Exhibit 10.3


 


EXECUTIVE RETENTION AGREEMENT


 


This EXECUTIVE RETENTION AGREEMENT (the “Agreement”)
dated as of May       , 2010, by and between
Source Photonics, Inc., a Delaware corporation (the “Company”), and
                            
(the “Executive”).


 


RECITALS


 


WHEREAS, the purpose of this Agreement is to ensure that the Company
will receive the continued dedication, loyalty, and service of, and the
availability of objective advice and counsel from, the Executive
notwithstanding the possibility, threat or occurrence of a corporate
transaction or other event that might eliminate the Executive’s employment with
the Company; and


 


WHEREAS, the Board of Directors of the Company believes that it is in
the best interests of the Company and its stockholders to provide the Executive
with an incentive to continue his or her employment and to motivate the
Executive to maximize the value of the Company upon a Change of Control (as
defined below) for the benefit of its stockholders.


 


AGREEMENT


 


NOW THEREFORE, in consideration
of the mutual covenants and agreements of the parties set forth in this
Agreement, and other good and valuable consideration the receipt and
sufficiency of which are acknowledged, the parties agree as follows:


 


1.             Termination
after a Change of Control. Subject to and conditioned
upon the Executive’s execution and non-revocation of a general release and
waiver, in form and substance reasonably satisfactory to the Company, of all
claims against the Company and its affiliates, including without limitation
claims relating to the Executive’s employment by the Company and the Separation
from Service, discrimination claims, employment-related tort claims, contract
claims and claims under this Agreement, the following payments and benefits
will be provided to the Executive by the Company (in addition to any
compensation or benefits to which the Executive may otherwise be entitled under
any other agreement, plan or arrangement with the Company) in the event of a
Separation from Service (as defined below) of the Executive during a Change of
Control Period (as defined below) of the Company.


 


1.1          Lump Sum Payment.  Within 60 days
after the Executive’s Separation from Service, subject to Section 3 below,
the Company shall pay to the Executive a lump sum cash payment equal to the
aggregate amount of 12 months of the Executive’s base salary as in effect
immediately prior to the Separation from Service or, if higher, immediately
prior to the Change of Control (in either case, the “Base Salary”).


 


1.2          Bonus.  The Company shall pay to the Executive a pro
rata share of his or her cash incentive bonus for the year in which the
Separation from Service occurs determined by multiplying (a) the Executive’s
cash incentive bonus amount for such year calculated as if he


 

















 


or she was employed during the entire year, or if not yet determined for
such year, the cash incentive bonus for the
prior year, in either case, times (b) a fraction, the numerator of which
equals the number of days in the fiscal year through and including the date on
which the Separation from Service occurs and the denominator of which equals
365.  Subject to Section 3 below, the pro rata bonus shall be paid in
a lump sum within 60 days after the end of the Company’s fiscal year in which
the Separation from Service occurs.


 


1.3          Benefits.  The Executive’s
participation in the life, medical, dental, vision, AD&D, and long-term
disability programs provided to the Executive prior to the date of Separation
from Service shall be continued or equivalent benefits provided by the Company,
at the Company’s expense, for a period of one year from the date of the
Executive’s Separation from Service, subject to the Executive’s pro rata
contributions of premiums or other contributions in existence immediately prior
to the Separation of Service.  In
addition, the Executive’s health coverage will be pursuant to COBRA and will
reduce and count against the applicable COBRA period.  If for any
reason the Company is unable to continue the benefits, as required by the
preceding sentence, the Company shall pay to the Executive a lump sum cash
payment equal to the premiums associated with the benefits which the Company is
unable to provide, payable within 60 days after the date of the Separation from
Service.  The Company shall also pay to
the Executive all accrued compensation and benefits to which the Executive has
a vested right at the time of Separation from Service in accordance with
applicable law and the terms of the plans, documents or agreements governing
those benefits.


