<PAGE>   1
                                                                    Exhibit 10.1


     EMPLOYMENT AGREEMENT (the "Agreement") made as of August 9, 2001, by and
     between NetSilicon, Inc., a Massachusetts corporation (the "Company"), and
     Cornelius Peterson, VIII (the "Executive").

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     WHEREAS, the Company wishes to secure the future services of the Executive
with the Company pursuant to the terms of this Agreement.

     NOW, THEREFORE, the parties agree as follows:

1)   TERM.

     a)   The Company hereby agrees to continue to employ the Executive and the
          Executive hereby agrees to continue employment with the Company, in
          the positions set forth in Section 2 below, for the Term (as defined
          below), subject to the terms and conditions of this Agreement.

     b)   The term (the "Term") of this Agreement shall commence as of the date
          hereof (the "Effective Date") and shall continue until terminated in
          accordance with Section 4.

2)   POSITION, DUTIES AND RESPONSIBILITIES.

     a)   During the Term, the Executive shall be employed by the Company and
          shall serve the Company as its Chairman of the Board of Directors
          ("Chairman") and Chief Executive Officer ("CEO"). The Executive shall
          have such duties and responsibilities as are incident to, or
          reasonably requested in connection with, such positions, as well as
          such other comparable duties and responsibilities as may be assigned
          to him by the Company and/or the Company's Board of Directors ("BOD").
          The Executive shall report to the BOD or to such comparable or higher
          level of authority and responsibility within the Company as the BOD
          may reasonably determine.

     b)   During the Term, the Executive shall serve the Company faithfully,
          diligently and to the best of the Executive's ability, and shall
          devote substantially all of his business time and efforts to such
          service. The Executive also shall not engage in any other business
          activity without the written consent of the Company, except that the
          Executive may (i) carry on charitable, civic, or other not-for-profit
          activities or (ii) manage his personal investments, provided that none
          such activities conflict with the Executive's duties under this
          Agreement and the Non-Disclosure, Proprietary Rights and
          Non-Solicitation Agreement dated May 2, 2000 (the "Nondisclosure
          Agreement"). If the Executive shall be elected to other offices of the
          Company or any of its affiliates, and if the Executive shall in his
          sole discretion accept in writing the election to such offices, he
          shall serve in such positions without further compensation than
          provided for in this Agreement. The Executive shall perform his
          services under this Agreement at such locations as may be required by
          the Company from time to time, but the Company will not require the
          Executive to permanently relocate to an office more than 50 miles from
          the Company's Waltham, Massachusetts office.

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     c)   The Executive agrees to comply with the policies and procedures of the
          Company applicable to its U.S. employees generally from time to time
          that are in force (which may be amended, revised or supplemented at
          any time in the Company's and/or the BOD's sole discretion), provided,
          however, that to the extent there is a conflict between the terms of
          this Agreement and the policies and procedures of the Company, the
          terms of this Agreement shall govern unless otherwise specified
          herein.

3)   COMPENSATION AND BENEFITS. During the term of this Agreement, the Company
     shall pay the Executive as compensation for his performance of his duties
     and obligations hereunder, the following:

     a)   BASE SALARY. During the Term, the Company shall pay to the Executive a
          base salary at the rate of U.S. $20,833.33 per month ("Base Salary"),
          subject to annual increase at the discretion of the BOD in accordance
          with the Company's executive compensation practices, and payable in
          accordance with the regular payroll practices of the Company as may be
          modified or established from time to time.

     b)   INCENTIVE COMPENSATION. During the Term, the Executive shall be
          eligible to receive additional quarterly incentive compensation (the
          "Incentive Bonus"). The amount of the Incentive Bonus, if any, shall
          be determined by the BOD's Compensation Committee (which may put in
          place an Executive Incentive Plan), within a reasonable time after
          submission of Executive's recommendations to the BOD's Compensation
          Committee (the "Compensation Committee"). The Compensation Committee
          may consider, among other things, the Executive's actual attainment of
          specific goals as established by the BOD, and the Company's overall
          performance. The BOD's Compensation Committee will make all
          determinations regarding the Executive's eligibility for the quarterly
          Incentive Bonus at its sole discretion. Subject to the provisions of
          Section 4 herein, the Executive must be employed by the Company in
          good standing (as determined by the BOD) as the Company's CEO and
          Chairman to be eligible for any Incentive Bonus payments, which will
          be subject to applicable taxes and payable in accordance with the
          Company's normal bonus pay practices as may be established or modified
          from time to time.

