BSQUARE CORP /WA
EXHIBIT 10.26
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<TYPE>EX-10.26
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<DESCRIPTION>EXHIBIT 10.26
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit 10.26</B>
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt">September&nbsp;26, 2007
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Rajesh Khera<BR>
5800 145th Avenue SE<BR>
Bellevue WA 98006

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dear Raj,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BSQUARE CORPORATION is pleased to extend to you an offer for employment as our Vice President of
Products. You will be paid bi-weekly at a rate equivalent to an annual salary of $160,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition you will be eligible to participate in BSQUARE&#146;s executive bonus program. Your annual
bonus potential will be up to 30% of your base salary. Your bonus for 2007 will be pro-rated based
on how many months you are actually employed by BSQUARE in 2007. In 2008 and beyond you will have
full participation in the executive bonus program.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BSQUARE&#146;s executive bonus plan is structured such that the company must achieve certain
profitability targets and you must achieve individual objectives that you and I will agree upon
before you earn any bonus. Bonuses are paid yearly, in the first quarter following the close of
our fiscal year (Q1-2008 will be our next executive bonus payout). Bonuses are paid in a
combination of cash and restricted shares of BSQUARE stock. The cash portion of your bonus will be
up to 25% of your base salary. Any bonus earned above 25% of your base salary will be paid in
restricted BSQUARE shares, 50% of which will vest at the end of the first year after award, with
the remaining 50% vesting at the end of the 2<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> year after award. BSQUARE&#146;s executive
bonus plan also allows for you to earn up to 150% of your target bonus (45% of your base salary)
should we exceed profitability targets. The payout ratios between cash and restricted stock would
remain the same in either case.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Bonus payout is at the sole discretion of the CEO and Compensation Committee of our Board of
Directors. You must be employed by BSQUARE at the end of the calendar year to be eligible to
receive any bonus payout.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Your job classification is Executive. You will be hired as an exempt employee, so you will not be
entitled to overtime. You will be a Section&nbsp;16 Executive, subject to certain BSQUARE stock trading
restrictions and reporting requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BSQUARE CORPORATION extends the following benefits:
</DIV>


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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a medical, dental, vision, life and disability plan</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a 401(k) retirement plan, with company matching contributions</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>10 paid holidays and 15&nbsp;days of paid time off</TD>
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<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Options to purchase 25,000 shares of company common stock. Such shares shall be
Incentive Stock Options (ISOs), which vest 25% annually over four years in four equal
installments. The strike price shall be the closing price of BSQUARE stock on your first
day of employment. Stock options shall expire after 10&nbsp;years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Because we anticipate that you will be a heavy wireless user in the course of conducting
BSQUARE business, you will be given use of a company mobile phone, and will be placed on
the company wireless plan.</TD>
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</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, if after 90&nbsp;days of employment in good-standing with BSQUARE, your employment with
BSQUARE is terminated when neither &#147;cause&#148; nor &#147;long term disability&#148; exists, and provided that you
release BSQUARE Corporation and its agents from any and all employment-related claims in a signed,
written release satisfactory in form and substance to BSQUARE Corporation, BSQUARE Corporation
shall pay you a consideration payment as follows:
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">BSQUARE Corporation shall pay to you severance equal to four months of your then annual base
salary from your termination date. If BSQUARE Corporation gives you at least a full month&#146;s
advance notice of termination, however, the severance payments shall be reduced by one
month&#146;s salary for each full month of advance termination notice given. These severance
payments shall be paid out at the rate of your final base salary on regular payroll days
post termination, subject to legally required and any individually agreed upon payroll
deductions. During the period subsequent to your termination date in which you are being
paid the severance amounts defined previously, you would <U>not</U> be considered an
employee and would therefore receive no Paid Time Off accrual, nor would you be entitled to
benefits under BSQUARE&#146;s health and welfare plans or retirement savings plan as an active
employee. Your stock options will continue to vest until 180 calendar days from our
termination date. You will then have ninety days in which to exercise any vested options,
and any non-vested options would terminate.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For purposes of the severance provision indicated above, &#147;cause&#148; is defined on attachment A hereto,
and &#147;long term disability&#148; is defined in our sponsored Long Term Disability group insurance plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">BSQUARE CORPORATION is an established company with a promising outlook. Your meaningful
participation will greatly enhance our ability to retain our current business relationships and,
will enable BSQUARE CORPORATION to pursue and secure business in the future. YOUR EMPLOYMENT IS
AT-WILL AND ACCORDINGLY, YOU OR BSQUARE CORPORATION MAY TERMINATE THIS EMPLOYMENT RELATIONSHIP AT
ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This offer is contingent upon compliance with the Immigration Reform and Control Act of 1986. The
Act requires you to establish your identity and employment eligibility. To do so, on your start
date you will be required to complete Section&nbsp;I of the Employment Eligibility Verification Form,
I-9. This offer is also contingent on your acceptance and return of the BSQUARE Proprietary
Rights Agreement provided herewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Please signify your acceptance of this offer by signing a copy of this letter and the attached
Proprietary Rights Agreement and returning both by September&nbsp;27th, 2007. As we have discussed,
your start date is under discussion and to be mutually agreed upon by both of us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On behalf of BSQUARE CORPORATION, I am really excited to have you on board! If you have any
questions or concerns, please feel free to contact me.
</DIV>

<DIV align="center">
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sincerely,
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Accepted By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Brian T. Crowley</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/26/07</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Rajesh Khera</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/27/07</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Brian Crowley
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rajesh Khera
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer<BR>
BSQUARE Corporation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ATTACHMENT A</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this agreement &#147;cause&#148; means and is limited to dishonesty, fraud, commission
of a felony or of a crime involving moral turpitude, destruction or theft of Company property,
physical attack to a fellow employee, intoxication at work, use of controlled substances or alcohol
to an extent that materially impairs Employee&#146;s performance of his or her duties, willful
malfeasance or gross negligence in the performance of Employee&#146;s duties, violation of law in the
course of employment that has a material adverse impact on Company or its employees, Employee&#146;s
failure or refusal to perform Employee&#146;s duties, Employee&#146;s failure or refusal to follow reasonable
instructions or directions, misconduct materially injurious to Company, neglect of duty, poor job
performance, or any material breach of Employee&#146;s duties or obligations to Company that results in
material harm to Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this agreement, &#147;neglect of duty&#148; means and is limited to the following
circumstances: (i)&nbsp;Employee has, in one or more material respects, failed or refused to perform
Employee&#146;s job duties in a reasonable and appropriate manner (including failure to follow
reasonable directives), (ii)&nbsp;the supervisor, or a duly appointed representative of the supervisor,
has counseled Employee in writing about the neglect of duty and given Employee a reasonable
opportunity to improve, and (iii)&nbsp;Employee&#146;s neglect of duty either has continued at a material
level after a reasonable opportunity to improve or has reoccurred at a material level within one
year after Employee was last counseled.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this agreement, &#147;poor job performance&#148; means and is limited to the following
circumstances: (i)&nbsp;Employee has, in one or more material respects, failed to perform Employee&#146;s
job duties in a reasonable and appropriate manner, (ii)&nbsp;the supervisor, or a duly appointed
representative of the supervisor, has counseled Employee in writing about the performance problems
and given Employee a reasonable opportunity to improve, and (iii)&nbsp;Employee&#146;s performance problems
either have continued at a material level after a reasonable opportunity to improve or the same or
similar performance problems have reoccurred at a material level within one year after Employee was
last counseled.
</DIV>

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