Sample Business Contracts

Executive Severance and Transition Benefits Agreement - Castelle and Scott C. McDonald

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                             EXECUTIVE SEVERANCE AND
                          TRANSITION BENEFITS AGREEMENT

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


     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.


     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

          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


          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


     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


For purposes of the Agreement, the following terms are defined as follows:


          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;


               (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

          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


     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

          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

          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

          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


Exhibit A: Employee Agreement and Release
Exhibit B: Chart of Possible Outcomes


                                    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").



/s/ Scott C. McDonald
Scott C. McDonald

Date: April 22, 2002


                                    EXHIBIT B

                          POSSIBLE CASH PAYMENTS UNDER

                                        |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