     c)   STOCK OPTIONS. The Executive has received certain stock options as
          part of the Company's initial public offering, as well as additional
          awards thereafter in accordance with Company option policy. The
          Executive shall be eligible to receive additional stock option awards
          as determined by the BOD in its sole discretion.

     d)   BENEFITS. Subject to any contribution therefor generally required of
          senior executives of the Company, the Executive shall be eligible to
          participate in all employee benefits plans, including the Company's
          health and dental plans, as adopted by the BOD and in effect for
          senior Company executives. Such participation shall be subject to (i)
          the terms of the applicable plan documents, (ii) generally applicable
          Company policies, and (iii) the discretion of the BOD or any
          administrative or other committee provided for in or contemplated by
          such plans.
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     e)   EXPENSES. The Company shall pay or reimburse the Executive for all
          reasonable business expenses incurred or paid by the Executive in the
          performance of his responsibilities hereunder in accordance with the
          Company's prevailing policy and practice relating to reimbursements as
          established, modified or amended from time to time. The Executive must
          provide substantiation and documentation of these expenses to the
          Company in order to receive reimbursement, as required pursuant to
          Company policy.

     f)   VACATION. The Executive shall be entitled to accrue up to four (4)
          weeks of vacation per calendar year, to be taken and paid in
          accordance with Company policy.

4)   TERMINATION OF EMPLOYMENT.

     a)   TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the
          Executive's employment and this Agreement for Cause (as defined in
          Section 6(a)) upon written notice to the Executive and expiration of
          any cure periods as set forth in Section 6(a). In the event of
          termination for Cause, the Executive shall be entitled to no payments,
          salary continuation, severance or other benefits, except for:

          (i)   Base Salary earned and accrued but unpaid through the date of
                Executive's termination of employment;

          (ii)  any Incentive Bonus payment, as determined by the Compensation
                Committee pursuant to Section 3(b) herein, for the quarter
                previously ended prior to the Executive's termination. In
                addition, in its sole discretion, the Compensation Committee may
                provide an additional incentive bonus payment for the quarter in
                which the Executive's termination of employment occurred;

          (iii) payment for accrued but unused vacation time up to the
                Executive's termination of employment;

          (iv)  statutory benefit continuation rights in accordance with the
                Consolidated Omnibus Budget Reconciliation Act of 1985
                ("COBRA"), provided Executive makes the appropriate voluntary
                contribution payments and subject to applicable law and the
                requirements of the Company's health insurance plans then in
                effect; and

          (v)   all expenses reimbursable to the Executive and unpaid as of the
                date of Executive's termination of employment.

     b)   TERMINATION DUE TO DEATH OR PERMANENT DISABILITY. In the event of the
          termination of the Executive's employment and this Agreement due to
          the Executive's death or Disability (as defined in Section 6(c)), the
          Executive, or the Executive's legal representative, shall be entitled
          to no payments, salary continuation, severance or other benefits,
          except for:

          (i)   Base Salary to the extent earned and accrued but unpaid through
                the date of Executive's termination of employment, as well as a
                one time lump sum cash payment equivalent to twelve (12) times
                the Executive's monthly Base Salary, to be paid within a
                reasonable time, not to exceed ninety (90) days, after the
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                Executive's death or Disability. subject to any offset or
                reduction as set forth in Section 4(b)(iv);

          (ii)  any Incentive Bonus payment, as determined by the Compensation
                Committee pursuant to Section 3(b) herein, for the quarter
                previously ended prior to the Executive's termination. In
                addition, in its sole discretion, the Compensation Committee may
                provide an additional incentive bonus payment for the quarter in
                which the Executive's termination of employment occurred;

