EMPLOYMENT
AGREEMENT
This Employment Agreement (this
“ Agreement ”) is dated as of December 10,
2008, by and between Hirsch Electronics Corporation, a California
corporation (the “ Company ”), SCM Microsystems,
Inc., a Delaware corporation (“ Parent ”) and
Mr. Larry Midland (the “ Employee ”).
WHEREAS, Parent, the Company and
certain other parties thereto have entered into that certain
Agreement and Plan of Merger dated as of December 10, 2008
(the “ Merger Agreement ”), pursuant to which,
among other things, through a two-step merger the Company will
become a wholly-owned subsidiary of Parent and be transformed into
a new Delaware limited liability company (together as used herein,
the “ Merger ”).
WHEREAS, as an inducement for and a
condition to Parent agreeing to enter into the Merger Agreement and
in consideration of the transactions contemplated by the Merger
Agreement, concurrently with the execution of the Merger Agreement,
Employee and the Company have agreed to enter into this Agreement
which will set forth the terms of Employee’s employment by
the Company.
NOW, THEREFORE, in consideration of
the foregoing and the mutual promises, representations, warranties,
covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Employee agree as follows:
1. Effective Date. This
Agreement shall automatically and immediately become effective at,
and not before, the Effective Time, as such term is defined in the
Merger Agreement. Notwithstanding any other provision of this
Agreement, if the Merger Agreement is terminated, this Agreement
shall not become effective, shall have no force or effect, and
shall be null and void.
2. Employment; Employment
Period; Position; Duties .
a. The Company hereby agrees to
employ Employee, and Employee hereby accepts such employment with
the Company, in each case, on the terms and subject to the
conditions hereinafter set forth. Subject to any earlier
termination of Employee’s employment as provided herein,
Employee’s employment hereunder shall be for an initial term
commencing at the Effective Time and ending on the third (3rd)
anniversary of the Effective Time (the “ Employment
Period ”). Beginning on the third (3rd) anniversary and
continuing on each anniversary thereafter, the employment agreement
shall automatically extend for a period of one (1) year,
subject to any termination of Employee’s employment as
provided herein.
b. Employee shall serve as the
Company’s President as well as Executive Vice President at
the Parent, being part of the Executive Management Team of the
Parent, and shall report directly to the Parent’s CEO (the
“ Reporting Officer ”). Employee shall also
serve in such other capacities as may be requested from time to
time by the Reporting Officer and/or the Board of Directors of the
Parent (the “ Board ”) or a duly authorized
committee thereof. Employee shall perform such duties as are
customarily associated with his position and as reasonably required
by the Reporting Officer. Employee shall also render such other
services for the Parent or the Company and each of its subsidiaries
and affiliated entities as the Parent or the Company may from time
to time request that are generally commensurate with such
Employee’s titles. Employee agrees to serve the Parent and
the Company faithfully and perform such duties and services using
his best efforts and abilities. Employee agrees to devote his
full-time attention and energies exclusively to the business of the
Parent and the Company and the performance of his duties and
services, and to act at all times in the best interests of the
Parent and the Company. Employee agrees to conduct himself at all
times in a business-like and professional manner as appropriate for
a person in Employee’s position and to represent the Parent
and the Company in all respects in a manner that comports with
sound business judgment in the highest ethical standards. Employee
will be subject to and abide by the policies and procedures of the
Parent and the Company, as adopted and revised by the Parent or the
Company, as the case may be, from time to time. Employee shall be
subject to the direction of the Parent and the Company, who shall
retain full control over the means and methods by which Employee
performs his duties and the above services and of the place(s) at
which all such duties and services are rendered. Employee’s
principal place of employment shall be at the Company’s
offices in Santa Ana, California.
3. Compensation;
Benefits .
a. Base Salary . As
compensation for services rendered to the Parent and the Company,
Employee shall be entitled to a base salary at the annual rate of
$250,000 (two hundred and fifty thousand dollars), payable by the
Company in accordance with the regular payroll practices of the
Company for its employees. Employee shall be eligible to such merit
increases in Employee’s base salary, if any, as may be
determined from time to time in the sole discretion of the Board.
