deemed to be an "Involuntary
Termination Without Cause" if such termination occurs as a result of
Executive's death or disability. For purposes of the foregoing,
"disability" means a disability, as that term is defined in the long term
disability plan maintained by the Company that covers Executive, that
continues for ninety (90) days.
5.5 "Voluntary Termination For Good Reason" means that the Executive
voluntarily terminates employment within ninety (90) days after any of the
following are undertaken without Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities
which result in a material diminution or adverse change of Executive's
position, status or circumstances of employment;
(b) a reduction by the Company in Executive's Base Pay;
(c) a material reduction in the amount of quarterly performance
bonuses Executive is eligible to receive, or the elimination of the
bonus program described in Executive's Employment Agreement with the
Company as it pertains to Executive;
(d) any failure by the Company to continue in effect any benefit
plan or arrangement, including incentive plans or plans to receive
securities of the Company, in which Executive is participating
(hereinafter referred to as "Benefit Plans"), or the taking of any
action by the Company which would adversely affect Executive's
participation in or reduce Executive's benefits under any Benefit
Plans or deprive Executive of any fringe benefit then enjoyed by
Executive, provided, however, that Executive may not terminate for
Good Reason if the Company offers a range of benefit plans and
programs which, taken as a whole, are comparable to the Benefit Plans
as determined in good faith by the Company;
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(e) a relocation of Executive or the Company's principal business
offices to a location more than twenty (20) miles from the current
location at which Executive performs duties, except for required
travel by Executive on the Company's business to an extent
substantially consistent with Executive's business travel obligations;
(f) any breach by the Company of any provision of this Agreement
or Executive's Employment Agreement dated April 22, 2002; or
(g) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
ARTICLE 6
GENERAL PROVISIONS
6.1 Employment Status. This Agreement does not constitute a contract
of employment or impose on Executive any obligation to remain as an
employee, or impose on the Company any obligation (i) to retain Executive
as an employee, (ii) to change the status of Executive as an at-will
employee, or (iii) to change the Company's policies regarding termination
of employment.
6.2 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication 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 Executive's
address as listed in the Company's payroll records. Any payments made by
the Company to Executive under the terms of this Agreement shall be
delivered to Executive either in person or at the address as listed in the
Company's payroll records.
6.3 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.
6.4 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.
6.5 Arbitration. Unless otherwise prohibited by law or specified
below, all disputes, claims and causes of action, in law or equity, arising
from or relating to this Agreement or its enforcement, performance, breach,
or interpretation shall be resolved solely and exclusively by final and
binding arbitration before a single arbitrator held in San Francisco,
California through Judicial Arbitration & Mediation Services/Endispute
("JAMS") under the then existing JAMS employment arbitration rules.
However, nothing in this section is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending
the conclusion of any such arbitration.
6.6 Complete Agreement. This Agreement, including Exhibit A, Exhibit
B, and any other written agreements referred to in this Agreement,
constitutes the entire agreement between Executive and the Company and it
is the complete, final, and exclusive embodiment of their agreement with
regard to
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this subject matter. It is entered into without reliance on any
promise or representation other than those expressly contained herein.
6.7 Amendment or Termination of Agreement. This Agreement may be
changed or terminated only upon the mutual written consent of the Company
and Executive. The written consent of the Company to a change or
termination of this Agreement must be signed by an executive officer of the
Company after such change or termination has been approved by the
Compensation Committee of the Company's Board of Directors.
6.8 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.
6.9 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning hereof.
6.10 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 duties hereunder
and may not assign any rights hereunder without the written consent of the
Company, which consent shall not be withheld unreasonably.
6.11 Attorneys' Fees. If Executive brings any action to enforce his
rights hereunder, Executive shall be responsible for his own attorneys'
fees and costs incurred in connection with such action, regardless of the
outcome of such action.
6.12 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, without regard to such state's conflict of laws
rules.
6.13 Non-Publication. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure
is mandated by applicable law, made pursuant to required or standard
corporate reporting guidelines, or made to the parties' respective personal
advisors.
6.14 Construction Of Agreement. In the event of a conflict between the
text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
written above.
CASTELLE SCOTT C. MCDONALD
By: /s/ Donald L. Rich /s/ Scott C. McDonald
-------------------- ---------------------
Donald L. Rich Scott C. McDonald
April 22, 2002 April 22, 2002
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Exhibit A: Employee Agreement and Release
Exhibit B: Chart of Possible Outcomes
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EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the foregoing
Executive Severance and Transition Benefits Agreement ("Agreement"). I hereby
confirm my obligations under the Company's proprietary information agreement.
I acknowledge that I 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 favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor." I hereby expressly waive and relinquish all rights
and benefits under that section and any law of any jurisdiction of similar
effect with respect to my release of any claims I may have.
Except as otherwise set forth in the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date that I sign this Employee Agreement and Release ("Release"), including but
not limited to: all such claims and demands directly or indirectly arising out
of or in any way connected with my employment with the Company or the
termination of that employment, including but not limited to, claims of
intentional and negligent infliction of emotional distress, any and all tort
claims for personal injury, claims or demands related to salary, bonuses,
commissions, stock, stock options, or any other ownership interests in the
Company, vacation pay, fringe benefits, expense reimbursements, severance pay,
or any other form of compensation; claims pursuant to any federal, state or
local law or cause of action including, but not limited to, the federal Civil
Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act
of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of
1990; the California Fair Employment and Housing Act, as amended; tort law;
contract law; wrongful discharge; discrimination; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing;
provided, however, that nothing in this paragraph shall be construed in any way
to release the Company from its obligation to indemnify me pursuant to the
Company's indemnification obligation pursuant to agreement or applicable law or
to reduce or eliminate any coverage I may have under the Company's director and
officer liability policy, if any.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under ADEA. I also acknowledge that the consideration given
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise after the date I
sign this Release; (B) I have the right to consult with an attorney prior to
executing this Release; (C) I have [twenty-one (21)] [forty-five (45)] days to
consider this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following my execution of this Release to
revoke the Release; and (E) this Release shall not be effective until the date
upon which the revocation period has expired, which shall be the eighth day
after this Release is executed by me (the "Effective Date").
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SCOTT C. MCDONALD
/s/ Scott C. McDonald
Scott C. McDonald
Date: April 22, 2002
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EXHIBIT B
POSSIBLE CASH PAYMENTS UNDER
EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT
----------------------------------------|--------------------------------------|--------------------------------------
|Termination that Does Not Qualify as | Termination that Qualifies as a
| a Covered Termination | Covered Termination
----------------------------------------|--------------------------------------|--------------------------------------
Prior to Change in Control |Cash: -0- |Cash: 12 months base pay
----------------------------------------|--------------------------------------|--------------------------------------
0 - 89 days after Change in Control |Cash: -0- |Cash: 12 months base pay
----------------------------------------|--------------------------------------|--------------------------------------
90 days after Change in Control |Cash: 6 months base pay |Cash: 12 months base pay
----------------------------------------|--------------------------------------|--------------------------------------
90+ days after Change in Control |Cash: 6 months base pay |Cash: 18 months base pay
----------------------------------------|--------------------------------------|--------------------------------------
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