          (iii) payment for accrued but unused vacation time up to the
                Executive's termination of employment;

          (iv)  all benefits the Executive would otherwise receive upon a
                Disability or upon death under any benefit plan covering the
                Executive, PROVIDED, HOWEVER, that all such benefits that the
                Executive receives or would otherwise receive upon a Disability
                shall be offset against any other payments under Section 4(b)(i)
                of this Section 4(b), such that any amount potentially owing to
                the Executive under Section 4(b)(i) is reduced, but not less
                than zero, by the monetary value of the benefits (referenced in
                this subsection) received by the Executive;

          (v)   statutory benefit continuation rights in accordance with COBRA,
                provided Executive makes the appropriate voluntary contribution
                payments and subject to applicable law and the requirements of
                the Company's health insurance plans then in effect;

          (vi)  all expenses reimbursable to the Executive and unpaid as of the
                date of Executive's termination of employment; and

          (vii) the Executive's unvested stock options shall vest immediately
                and all of the Executive's stock options shall remain in full
                force and effect and may be exercised at any time up to their
                latest possible date of expiration as set out in each stock
                option agreement entered into between the Executive and the
                Company and applicable to such options (such option agreements
                existing as of the date of this Agreement and the latest
                possible date of expiration of the option contained in each such
                option agreement as of the date of this Agreement are identified
                in Exhibit A hereto) notwithstanding any provision contained in
                any existing or future stock option agreement entered into
                between the Executive and the Company (as such agreements may be
                amended from time to time) or in the NetSilicon, Inc. Amended
                and Restated 1998 Incentive and Non-Qualified Stock Option Plan
                (as amended from time to time) or the NetSilicon, Inc. 2001
                Stock Option and Incentive Plan (as amended from time to time)
                that provides for either a lesser period of time within which to
                exercise such options or forfeiture of any option granted
                thereunder. In the event that any date of expiration contained
                in any existing or future stock option agreement entered into
                between the Executive and the Company shall be extended to a
                later date in time, then the Executive's right to exercise
                options pursuant to such stock option agreement shall be
                extended to that later date in time.
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                During the Term, the Company shall maintain disability insurance
                policies, for which the Executive is eligible, comparable to the
                insurance policies for which the other senior executives of the
                Company are eligible.

     c)   TERMINATION WITHOUT CAUSE. In the event that the Executive's
          employment and this Agreement is terminated by the Company without
          Cause, the Executive shall be entitled to no payments, salary
          continuation, severance or other benefits, except for:

          (i)   monthly severance payments in an amount equal to the Executive's
                monthly Base Salary at the time of termination, for twenty-four
                (24) months after the Executive's termination;

          (ii)  a bonus in the form of a lump sum cash payment equal to twelve
                (12) times the Executive's monthly Base Salary at the rate
                effective as of the Executive's last day of employment;

          (iii) payment for accrued but unused vacation time up to the
                Executive's termination of employment;

          (iv)  all expenses reimbursable to the Executive and unpaid as of the
                date of Executive's termination of employment;

          (v)   if the Executive elects after the termination of his employment
                and in accordance with COBRA to continue health coverage under
                the same plans available to active Company employees, under the
                same rules, restrictions and regulations applicable thereto, the
                Company shall make premium payments on his behalf until the
                earlier of (x) eighteen (18) months from the last day of the
                Executive's employment or (y) the date on which the Executive
                becomes ineligible to receive COBRA benefits;

          (vi)  outplacement employment services from a provider chosen by the
                Company and the Executive for a period of two (2) years after
                the date of termination up to an aggregate amount of $20,000;
                and

          (vii) the Executive's unvested stock options shall vest immediately
                and all of the Executive's stock options shall remain in full
                force and effect and may be exercised at any time up to their
                latest possible date of expiration as set out in each stock
                option agreement entered into between the Executive and the
                Company and applicable to such options (such option agreements
                existing as of the date of this Agreement and the latest
                possible date of expiration of the option contained in each such
                option agreement as of the date of this Agreement are identified
                in Exhibit A hereto) notwithstanding any provision contained in
                any existing or future stock option agreement entered into
                between the Executive and the Company (as such agreements may be
                amended from time to time) or in the NetSilicon, Inc. Amended
                and Restated 1998 Incentive and Non-Qualified Stock Option Plan
                (as amended from time to time) or the NetSilicon, Inc. 2001
                Stock