Employee’s annual base salary rate, as in effect from time to
time, is hereinafter referred to as the “ Base Salary
.”
b. Bonus . Employee
shall be eligible to receive an annual target based variable bonus,
of up to 80% of the Employee’s annual base salary, based upon
the achievement of personal performance targets established by the
Parent’s Board of Directors in consultation with Employee,
and the overall success of the Company. Any bonus would be subject
to the terms and conditions of the Parent’s MBO Bonus
Program, as the same may be amended from time to time, and the
Employee’s continuing employment. The achievement of the
performance and other target would be determined and any resulting
bonus would be payable on a quarterly basis (up to a maximum bonus
of 10% of the Employee’s annual base salary per quarter as
well as up to a maximum of 40% at year end). A copy of the
Parent’s MBO Bonus Program as currently in effect is attached
hereto as Exhibit A .
c. Stock Options . Upon
the Effective Time, the Employee shall be eligible to participate
in Parent’s Stock Option Plan. It is anticipated that the
Employee will receive a one-time grant of a non-qualified stock
option to purchase 40,000 (forty thousand) shares of the
Parent’s common stock, subject to the terms and conditions of
the Parent’s Stock Option Plan. Any such grant is subject to
approval by the Parent’s Board of Directors. A copy of the
Parent’s Stock Option Plan as currently in effect is attached
hereto as Exhibit B .
d. Other Employee
Benefits . Employee shall be eligible to receive or participate
in any incentive, retirement, vacation, sick or family leave,
reimbursement for travel and entertainment expenses, health and
insurance or other benefits of the Company, as in effect from time
to time, on the same basis as other employees of the Company
occupying positions with responsibility and salary comparable to
that of Employee, but in any event not materially inferior to the
benefits the Employee enjoyed as an employee of the Company prior
to the Merger. The Company may at any time and from time to time
change, amend, modify or completely eliminate any such plans,
programs and benefits available to its employees and
Employee’s participation in any such plans, programs and
benefits shall not affect such right of the Company; Employee
agrees and acknowledges that he shall have no vested rights under
or to participate in any such plans, programs and benefits except
as expressly provided under the terms thereof.
4. Termination of
Employment . Employee’s employment with the Company or
any of its subsidiaries or affiliated entities may be terminated by
Company at any time and for any or no reason. Employee will be
required to give the Company three (3) months advance written
notice of any resignation of Employee’s employment.
Notwithstanding any other provision of this Agreement, the
provisions of this Section 4 shall exclusively govern
Employee’s rights upon termination of employment with the
Company and any of its subsidiaries or affiliates entities for
Cause, death or Disability or any other reason.
a. By the Company For
Cause; Resignation by Employee . Employee’s employment
may be terminated by the Company for Cause at any time. For
purposes of this Agreement, “ Cause ” shall
mean: (i) unsatisfactory performance in any material respect
of Employee’s duties, services or responsibilities (as
generally described in this Agreement) as reasonably determined by
the Board, provided that the Company has given Employee
written notice specifying the unsatisfactory performance of his
duties and responsibilities and a reasonable opportunity to cure,
and Executive has failed to cure such deficiencies; (ii) a
material breach by Employee of any of his obligations hereunder
which remains uncured after the lapse of thirty (30) days
following the date that the Company has given Employee written
notice thereof; (iii) a breach by Employee of his duty not to
engage in any transaction that represents, directly or indirectly,
self-dealing with the Company or any of its subsidiaries or
affiliated entities which has not been approved by a majority of
the disinterested directors of the Board or of the terms of his
employment; (iv) any act of intentional dishonesty, willful
misconduct, embezzlement, intentional fraud or similar conduct
involving the Company or any of its subsidiaries or affiliated
entities; (v) the conviction or the plea of nolo
contendere or the equivalent in respect of a felony involving
moral turpitude; or (vi) intentional, malicious infliction of
any damage of a material nature to any property of the Company or
any of its subsidiaries or affiliated entities. If Employee’s
employment is terminated by the Company for Cause or by Employee
for any reason, Employee shall be entitled to receive following the
date of such termination: (A) the Base Salary through the date
of termination; (B) reimbursement for any unreimbursed
business expenses properly incurred by Employee in accordance with
Company policy prior to the date of Employee’s termination;
and (C) any earned but unpaid benefits, if any, through the
date of termination in accordance with the applicable employee
benefit plan of the Company (the amounts described in clauses
(A) through (C) of this Section 4(a), reduced by any
amounts owed by Employee to the Company, being referred to as the
“ Accrued Rights ”). In addition, except as may
otherwise be expressly provided in any plan, agreement or other
instrument that governs the terms of any stock option or other
incentive compensation, all unvested stock options and other
incentive compensation shall immediately be cancelled and
forfeited. Following such termination of Employee’s
employment by the Company for Cause or by Employee for any reason,
except as set forth in this Section 4(a), Employee shall have
no further rights to any compensation or benefits from the Company
or any of its subsidiaries or affiliated entities under this
Agreement or otherwise.
