Executive Severance and Transition Benefits Agreement - Castelle and Donald L. Rich
EXECUTIVE SEVERANCE AND
TRANSITION BENEFITS AGREEMENT
THIS EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT (the
"Agreement") is entered into effective as of the 10th day of November, 1998
between DONALD L. RICH, ("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.
1.
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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 on a date that is less than eighteen
(18) months after the date Executive commences employment with the Company 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 shares of common stock subject to such options.
(b) If Executive's employment terminates on a date that is eighteen (18) months
or more after the date Executive commences employment with the Company 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 one hundred percent (100%) of the
total number of shares of common stock subject to such options.
(c) Notwithstanding (a) and (b) above, if Executive's employment terminates in
connection with a Change in Control that is a transaction that is accounted for
as a pooling of interests for financial accounting purposes, then no portion of
any option to purchase common stock of the Company granted to Executive after
November 10, 1998 shall accelerate unless the Company receives reasonable
assurances from its independent public accountants (and from the acquiring
party's independent public accountants) that in their good faith judgment such
acceleration will not affect the pooling of interests accounting treatment of
such Change in Control transaction.
2.
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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. Upon 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,
Executive shall execute the Employee Agreement and Release (the "Release") in
the form attached hereto as Exhibit A. Such Release shall specifically relate to
all of Executive's rights and claims in existence at the time of such execution
and shall confirm Executive's obligations under the Company's standard form of
proprietary information agreement. It is understood that Executive has
twenty-one (21) days to consider whether to execute such Release, and Executive
may revoke such Release within seven (7) business days after execution. In the
event Executive does not execute such Release within the twenty-one (2l)-day
period, or if Executive revokes such Release within the subsequent seven (7)
business 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.
3.
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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:
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.
4.
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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) 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;
(d) 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;
(e) any breach by the Company of any provision of this Agreement or Executive's
Employment Agreement dated November 10, 1998; or
(f) any failure by the Company to obtain the assumption of this Agreement by any
successor or assign of the Company.
5.
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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 held in San Francisco, California through Judicial Arbitration &
Mediation Services/Endispute ("JAMS") under the then existing JAMS 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. Each party in any such arbitration shall be
responsible for its own attorneys' fees, costs and necessary disbursements;
provided, however, that in the event one party refuses to arbitrate and the
other party seeks to compel arbitration by court order, if such other party
prevails, it shall be entitled to recover reasonable attorneys' fees, costs and
necessary disbursements. Pursuant to California Civil Code Section 1717, each
party warrants that it was represented by counsel in the negotiation and
execution of this Agreement, including the attorneys' fees provision herein.
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.
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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. Except as otherwise provided in Section 6.5, 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 or to 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.
7.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
CASTELLE DONALD L. RICH
By: /s/Jerome Burke /s/ DONALD L. RICH
Name: Jerome Burke
Title: Executive Vice President
Exhibit A: Employee Agreement and Release
Exhibit B: Chart of Possible Outcomes
8.
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EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing 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 against the Company.
Except as otherwise set forth in this 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 Effective Date of this Agreement, 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.
1.
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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 Effective Date of this Agreement; (B) I have the right to
consult with an attorney prior to executing this Agreement; (C) I have
twenty-one (21) days to consider this Agreement (although I may choose to
voluntarily execute this Agreement earlier); (D) I have seven (7) days following
the execution of this Agreement by the parties to revoke the Agreement; and (E)
this Agreement shall not be effective until the date upon which the revocation
period has expired, which shall be the eighth day after this Agreement is
executed by me, provided that the Company has also executed this Agreement by
that date (the "Effective Date").
CASTELLE DONALD L. RICH
By: ___________________________ __________________________
Name: ___________________________ Date:_____________________
Title: ___________________________
2.
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EXHIBIT B
POSSIBLE CASH PAYMENTS UNDER
EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT
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Termination that Does Not Qualify as Termination that Qualifies as a
a Covered Termination Covered Termination
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Prior to Change in Control Cash: -0- Cash: 12 months base pay
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0 - 89 days after Change in Control Cash: -0- Cash: 12 months base pay
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90 days after Change in Control Cash: 6 months base pay Cash: 12 months base pay
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90+ days after Change in Control Cash: 6 months base pay Cash: 18 months base pay
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