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                Option and Incentive Plan (as amended from time to time) that
                provides for either a lesser period of time within which to
                exercise such options or forfeiture of any option granted
                thereunder. In the event that any date of expiration contained
                in any existing or future stock option agreement entered into
                between the Executive and the Company shall be extended to a
                later date in time, then the Executive's right to exercise
                options pursuant to such stock option agreement shall be
                extended to that later date in time.

     d)   VOLUNTARY TERMINATION. The Executive may voluntarily terminate his
          employment only upon sixty (60) days' written notice to the BOD
          ("Voluntary Termination"). In the event of a Voluntary Termination,
          the Company may accelerate Executive's departure date (and terminate
          this Agreement) and will have no obligation to pay Executive after his
          actual departure date. In the event of a Voluntary Termination, the
          Executive shall be entitled to no payments, salary continuation,
          severance or other benefits, except for (i) those payments and
          benefits as set forth in Section 4(a) and (ii) any of the Executive's
          stock options due to vest within sixty (60) days of the Executive's
          written notice of Voluntary Termination to the BOD, which shall vest
          immediately.

     e)   TERMINATION BY THE EXECUTIVE FOR GOOD REASON. In the event the
          Executive decides to terminate this Agreement and his employment for
          Good Reason (as defined in Section 6(e)), the Executive must give
          notice of such Good Reason to the Company and the BOD. If the basis
          for such Good Reason is not cured (as determined by the BOD in good
          faith) within thirty (30) days after the Company and the BOD receive
          written notice specifying the basis of such Good Reason, this
          Agreement, and the Executive's employment, shall terminate. In the
          event of a termination by the Executive for Good Reason, the Executive
          shall be entitled to the severance payments and benefits as set forth
          in Section 4(c).

     f)   TERMINATION BY THE EXECUTIVE BY QUALIFIED RETIREMENT. The Executive
          may terminate his employment as CEO, or as both CEO and Chairman, in
          the event that the following eligibility criteria for retirement are
          met: (i) the Executive attains the age of 62; (ii) the Executive
          provides six (6) months' prior written notice to the BOD of his
          intention to retire and the effective date of such retirement; (iii)
          the Executive proposes a successor CEO for the Company; (iv) the BOD
          selects and approves a successor CEO; and (v) a successor CEO accepts
          such appointment ("Qualified Retirement"). The Company and/or BOD may
          accelerate the Executive's effective date of Qualified Retirement. In
          the event of a Qualified Retirement, the Company will have no
          obligation to pay Executive after his effective date of retirement,
          except as set forth in Subsections 1, 2 and 3 of this Section 4(f).

          1.   QUALIFIED RETIREMENT AS CEO AND CHAIRMAN. In the event the
               Executive terminates his employment as CEO and Chairman by virtue
               of a Qualified Retirement, the Executive shall be entitled to no
               payments, salary continuation, severance or other benefits,
               except for:
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               (i)   a bonus in the form of a lump sum cash payment equal to
                     twelve (12) times the Executive's monthly Base Salary at
                     the rate effective as of the Executive's last day of
                     employment;

               (ii)  the Executive's unvested stock options shall vest
                     immediately and all of the Executive's stock options shall
                     remain in full force and effect and may be exercised at any
                     time up to their latest possible date of expiration as set
                     out in each stock option agreement entered into between the
                     Executive and the Company and applicable to such options
                     (such option agreements existing as of the date of this
                     Agreement and the latest possible date of expiration of the
                     option contained in each such option agreement as of the
                     date of this Agreement are identified in Exhibit A hereto)
                     notwithstanding any provision contained in any existing or
                     future stock option agreement entered into between the
                     Executive and the Company (as such agreements may be
                     amended from time to time) or in the NetSilicon, Inc.
                     Amended and Restated 1998 Incentive and Non-Qualified Stock
                     Option Plan (as amended from time to time) or the
                     NetSilicon, Inc. 2001 Stock Option and Incentive Plan (as
                     amended from time to time) that provides for either a
                     lesser period of time within which to exercise such options
                     or forfeiture of any option granted thereunder. In the
                     event that any date of expiration contained in any existing
                     or future stock option agreement entered into between the
                     Executive and the Company shall be extended to a later date
                     in time, then the Executive's right to exercise options
                     pursuant to such stock option agreement shall be extended
                     to that later date in time; and