b. Disability or Death
. Employee’s employment shall terminate upon Employee’s
death and may be terminated by the Company if Employee becomes (in
the good faith judgment of the Board) physically or mentally
incapacitated and is therefore unable for a period of three
(3) consecutive months or for an aggregate of six
(6) months in any twelve (12) consecutive month period to
perform Employee’s duties (such incapacity is hereinafter
referred to as “ Disability ”). Upon termination
of Employee’s employment hereunder by reason of his
Disability or death, Employee or Employee’s estate (as the
case may be) shall be entitled to receive the Accrued Rights
following the date of such termination. Employee’s rights
with respect to any stock option or other incentive compensation
shall be determined by the terms of any plan, agreement or other
instrument that governs the terms of any such stock options or
other incentive compensation. Following Employee’s
termination of employment due to death or Disability, except as set
forth in this Section 4(b), Employee shall have no further
rights to any compensation or benefits from the Company or any of
its subsidiaries or affiliated entities under this Agreement or
otherwise.
c. By the Company Without
Cause . Employee’s employment may be terminated by the
Company at any time without Cause. If Employee’s employment
is terminated by the Company without Cause (other than by reason of
death or Disability), Employee shall be entitled to receive:
(i) the Accrued Rights following the date of such termination;
and (ii) subject to Employee’s execution (within thirty
(30) days following the date of termination) and
non-revocation of a release of claims in favor of the Company in a
form provided by the Company (which release excludes from its scope
claims under any continuing right under any benefit or stock option
plan or agreement), a payment equal to the amount of
Employee’s then current Base Salary that would have been
payable over a six (6) month period following the date of such
termination, payable monthly in accordance with the Company’s
normal payment schedule and practices beginning on the next regular
payroll distribution after the date that the release of claims
becomes irrevocable, and all previously granted unvested options
shall cease vesting upon the date of such termination. Following
Employee’s termination of employment by the Company without
Cause (other than by reason of Employee’s death or
Disability), except as set forth in this Section 4(c),
Employee shall have no further rights to any compensation or
benefits from the Company or any of its subsidiaries or affiliated
entities under this Agreement or otherwise.
d. By the Employee For Good
Reason . Employee’s employment may be terminated by the
Employee for Good Reason (as hereinafter defined). For purposes of
this Agreement, “Good Reason” shall mean the occurrence
of any of the following without the Employee’s prior written
consent: (i) a material reduction of Employee’s duties,
position, job titles, or responsibilities; (ii) a reduction of
Employee’s base salary or total compensation package;
(iii) Employee being forced to relocate; or (iv) the
Company requires Employee to perform illegal or fraudulent acts.
However, none of the foregoing events or conditions shall
constitute Good Reason unless: (x) the Employee delivers to
the Parent a written notice identifying in reasonable detail the
act or acts constituting “Good Reason” and his
intention to so terminate his employment (a “ Notice of
Good Reason ”), within fifteen (15) days following
the Employee’s knowledge of the circumstances constituting
“Good Reason;” (y) the Parent or the Company, as
the case may be, does not reverse or otherwise cure the event or
condition within fifteen (15) days after the date that the
Notice of Good Reason is delivered; and (z) the Employee
resigns his employment no earlier than five (5) and no later
than fifteen (15) days following the expiration of that cure
period. If the Employee terminates his employment for Good
Reason(other than by reason of death or Disability), Employee shall
be entitled to receive: (i) the Accrued Rights following the
date of such termination; and (ii) subject to Employee’s
execution (within thirty (30) days following the date of
termination) and non-revocation of a release of claims in favor of
the Company in a form provided by the Company (which release
excludes from its scope claims under any continuing right under any
benefit or stock option plan or agreement), a payment equal to the
amount of Employee’s then current Base Salary that would have
been payable over a three (3) month period following the date
of such termination, payable monthly in accordance with the
Company’s normal payment schedule and practices beginning on
the next regular payroll dis