 


1.4          Accelerated Vesting.  The Executive
shall vest in full in any unvested grants of stock options, restricted stock,
restricted stock units or other equity awards previously received upon the
occurrence of a Change of Control, and notwithstanding provisions in the equity
grant agreements regarding expiration upon termination of employment, the
grants shall not expire until the sooner of a) three years from the date of the
Change of Control and b) the expiration date of the equity grant.  All
such vested awards shall be administered and, as applicable, paid in accordance
with the terms of the governing plan or program; provided,
however, that if any such equity award is subject to Section 409A (as
defined below), the provisions of this Section 1.4 will not result in the
immediate payment of such award if such payment would result in the imposition
of tax, interest and/or penalties upon the Executive under Section 409A,
in which case such payment shall be made at the earliest time such payment can
be made without resulting in the imposition of tax, interest and/or penalties
upon the Executive under Section 409A.


 


2.             Definitions.


 


2.1          Separation
from Service.  “Separation
from Service” means the Executive’s “separation from service” (within the
meaning of Section 409A) from the Company occurring as a result of the
Executive’s termination of employment either: (a) by the Company without
Cause (as defined below); or (b) by the Executive with Good Reason (as
defined below). .Termination of the Executive’s employment under any other
circumstances shall not constitute a Separation from Service for purposes of
the Executive’s eligibility to receive payments and benefits under this
Agreement.


 

















 


2.2          Cause.  “Cause” is determined by the Board of Directors and is defined as the
Executive’s (a) willful failure to perform the material duties of the
Executive’s position after receiving written notice of such failure and being
given reasonable opportunity to cure such failure; (b) willful misconduct
injurious to the Company; or (c) conviction of, or plea of nolo contendere to, a felony or any other crime involving moral turpitude.  No act or
failure to act on the part of the Executive shall be considered “willful”
unless it is done or omitted to be done in bad faith or without reasonable
belief that the action or omission was in the best interest of the Company.


 


2.3          Good Reason.  “Good Reason”
shall mean, without the Executive’s written consent: (a)  a material
diminution in the Executive’s duties or responsibilities; (b) the Company
requires the Executive, without his or her consent, to be based at a location
which is more than 50 miles from the Executive’s principal work location as of
the date of the request; (c) the Executive’s Base Salary is materially
reduced greater than 15%; or (d) the Executive experiences in any year a
reduction in the target ratio of the Executive’s annual short-term incentive
compensation, bonus or other such payments to base compensation greater than
15%, or a change in the method of calculation of the Executive’s annual
short-term incentive compensation, bonus or other such payments that results in
a reduction of the Executive’s target annual short-term incentive compensation,
bonus or other such payments to base compensation greater than 15%, unless such
reductions are due to an increase in base compensation.  Notwithstanding
the above, any reduction in Base Salary, annual short-term incentive
compensation, bonus or other such payments that affects substantially all U.S.
employees, shall not constitute Good Reason. 
In addition, the Executive agrees that a termination of employment shall
not be deemed to be for Good Reason unless (i) the Executive gives the
Company written notice describing the event or events which are the basis for
such termination within 45 days after the event or events occur, (ii) such
grounds for termination (if susceptible to correction) are not corrected by the
Company within 45 days of the Company’s receipt of such notice, and (iii) the
Executive terminates employment no later than 30 days after the expiration of
the cure period described in clause (ii) of this paragraph.


 


2.4          Change
of Control.  A “Change of
Control” shall take place on the date of the earlier to occur of any of the
following events:


 


(a)           The acquisition by any person, other than the
Company or the Company’s parent or any of the parent’s subsidiaries, of
beneficial ownership of 50% or more of the combined voting power of the Company’s
then outstanding voting securities;


 


(b)           The purchase of a majority of the shares of Common
Stock of the Company under a tender offer or exchange offer, other than an
offer by the Company or the Company’s parent or any of the parent’s
subsidiaries; or


 


(c)           Completion of a merger, liquidation or dissolution
of the Company, or the sale of all or substantially all of the assets of the
Company, in each case that does not result in the Company’s parent retaining
direct or indirect control of the Company.