               (iii) when the time period in Section 4(c)(v) concludes, the
                     Company will provide the Executive with health and dental
                     insurance comparable to that provided to the Company's
                     executive officers, to be selected and approved by the BOD
                     at its sole discretion, from the date on which the time
                     period in Section 4(c)(v) concludes until the Executive's
                     death.

          2.   QUALIFIED RETIREMENT AS CEO; EXECUTIVE REMAINS AS CHAIRMAN. In
               the event the Executive terminates his employment as CEO by
               virtue of a Qualified Retirement, but chooses to remain as the
               Company's Chairman, the BOD may terminate this Agreement and
               establish at its sole discretion a new salary and benefits
               package for the Executive, commensurate with his duties as
               Chairman. In addition, the Executive will be eligible for
               severance payments and benefits as set forth in Section 4(f)(1).

          3.   EXECUTIVE RESIGNS AS CHAIRMAN; REMAINS AS CEO. If the Executive
               resigns as Chairman, but chooses to remain as the Company's CEO,
               this Agreement shall remain in full force and effect except that
               the reference to the position as

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               Chairman of the Board in Section 2(a) of this Agreement and all
               other references and provisions relating to "Chairman" in this
               Agreement shall be disregarded. Upon termination of the
               Executive's employment as the Company's CEO, the Executive shall
               receive the severance payments and benefits, if any, in
               accordance with Section 4 of this Agreement.

     g)   CONSULTING/TRANSITIONAL SERVICES. In the event of a Voluntary
          Termination or a Qualified Retirement as CEO, the Executive agrees to
          provide for a period of three (3) months, or longer if agreed to by
          the Executive, transitional and/or consulting services to the Company
          as may reasonably be requested by the Company's new CEO and/or the BOD
          from time to time. Such transitional and/or consulting duties may
          include, but not be limited to, transitioning the Executive's duties
          to the Company's new CEO; assisting the Company and/or the BOD in any
          Company-related litigation; and assisting the Company and/or the BOD
          with any other Company-related matters that may arise from time to
          time. The Company shall pay the Executive an amount equal to the Base
          Salary pursuant to Section 3(a) herein for any full-time transitional
          and/or consulting services (or a pro-rated portion thereof for less
          than full-time transitional and/or consulting services) provided to
          the Company by the Executive under this Section 4(g).

     h)   EXECUTION OF RELEASE OF CLAIMS. In order to receive any of the
          severance payments and benefits outlined in Section 4(b), 4(c), 4(e)
          or 4(f), as the case may be, the Executive must execute a
          comprehensive release of all claims in favor of NetSilicon and its
          officers, directors, employees, shareholders, agents and/or
          representatives.

     i)   CESSATION OF SEVERANCE PAYMENTS AND BENEFITS. If the Board in good
          faith determines that the Executive breached in any material respect
          his obligations under this Agreement or the Nondisclosure Agreement,
          the Company may immediately cease payment of all severance and/or
          benefits described in this Agreement. This cessation of severance
          and/or benefits shall be in addition to, and not as an alternative to,
          any other remedies in law or in equity available to the Company,
          including the right to seek specific performance or an injunction.

