Exhibit 10.3
(SCM MICROSYSTEMS LOGO) [f20547f2054700.gif]
Date: January 17, 2006
Steven L. Moore
2083 Tenth Avenue
San Francisco, California 94116
Dear Steven:
     This letter is to confirm the terms of your continued employment
arrangement with SCM Microsystems, Inc. (the “Company”) as its Chief Financial
Officer and Secretary. Under these terms, you will continue to receive an annual
base salary of $200,000.00, which will be paid in accordance with the Company’s
normal payroll procedures. You will also continue to be eligible to receive an
annual bonus up to a maximum bonus of 100% of your annual base salary, all in
accordance with the terms of the Company’s existing MBO bonus plan, as currently
in effect and as it may be amended in the future. In addition, you will be
eligible to receive two transaction bonuses as follows: (1) $75,000 payable upon
the completion of a transaction involving the Company’s Digital TV business, as
contemplated by the engagement letter between the Company and Avondale Partners
dated February 14, 2005 (the “DTV Bonus”), and (2) $150,000 (less any DTV Bonus
previously received) payable upon completion of a transaction involving the
Company, as contemplated by the engagement letter between the Company and Thomas
Weisel Partners dated July 27, 2005 (together with the DTV Bonus, the
“Transaction Bonuses”). As an employee, you will also be eligible to receive
those employee benefits generally available to the Company’s employees. You
should note that the Company may modify job titles, salaries, bonuses and
benefits from time to time as it deems necessary.
     In addition, in the event the Company terminates your employment with the
Company for any reason other than “cause” (as defined below), or you terminate
your employment with the Company within 90 days of an event constituting “good
reason” (as defined below), then you will be entitled to receive a severance
package consisting of (1) payment of your then-current monthly base salary for a
12-month period following your termination of employment, (2) a bonus payment
equal to your 2005 MBO bonus (to the extent it has not already been paid to you)
and a pro-rata portion of your 2006 bonus under the MBO bonus plan, if
termination of your employment occurs during 2006, and (3) the Transaction Bonus
for any transaction that is completed prior to or within 180 days following the
date of the termination of your employment. In the event of a payment of your
pro-rata 2006 bonus as described in the preceding sentence, such amount shall be
calculated based on the annualization of year-to-date actual results through

 

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the date of your termination and the Board of Directors approved good faith
forecast results through year end.
     All severance payments based on base salary shall be paid in accordance
with the Company’s standard payroll policies over a period of 12 months and all
severance payments related to a MBO bonus shall be paid no later than 30 days
following your termination of employment. Any Transaction Bonus shall be paid no
later than 30 days following the completion of the applicable transaction.
Further, the obligations of the Company to make, and your entitlement to
receive, any such severance payments shall be subject to (1) you executing an
effective general release of claims in customary form, and (2) you continuing to
comply with the terms and conditions of the Employee Confidential Information,
Inventions and Proprietary Rights Assignment Agreement entered into between
yourself and the Company dated                      (the “NDA”), a copy of which
is attached as Exhibit A hereto.
     The following actions, failures and events by or affecting you shall
constitute “cause” for termination within the meaning of this letter agreement:
(A) an act of dishonesty made by you in connection with your responsibilities as
an employee, (B) your conviction of, or plea of nolo contendere to, a felony,
(C) you gross misconduct, (D) your continued substantial violations of your
employment duties after you have received a written demand for performance from
the Company that specifically sets forth the factual basis for the Company’s
belief that you have not substantially performed your duties, or (E) your
willful and material breach of the NDA. The following actions and events by the
Company or affecting you shall constitute “good reason” for your resignation
within the meaning of this letter agreement: (A) the relocation of your primary
work place for the Company or the relocation of the place from which the Company
directs that the responsibilities of the Chief Financial Officer be discharged,
in either case, to a location more than fifty (50) miles from its current
location in Fremont, California, or (B) without your written consent, a material
diminution in your title, reporting relationships, or scope of responsibilities
or authority. In no event shall the communication by the Company of its intent
to take an action in the future which, if taken, would constitute “good reason”,
constitute “good reason” solely as a result of the communication of its intent
to you. In addition, following your termination without cause or your
resignation with good reason, you will be entitled to receive coverage under the
Company’s group health insurance programs as permitted pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).
The Company shall pay the full amount of your group health coverage premiums as
determined under COBRA until the earlier of (1) your subsequent employment and
eligibility for group health coverage under the plan of your new employer or
(2) one year from the date of your termination or resignation. Nothing in this
letter affects your legal rights to health care continuation coverage under
COBRA or any other applicable law.
     While it is the current intent that your employment shall continue until
the earlier of (i) March 31, 2006 or (ii) 60 days following a change of control
of the ownership of the Company, you should be aware that your employment with
the Company is for no specified period and constitutes at-will employment. As a
result, you are free to resign at any time, for any reason or for no reason and
the Company is free to conclude its employment relationship with you at any
time, with or without cause, and with or without notice, subject to the
Company’s obligations to you under the immediately preceding paragraphs in the
event of a termination without cause or

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resignation with good reason. We request that, in the event of resignation, you
give the Company at least two weeks notice.
     During the term of your employment with the Company, you continue to agree
that you will not engage in any other employment, occupation, consulting or
other business activity directly related to the business in which the Company is
now involved or becomes involved during the term of your employment, nor will
you engage in any other activities that conflict with your obligations to the
Company. Similarly, you continue to agree not to bring any third party
confidential information to the Company, including that of your former employer,
and that in performing your duties for the Company you will not in any way
utilize any such information.
     As a condition of your continued employment, you are also required to sign
and comply with the NDA that requires, among other provisions, the assignment of
patent rights to any invention made during your employment at the Company, and
non-disclosure of Company proprietary information.
     In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that (i) any and all disputes
between you and the Company shall be fully and finally resolved by binding
arbitration, (ii) you are waiving any and all rights to a jury trial but all
court remedies will be available in arbitration, (iii) all disputes shall be
resolved by a neutral arbitrator who shall issue a written opinion, (iv) the
arbitration shall provide for adequate discovery, and (v) the Company shall pay
all but the first $125 of the arbitration fees.
     This letter agreement, along with any agreements relating to proprietary
rights between you and the Company and any agreements documenting the terms of
compensatory stock options previously granted to you, set forth the entire
agreement for your continued employment with the Company and supersede any prior
agreements or understandings, whether oral or written, concerning the subject
matter set forth herein, including, but not limited to, the offer letter dated
June 29, 2003 and any amendments thereto. This letter, including, but not
limited to, its at-will employment provision, may not be modified or amended
except by a written agreement signed by the Chief Executive Officer of the
Company and you. This letter may be signed in one or more counterparts. This
letter will be governed by the laws of the State of California, other than its
conflict-of-law provisions.
[Signature Page Follows]

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     We look forward to your continued relationship with SCM Microsystems, Inc.

                                  Sincerely,    
 
                                SCM MICROSYSTEMS, INC.    
 
                   
 
          By:   /s/ Robert Schneider    
 
                                Robert Schneider, Chief Executive Officer
 
                    Agreed to and accepted:                
 
                   
Signature:
  /s/ Steven L. Moore                
 
                   
 
  Steven L. Moore                
 
                    Date:  January 17, 2006                

                     
Enclosure:
  NDA                

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