 

















 


2.5          Change
of Control Period.  A “Change of
Control Period” shall mean the period of time commencing with the date on which
the Change of Control occurs, or if earlier, the date upon which the Company
publicly announces the entrance into an agreement with a third party to
complete a proposed transaction which would result in a Change of Control, and
ending on the first to occur of: (a) six months after the effective date
of the Change of Control; or (b) the date on which the proposed Change of
Control is no longer discussed or proposed to occur.


 


3.             Delay of Payment Pursuant to Section 409A.  The parties agree that this Agreement is intended to comply with the
requirements of Section 409A of the Code and the regulations promulgated
thereunder (“Section 409A”)
or an exemption from Section 409A. 
For purposes of this Agreement, each amount to be paid or benefit to be
provided hereunder shall be construed as a separate identified payment for
purposes of Section 409A.  With
respect to any reimbursement of expenses of, or any provision of in-kind
benefits to, the Executive, as specified under this Agreement, such
reimbursement of expenses or provision of in-kind benefits shall be subject to
the following conditions: (i) the expenses eligible for reimbursement or
the amount of in-kind benefits provided in one taxable year shall not affect
the expenses eligible for reimbursement or the amount of in-kind benefits
provided in any other taxable year, except for any medical reimbursement
arrangement providing for the reimbursement of expenses referred to in Section 105(b) of
the Code; (ii) the reimbursement of an eligible expense shall be made no
later than the end of the year after the year in which such expense was
incurred; and (iii) the right to reimbursement or in-kind benefits shall
not be subject to liquidation or exchange for another benefit.  Notwithstanding anything to the contrary in
this Agreement,  no compensation or
benefits payable in connection with a Separation from Service shall be paid to
the Executive during the six-month period following such Separation from
Service to the extent that the Company reasonably determines that the Executive
is a “specified employee” at the time of such Separation from Service and that
paying such amounts at the time or times indicated in this Agreement would be a
prohibited distribution under Internal Revenue Code Section 409A(a)(2)(b)(i).  If the payment of any such amounts is delayed
as a result of the previous sentence, then on the first business day following
the end of such six-month period (or such
earlier date upon which such amount can be paid under Section 409A without
being subject to such additional taxes, including as a result of the Executive’s
death), the Company shall pay to the
Executive a lump-sum amount equal to the cumulative amount that would have
otherwise been payable to the Executive during such six-month period, without
interest thereon.


 


4.             Dispute Resolution. Either the Executive or the Company may elect to have any good faith
dispute or controversy arising under or in connection with this Agreement
settled by arbitration by providing written notice of such election to the
other party specifying the nature of the dispute to be arbitrated.  If
arbitration is selected, such proceeding shall be submitted to confidential,
final and binding arbitration before JAMS (formerly known as Judicial
Arbitration and Meditation Services)
sitting in a location agreed to by the Company and the Executive within 50
miles from the location of the Executive’s principal place of employment and conducted
under the auspices and then-existing Employment Arbitration Rules of JAMS.  The decision of the
arbitrator shall be final and binding on both parties, provided however, that
the arbitrator shall not have the authority to alter or amend, or add to or
delete from the


 

















 


provisions
of this Agreement in any way, except as provided herein.  Judgment may be entered on the award of or
decision made by the arbitrators in any court having competent
jurisdiction.  To the extent that the Executive prevails on the material
issues in any litigation or arbitration seeking to enforce the provisions of
this Agreement, the Executive is entitled to reimbursement by the Company of
all expenses of such litigation or arbitration, including any reasonable legal
fees and expenses and any costs and disbursements as such costs may be awarded
by the court or arbitrator.


 


The Executive shall be entitled to reimbursement
of the fees and expenses described under this Section 4 during the period
commencing on the effective date of this Agreement and ending on the Executive’s
death.  Any reimbursement of fees and expenses under this Agreement shall
be made on or before the last day of the year following the year in which the
expense is incurred.  The amount of fees and expenses eligible for
reimbursement during a year shall not affect the expenses eligible for
reimbursement in any other year except for any medical reimbursement
arrangement providing for the reimbursement of expenses referred to in Section 105(b) of
the Code.  The right to reimbursement or in-kind benefits is not subject
to liquidation or exchange for another benefit.