5)   CHANGE OF CONTROL. In the event of a Change of Control, the Executive's
     unvested stock options shall vest immediately and all of the Executive's
     stock options shall remain in full force and effect and may be exercised at
     any time up to their latest possible date of expiration as set out in each
     stock option agreement entered into between the Executive and the Company
     and applicable to such options (such option agreements existing as of the
     date of this Agreement and the latest possible date of expiration of the
     option contained in each such option agreement as of the date of this
     Agreement are identified in Exhibit A hereto) notwithstanding any provision
     contained in any existing or future stock option agreement entered into
     between the Executive and the Company (as such agreements may be amended
     from time to time) or in the NetSilicon, Inc. Amended and Restated 1998
     Incentive and Non-Qualified Stock Option Plan (as amended from time to
     time) or the NetSilicon, Inc. 2001 Stock Option and Incentive Plan (as
     amended from time to time) that provides for either a lesser period of time
     within which to exercise such options or forfeiture of any option granted
     thereunder. In the event that any date of expiration contained in any
     existing or future stock

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                                      -9-


     option agreement entered into between the Executive and the Company shall
     be extended to a later date in time, then the Executive's right to exercise
     options pursuant to such stock option agreement shall be extended to that
     later date in time.

6)   DEFINITIONS.

     For purposes of the Agreement, the following terms shall be defined as set
forth below:

     a)   "Cause", which will be determined by the BOD in good faith and at its
          sole discretion, is defined as:

          (i)   the continued failure or refusal of the Executive substantially
                to perform Executive's duties and obligations to the Company
                (other than any such failure resulting from the Executive's
                Disability) and which is not cured within fifteen (15) days of
                notice thereof from the Company;

          (ii)  gross negligence in the performance of the Executive's duties,
                willful misfeasance in connection with the Executive's work,
                dishonesty, disloyalty, or a breach of fiduciary duty by the
                Executive;

          (iii) the commission by the Executive of an act of fraud,
                embezzlement, misappropriation of any money or other assets or
                property (whether tangible or intangible), or any other illegal
                conduct in connection with the Executive's performance of his
                duties;

          (iv)  the Executive's conviction of or pleading of nolo contendere to
                a felony;

          (v)   disregard in any material respect of the rules or policies of
                the Company, which, if curable, has not been cured within
                fifteen (15) days after notice thereof from the Company;

          (vi)  engagement by the Executive in misconduct which is injurious in
                any material respect to the Company; or

          (vii) the commission of an act which constitutes unfair competition
                with the Company or which induces any customer of the Company to
                breach a contract with the Company, or the Executive's material
                breach of this Agreement, the Nondisclosure Agreement, or any
                other written agreement with the Company.

     b)   "Change of Control" means: (i) the merger or consolidation of the
          Company with or into any other corporation or entity, or the merger or
          consolidation of any other corporation or entity into or with the
          Company, which results in the Company or those persons who are
          shareholders of the Company as of the date hereof holding less than
          50% in voting power of the outstanding capital stock of the surviving
          corporation; (ii) any sale or transfer in a single transaction or
          series of related transactions of all or substantially all of the
          Company's assets as of the transaction date (or the date of the first
          transaction in a series of related transactions); (iii) a third
          "person," including a "group," becomes the "beneficial owner" (as
          these terms are defined in Section 13(d) of the Securities Exchange
          Act of 1934, as amended) of shares of the Company having more than 50%
          of the voting power of the outstanding capital stock of the Company;
          or (iv) any transaction or series of related transactions in which a
          third "person," including a "group" (as these

<PAGE>   10
                                      -10-


          terms are defined in Section 13(d) of the Securities Exchange Act of
          1934, as amended), appoints or elects a majority of the Board of
          Directors of the Company.

     c)   "Disability" means the Executive's inability, for a period of ninety
          (90) consecutive days, to perform, with or without a reasonable
          accommodation (that does not subject the Company to an undue
          hardship), the essential functions of his position by reason of mental
          or physical impairment.

     d)   "Voluntary Termination" means a termination of employment during the
          Term by the Executive on the Executive's own initiative other than a
          termination for death or Disability under Section 4(b) or by Qualified
          Retirement under Section 4(f).

     e)   "Good Reason" shall mean, without the Executive's approval,

          i)    a material diminution, without Cause (as defined in Section
                6(a)), in the material responsibilities of the Executive;

          ii)   Executive's permanent relocation to an office more than 50 miles
                from the Company's Waltham, Massachusetts office;

          iii)  failure by the Company to pay any material amount due under this
                Agreement within fifteen (15) days after written notice thereof
                from the Executive to the Company and the BOD; or

          iv)   any reduction of the Executive's Base Salary or material
                benefits provided to the Executive as a whole that comprises a
                material reduction in his total annual compensation, unless such
                reduction is applicable to other senior executives of the
                Company as part of a concessionary arrangement between those
                executives and the Company and/or Board.

7) NONCOMPETITION AND NONSOLICITATION. As a condition of this Agreement, and in
consideration for the payments set forth herein, the Executive agrees that,
during the period of his employment by the Company and its subsidiaries and for
three (3) years after the termination of his employment, regardless of the
reasons for such termination, the Executive will not, directly or indirectly,
alone or as a partner, officer, director, employee, joint venturer, lender or
stockholder of any entity (other than as a shareholder of less than 1% of stock
of a publicly traded corporation), without the prior written consent of the
Company:

     a)   (i) accept employment with any business that competes with the
          products or services being created, developed, manufactured, marketed,
          distributed or sold by the Company, (ii) engage in any business or
          activity that competes with the products or services being created,
          developed, manufactured, marketed, distributed or sold by the Company,
          and (iii) become an officer, director of, or maintain a consulting or
          other professional relationship with, any business that competes with
          the products or services being created, developed, manufactured,
          marketed, distributed or sold by the Company.
<PAGE>   11
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     b)   solicit the business of any customer, investor or partner of the
          Company, or induce any such customer, investor or partner to terminate
          their relationship with the Company.

8) INDEMNIFICATION. The Executive shall be entitled to indemnification from the
Company to the fullest extent permitted by the Company's Articles of
Organization, By-laws, shareholder resolutions and/or applicable law.

9) ENTIRE AGREEMENT; CONFLICTS. This Agreement, the Nondisclosure Agreement, any
stock option agreement between the Executive and the Company, and all promissory
notes between the Executive and the Company, contain the entire agreement
between NetSilicon and the Executive concerning the Executive's employment by
NetSilicon and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between them with
respect to the subject matter herein, provided, however, that to the extent
there is a conflict between the terms of this Agreement and the terms of any
stock option agreement or stock option plan, the terms of this Agreement shall
govern. The Executive and the Company (except as may be required in the course
of the Company doing business) agree to keep the terms of this Agreement
strictly confidential. The Executive represents that he is not bound by any
agreement or any other existing or previous business relationship that conflicts
with, or may conflict with, the performance of his obligations hereunder or
prevent the full performance of his duties and obligations hereunder.

10) AMENDMENTS OR WAIVER. This Agreement cannot be changed, modified or amended
without the consent in writing of both the Executive and the BOD. No waiver by
either the Company or the Executive at any time of any breach by the other party
of any condition or provision of this Agreement shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or at any prior or
subsequent time. Any waiver must be in writing and signed by the Executive, an
authorized officer of the Company (other than the Executive), and the BOD.

11) SEVERABILITY. In the event that any provision or portion of this Agreement,
the Nondisclosure Agreement or the other agreements executed in connection with
the transactions contemplated hereby for any reason shall be determined to be
invalid or unenforceable for any reason, in whole or in part, such provisions
will be reformed to the extent possible so as to effectuate the intent of this
Agreement. In addition, the remaining provisions of this Agreement or such other
agreements shall be unaffected thereby and shall be construed, reformed and thus
remain in full force and effect to the fullest extent permitted by law.

12) SURVIVAL. The Executive agrees that Sections 4, 5, 6, 7, 8, 9, 10, 11, 13,
14, 15, 16 and 17, any agreements between the Executive and the Company
referenced herein, and such other provisions to the extent necessary to the
intended preservation of such rights and obligations, shall survive any
termination of this Agreement.