 


5.             Miscellaneous.


 


5.1          Termination of Agreement.  This Agreement shall terminate and no longer be in
force upon the occurrence of an initial public offering of the Company.


 


5.2          Entire Agreement.  This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof, and constitutes the entire agreement of
the parties with respect thereto.


 


5.3          Modification.  This Agreement shall not be varied, altered,
modified, cancelled, changed or in any way amended except by mutual agreement
of the parties in a written instrument executed by the parties or their legal
representatives.


 


5.4          Severability.  In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected and shall remain
in full force and effect.


 


5.5          Tax Withholding.  The Company may withhold all Federal, state, city
or other taxes required pursuant to any law or governmental regulation or
ruling.


 


5.6          Board Committee.   Any action taken or determination made by the
Board of Directors under this Agreement may be taken or made by the
Compensation Committee or any other committee of the Board of Directors.


 


5.7          No
Offset or Mitigation.  All amounts payable by the Company
hereunder shall be paid without notice or demand.  The Executive shall not
be obligated to seek other employment in mitigation of the amounts payable or
arrangements made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Company’s


 

















 


obligations
to make the payments, benefits and arrangements required to be made under this
Agreement.


 


5.8          Confidentiality.  The
Executive understands that, in the course of employment with the Company, the
Executive has been, and will be, given access to confidential information and
trade secrets concerning the Company and its businesses and shall during his or
her employment with the Company and thereafter retain in confidence and not
directly or indirectly reveal, report, publish, disclose, or transfer such
confidential information and trade secrets to any person or entity, or utilize
any confidential information and trade secrets for any purpose, except in the
good faith performance of the Executive’s duties on behalf of the Company.  Notwithstanding the foregoing, “confidential
information” shall not apply to information that (i) was known to the
public prior to its disclosure to the Executive; (ii) becomes generally
known to the public subsequent to disclosure to the Executive through no
wrongful act of the Executive or any representative of the Executive; or (iii) the
Executive is required to disclose by applicable law, regulation or legal
process (provided that the Executive provides the Company with prior
notice of the contemplated disclosure and reasonably cooperates with the
Company at its expense in seeking a protective order or other appropriate protection
of such information).  The Executive
agrees to turn over all copies of confidential information and trade secrets in
his control to the Company upon request or upon termination of his or her
employment with the Company.


 


5.9          Solicitation.  The Executive agrees that, during his
employment with the Company and for the period of one year beginning from the
date of the Executive’s Separation from Service, Executive shall not, directly
or indirectly or by action in concert with others, hire current or former
employees, agents, independent contractors, or other service providers of the
Company (which shall for this purpose only include individuals employed by the
Company at any point during the 12 months preceding such hiring), disrupt,
damage, impair or interfere with the Company’s relationships with its work
staff, or induce or influence (or seek to induce or influence) any person who
is engaged (as an employee, agent, independent contractor, or otherwise) by the
Company to alter or terminate his or her employment or engagement, except in
the good faith performance of the Executive’s duties on behalf of the Company; provided
that the Executive may serve as a reference for such individuals and actions
taken by any person or entity with which the Executive is associated if the
Executive is not, directly or indirectly, personally involved in such
solicitation and has not identified such individual for soliciting will not be
considered a violation for purposes of this Section 5.9.  This shall not be construed to prohibit
general solicitations of employment through the placing of advertisements.


 


The obligations contained in Section 5.8 and this Section 5.9
shall survive the termination of the Executive’s employment with the Company
for any reason and shall be fully enforceable thereafter.