13) GOVERNING LAW AND JURISDICTION; ARBITRATION. This Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts without reference to principles of conflict of
laws. Any dispute, controversy or claim arising out of or in connection with
this Agreement shall be exclusively subject to arbitration before the American
Arbitration Association ("AAA") in Boston, Massachusetts, before a single
arbitrator in

<PAGE>   12
                                      -12-


accordance with the AAA's then current Employment Arbitration Rules. Judgment
upon any arbitration award may be entered in any court of competent
jurisdiction. All parties shall cooperate in the process of arbitration for the
purpose of expediting discovery and completing the arbitration proceedings.
Nothing contained in this Section or elsewhere in this Agreement shall in any
way deprive either party of its right to obtain injunctive or other equitable
relief in a court of competent jurisdiction.

14)  NOTICES; MISCELLANEOUS.

     a)   Any notice given to either party shall be in writing and shall be
          deemed to have been given when delivered personally or sent by
          certified or registered mail, postage prepaid, return receipt
          requested, duly addressed to the party concerned, as follows:

          If to the Company, to:

          Chief Financial Officer
          NetSilicon, Inc.
          411 Waverley Oaks Road, Bldg. 227
          Waltham, MA 02452

          with a copy to:

          Testa, Hurwitz & Thibeault, LLP
          125 High Street
          Boston, MA 02110
          Attention: Edwin L. Miller, Jr.

          If to the Executive, to:

          c/o Taylor, Ganson & Perrin, LLP
          160 Federal Street
          Boston, MA 02110
          Attention: Charles F. O'Connell

     b)   The headings of the Sections contained in this Agreement are for
          convenience only and shall not be deemed to control or affect the
          meaning or construction of any provision of this Agreement.

     c)   This Agreement may be executed in two or more counterparts.

     d)   The Company shall make such deductions and withhold such amounts from
          the payments and benefits made or provided to the Executive hereunder,
          as may be required from time to time by applicable law, governmental
          regulation or order.

15) ASSIGNMENT; SUCCESSORS. The Company may assign this Agreement. This
Agreement is personal in its nature and therefore the Executive cannot assign
this Agreement without the consent of the BOD. This Agreement will inure to the
benefit of the Company's or the

<PAGE>   13
                                      -13-


Executive's successors and assigns, and such successor or assign shall discharge
and perform all the promises, covenants, duties and obligations of the Company
hereunder, and all references herein to "NetSilicon" or "Company" shall refer to
such successor.

16)  WITHHOLDING.

     a)   Any payments made to the Executive pursuant to this Agreement
(including without limitation the acceleration of options pursuant to this
Agreement) shall be subject to all applicable federal, state and local taxes
and/or withholding.

     b)   If the Company in its discretion determines that it is obligated to
withhold any tax in connection with any payment under this Agreement, or in
connection with the acceleration of any option pursuant to this Agreement, the
Executive hereby agrees that the Company may withhold from any amounts paid, or
to be paid, under this Agreement, including the Executive's wages or other
remuneration, the appropriate amount of such tax (as permitted under applicable
law). The Executive further agrees that, if the Company does not withhold an
amount from the Executive's wages or other remuneration (including any
remuneration paid pursuant to this Agreement) sufficient to satisfy the
withholding obligation of the Company, the Executive will make reimbursement on
demand, in cash, for the amount underwithheld.

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the date first above written as an instrument under seal.


THE COMPANY                                    EXECUTIVE

By: /s/ Edward B. Roberts                      /s/ Cornelius Peterson, VIII
   ------------------------------------        ---------------------------------
                                               Signature
Title: Chairman, Compensation Committee
      ---------------------------------        ---------------------------------
                                               Street Address
By: /s/ F. Grant Saviers
---------------------------------------        ---------------------------------
                                               City        State        Zip Code
Title: Compensation Committee Member
---------------------------------------
<PAGE>   14
                                      -14-


                                    Exhibit A
                                       To
                              Employment Agreement
                                     Between
                  NetSilicon, Inc, and Cornelius Peterson, VIII


Stock Option Agreements between NetSilicon, Inc. and Cornelius Peterson, VIII

Grant ID               Agreement Date                  Expiration Date
-------------------------------------------------------------------------

0078                   September 15, 1999              September 15, 2009

0079                   September 15, 1999              September 15, 2009

0320                   May 11, 2000                    May 11, 2010

0321                   May 11, 2000                    May 11, 2010

00524                  December 11, 2000               December 11, 2010