 


The Company may bring an action or proceeding to temporarily,
preliminarily or permanently enforce any part of Section 5.8 and this Section 5.9.  The Executive agrees that (a) violating
any part of Section 5.8 and this Section 5.9 would cause damage to
the Company that cannot be measured or repaired and that the Company’s remedies
at law for a breach or


 

















 


threatened
breach of any of the provisions of Section 5.8 and this Section 5.9
would be inadequate, (b) the Company therefore is entitled to an
injunction, restraining order or other equitable relief restraining any actual
or threatened violation of Section 5.8 and this Section 5.9 in
addition to any remedies at law, (c) no bond will need to be posted for
the Company to receive such an injunction, order or other relief, and (d) no
proof will be required that monetary damages for violations of Section 5.9
and this Section 5.9 would be difficult to calculate and that remedies at
law would be inadequate.  In addition, in
the event of a violation by the Executive of Section 5.8 and this Section 5.9,
any severance payments or benefits being paid to the Executive pursuant to this
Agreement or otherwise shall immediately cease and any severance previously
paid to the Executive shall be immediately repaid to the Company.


 


5.10        Non-Compete.  Eligibility for payments and benefits under Section 1
is contingent upon the Executive’s agreement and compliance with the Company’s
requirement that the Executive not accept employment or an engagement as a
consultant with a competitor for a period of one year beginning on the date of
the Executive’s Separation from Service whereupon such position is comparable
to the position the Executive held with the Company and where the Executive
cannot reasonably satisfy the Company that the new employer is prepared to
and/or does take adequate steps to preclude and to prevent inevitable
disclosure of trade secrets, as prohibited under the Company’s policies with
respect to the use and disclosure of confidential and proprietary information,
as set forth in the most-recent confidentiality and inventions agreement that
the Executive has executed with the Company and by this reference made a part
hereof.  It is a specific condition of this Agreement that, for a period
of one year following the date of the Executive’s Separation from Service, the
Executive is obligated to immediately notify the Company as to the specifics of
the new position that the Executive is planning to commence as an employee or
consultant for any company which is a competitor of the Company.


 


5.11        Successors.  This
Agreement shall be binding upon and inure to the benefit of the Executive and
his or her estate, and the Company and any successor of the Company or
affiliate of a successor to the Company, but neither this Agreement nor any
rights arising hereunder may be assigned or pledged by the Executive.  All
references in this Agreement to the Company shall include its subsidiaries and
affiliates and any successors, affiliates of successors or assigns of the
Company. Any successor of the Company shall be deemed substituted for all
purposes of the “Company” under the terms of this Agreement.  As used in
this Agreement, the term “successor” shall mean any person, firm, corporation
or business entity or affiliate thereof which at any time, whether by merger,
purchase or otherwise, directly or indirectly acquires all or substantially all
of the assets or the business of the Company, including any entity that shall
be the surviving corporation in a merger with the Company or the acquiring
person or affiliate of the acquiring person in an acquisition of the Company
and/or of all or substantially all of its business or assets, regardless of
whether such transaction constitutes a change of control.


 


5.12        Governing Law.   To the extent not preempted by Federal law, the
provisions of this Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California.


 

















 


5.13        Notice.   Any notices, requests, demands or other communications required by
or provided for in this Agreement shall be sufficient if in writing and sent by
either party by personal delivery, recognized overnight commercial courier, or
registered or certified United States mail, to the Executive at the last
address shown on the records of the Company or, in the case of the Company, at
its principal office, or to such other address as either party may have
furnished to the other in writing in accordance herewith, and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail (except that notices of
change of address shall be effective only upon receipt (or refusal of
receipt)).


 


5.14        Scope of Agreement.  Nothing in this
Agreement shall be deemed to alter the “at-will” nature of the Executive’s
employment or entitle the Executive to continued employment with the Company.


 


5.15        Counterparts.  This Agreement
may be executed (including by facsimile or scanned electronic mail
transmission) in counterparts, each of which shall be deemed to be an original
and all of which together shall constitute one and the same instrument.


 

















 


IN WITNESS WHEREOF, the Executive and the Company
have executed this Agreement as of the date first above written.


 


	
  SOURCE
  PHOTONICS, INC.

  	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title: