Document:

exv10w26

 

Exhibit 10.26

Employment Contract – Convenience Translation

(This document is a translation of the German contract for information purposes only and does not carry any legal binding)

between

Mr. Ingo Zankel

Müllerstrasse

München

- hereinafter called “employee” -

and

SCM Microsystems GmbH

Oskar-Messter-Str. 13

D — 85737 Ismaning

Germany

- hereinafter called “SCM” or the “the Company” -

1. ENGAGEMENT, DUTIES, PLACE OF EMPLOYMENT

Engagement will take place effective from January 1, 2005. Title will be Chief Operating
Officer.
Place of employment will be Ismaning. The employee’s tasks involve extensive travelling
within and outside Europe. SCM reserves the right to assign other or additional duties within
the scope of the Company and within the scope of the employee’s knowledge and abilities
and/or relocate him to a different place of work as far as this is just and reasonable.

 

 

2. DURATION, PROBATION

Each party has the right to terminate the contract to the end of the following quarter
with a period of 6 (six) weeks. The notice of termination has to be performed in written
form. The right of an extraordinary notice of termination will remain unaffected.

Furthermore, especially in case of a notice of termination, SCM reserves the right to
release the employee from his tasks without changing his monthly payments. In this case the
release period will be credited against the employee’s vacation entitlement (including
possible remaining vacation days of previous years).

The working relationship will also expire by the time the employee will have completed the
65th year of life without the necessity of an effective written notice of termination.

3. SALARY

The monthly gross basic salary amount will be

€ 16.666,67 (in words: sixteen thousand six hundred and sixty six comma sixty six
EURO)

and will be paid 12 times a year, by the end of each corresponding month.

This is equivalent to a basic annual salary of

€ 200.000,00 (in words: two hundred thousand EURO)

In addition, the employee will receive a variable bonus according to the SCM Bonus Program,
whereby the sum € 50.000,00 gross will be based on the yearly 100% achievement of the
targets. The bonus depends on the success (and figures) of the Company and on the personal
objectives and performance of the employee (MbO). The bonus will be paid quarterly and based
on the valid Bonus Policy of SCM. For the first six months, 50% of the total amount of the
bonus is guaranteed.

Furthermore, the employee will receive a yearly bonus in sum of gross € 100.000,00 upon 100%
achievement of the yearly targets, respectively, correspondingly proportionate. The targets
will be set in agreement with the Board of Directors and the Chief Executive Officer. At the
end of the year the achieved targets will likewise be set and decided upon by the Board of
Directors and the Chief Executive Officer, approved and (bonus) paid in April of the
following year.

According to §5 of this contract possible extra and/or overtime work shall be satisfied with
the monthly salary. The salary will be reviewed once a year.

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The employee will be granted 80,000 stock options based on the valid Employee Stock
Option Plan and subject to the approval of the Board of Directors of SCM. The employee can
participate in SCM’s valid Employee Stock Purchase Plan (ESPP).

The employee will be entitled to the use of a company car (category BMW 5-series) which is
also allowed for private use; based on the Conditions of SCM Company Car Policy. Concerning
the private use of the afore-mentioned car, the employee holds own responsibility to
accordingly adhere to the legal tax declaration requirements. The cost of the fuel will be
covered in full by SCM. The employee can have an option, instead of a company car; to receive
a corresponding car allowance equivalent to the sum of gross € 1.250,00 monthly.

4. ABSENCE / SICK LEAVE

Should the employee be prevented from work due to sickness without his own fault he will
continuously receive salary payment according to the effective legal requirements.

In case the employee will be insured by a third party and SCM will continue to pay the full
salary in case of sick leave the employee will make assignments to all claims for damages to
SCM in this case. He is then obliged to provide SCM with all necessary information regarding
the claim for damages.

5. WORKING HOURS

The regular working hours correspond to the requirements of the job description and are at
least 40 hours per week. Beginning and end of the daily working hours are also depending on
the requirements of the position and on the Company’s workflow. The employee is obliged to
work overtime as long as this is just and reasonable.

6. VACATION

The employee is entitled to 28 vacation days per calendar; this claim will be increased by 1
day up to a maximum of 31 days per full calendar year after three years of staff membership
with the Company. Should the working relationship with SCM start during a running calendar
year there will be a proportionate claim for the respective vacation days, i.e. 1/12 per
month. Every vacation has to be confirmed with the SCM management. In any case all effective
legal requirements will prevail.

7. HINDRANCE FROM WORK

The employee is obliged to immediately inform SCM about any kind of hindrance from work and
let the management know the estimated duration of absence. On demand of the management the
reason of absence has to be advised by the employee.

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In case of sick leave the employee is obliged to bring a medical certificate stating the
disability to work after three days of sickness and has to inform the Company about the
estimated duration of absence. Should the absence last longer than stated in the attestation
the employee has to bring another medical certificate within the next three working days.

Furthermore, the employee is obliged to bring an attestation stating the necessity of any
regimens or other kinds of medical therapies including the estimated duration of absence from
the Company as well as to inform the Company about the first day of absence. In case the
regimen lasts longer than stated in the attestation the employee is obliged to bring a
further medical certificate.

8. FURTHER BENEFITS

According to SCM’s travel expense regulations the employee will get a refund for all travel
expenses and charges initiated by the Company.

9. NONDISCLOSURE

During his employment with SCM the employee is obliged to keep any kind of information
secret, especially confidential information regarding Company or business secrets, no matter
if this information affects the Company itself or has been committed to SCM or the employee
by any third parties and no matter if this information is related to the employee’s
individual functions within the Company. All Company- or business secrets are defined as
Company facts that must be kept secret as per request of the SCM management.

This especially concerns developments related to existing or future products or services that
are being offered / sold or used by SCM as well as data or information about the general
business model referring to turnover, expenses, profit/loss calculations, pricing,
organisation, customer- or supplier lists etc. It also concerns developments, procedures,
business models etc. which are basically known as such but whose utilization by SCM is not
officially disclosed publicly.

The protrusive Non-Disclosure Agreement also refers to business matters of other companies
that are economically or organisationally related to SCM and will persist throughout the
working relationship.

All letters concerning SCM and/or interested parties have to be immediately returned to
SCM on demand or after termination of the working relationship regardless of the addressee as
well as other available business items, drawings, memos, records, data media, books, samples,
devices, tools, materials, or any other properties of the Company.

10. DATA PROTECTION

According to § 5 BDSG (Bundesdatenschutzgesetz = federal data protection law) the employee
herewith agrees that he will neither handle any protected person-related data without
authorization

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 and other than in the legitimate way, nor publish them, nor customize them, nor use them in
any other wrongful way, even not after his possible resignation or withdrawal from the
Company.

In case the employment relationship will terminate, the employee will make sure to return all
documents, materials, copies, notes etc. to SCM as far as those are related to any business
matters or customers of SCM or are a sole property of the Company.

11. PATENTS / INVENTIONS

For inventions and technical amendments the regulations of the Act of Employee Inventions
(ArbNErfG) as of 25.07.1957 and the hereto defined guidelines will prevail. The employee is
obliged to immediately announce all inventions and/or technical amendments made during her
working relationship with the Company in written form.

Four months after the notification SCM will have the right to make use of the invention or
the technical amendment by written declaration in accordance with the employee; with the
declaration the invention or the technical amendment will be transferred to SCM including all
inner-country and overseas rights. In this case the employee has the right to claim an
adequate compensation. Should SCM fail to task the invention within the above-mentioned terms
the employee has the right to freely dispose of it himself.

The employee confirms explicitly that at the very moment there are no liabilities
against any former employer or third parties in terms of transfers of inventions or technical
amendments.

12. COPYRIGHT

As far as the case of copyright arises in connection with the employee’s function within the
Company the employee herewith confirms that SCM will be entitled to claim a comprehensive,
exclusive, business related exploitation right for the duration of the copyright within the
scope of the copyright regulations. This also applies after the employee’s possible interim
withdrawal from the Company. Furthermore SCM will have the right to issue sublicenses of the
exploitation right.

In case the regulations for work results are not assignable, SCM reserves the right to obtain
exclusive and spatiotemporally unlimited utilization rights for all acquainted utilization
kinds. This particularly includes the right to make modifications, alterations or other
kinds of adaptions as well as to duplicate, publish, distribute or perform those work results
either in original or in modified, altered form. Furthermore SCM will be authorized to keep
them at call, wirelessly transmit them through transmission lines or other ways und use them
for the operation of data processing facilities.

The employee will attach a personal list with all inventions, software, specifications,
concepts etc. for which any rights (corresponding to either this §12 or the previous
mentioned paragraph §11) have been acquired before the employment relationship with SCM. As
far as the employee brings those rights into SCM`s business, the Company will be authorized
for gratuitous, unlimited utilization rights unless both parties have agreed upon any other
solution in written form. Both parties agree that SCM

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 will regard any other inventions, software, specifications, concepts, etc. that have not been
listed on the attachment as its own work results for which SCM will keep the exclusive
utilization rights.

13. ADDITIONAL OCCUPATIONS

During the working relationship with the Company the employee will have to draw her full
attention and skills solely to SCM and cannot take over additional gratuitous or
non-gratuitous occupations without a written permission of the Company management. SCM will
only decline the approval in case of justifiable business issues.

14. CONTRACT VALIDITY AND OTHER REGULATIONS

In case one of the regulations of this contract are or become ineffective the validity of the
other remaining stipulations will not be affected. The application document is part of this
employment contract. Any oral agreements to this contract do not exist. For legal effect of
the contract all modifications or additions need to be done in written form.

This contract is subject to the Federal German Law.

Stipulated venue is Munich, Germany.

Ismaning, November 16, 2004

	 	 	 
	/s/ SCM Microsystems GmbH
	 	/s/ Ingo Zankel
	 

	 	 
	SCM Microsystems GmbH

	 	Ingo Zankel

6exv10w27

 

Exhibit 10.27

	 	 	 
	

	 	

MBO Guide

Management By Objectives – Bonus Program Guide

     1. What is MBO?

Management by objectives (MBO) is a systematic and organised approach that allows individuals
and managers to focus on achievable goals and to attain the best possible results from available
resources. MBO managers focus on the result, not the activity. They delegate tasks by establishing
agreement about goals with their subordinates and not by dictating a detailed implementation plan.
MBO is about setting objectives and then breaking these down into more specific goals or key
results. It also provides a framework for setting clear expectations between Managers and their
peers.

The principle behind MBO is to make sure that everybody within the organisation has a clear
understanding of the aims, or objectives, of that organisation, as well as awareness of their own
roles and responsibilities in achieving those aims. The complete MBO system is to get managers and
empowered employees acting to implement and achieve their plans, which automatically achieve those
of the organisation.

In an MBO bonus program, reward is therefore directly linked to the contribution an employee makes
towards achievement of the company’s goals and objectives.

	•  	MBO programs continually emphasise what should be done in an organisation to
achieve organisational goals

	•  	MBO process secures employee commitment to attaining organisational goals

	•  	MBO bonus motivates and rewards results and behaviour that are aligned with
financial and strategic objectives.

     1.1. Setting Objectives

In MBO systems, objectives are written down for each level of the organisation, and
individuals are given specific aims and targets. “The principle behind this is to ensure that
people know what the organisation is trying to achieve, what their part of the organisation must
do to meet those aims, and how, as individuals, they are expected to help.

An MBO system should provide focus. So objectives should be precise and few.

For MBO to be effective, individual managers must understand the specific objectives of their job
and how those objectives fit in with the overall company objectives set by the board of directors.

The managers of the various units or sub-units, or sections of an organisation should know not
only the objectives of their unit but should also actively participate in setting these objectives
and make responsibility for them.

The review mechanism enables leaders to measure the performance of their managers.

     1.2. Individual Responsibility

MBO creates a link between top management’s strategic thinking and the implementation of that
strategy lower down in the organisation. Responsibility for objectives is passed from the
organisation to its individual members. It is especially important for knowledge-based
organisations where all members have to be able to control their own work by feeding back from
their results to their objectives.

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MBO Guide

2. SCM MBO Bonus Plan Procedure

2.1. Process Summary

	•  	Eligible employees are assigned a special set of objectives that they try to reach
during a quarter. These objectives are mutually set and agreed upon by individuals and their
managers.

	•  	Evaluations are conducted quarterly to determine how close individuals were to attaining
their objectives.

	•  	Rewards are given to individuals on the basis of how close they come to reaching their goals
and on overall company financial performance in the quarter.

     2.2. Eligibility

Eligibility to participate in the MBO bonus program depends on the level of the position and
the area of responsibility. The relevant employee should be in a role where he/she works with some
degree of independence to contribute directly and measurably with his/her performance towards the
achievement of corporate objectives. This is assumed for most positions with people
responsibility. For all other positions, the decision will be taken by the responsible manager
together with Human Resources.

     2.3. Bonus Amount and Payment Schedule

Each participant has a defined target bonus which is expressed as a percentage of annual base
salary. This percentage amount may vary between locations or groups and is defined in the
individual employee’s terms of employment. This is the maximum amount of bonus that can be
earned within a year. Bonus payments will be calculated based upon the following weighting:

- 50% based upon achievement of individual objectives

- 50% based upon achievement of Corporate objectives.

The bonus is paid quarterly (gross) and the amount is dependent on how closely the company and
individual objectives for the quarter are met. The bonus for the quarter will be paid with the
normal payroll in the 2nd month following the quarter end.

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MBO Guide

     2.4. Individual Bonus Objectives

Bonus objectives are set at the beginning of each quarter. The company starts the process by
determining and publishing a summary of non-financial company objectives for the quarter and
participants prepare their individual objectives in response to these.

The manager will review, discuss, weight and agree the individual objectives together with the
participant and document them using the MBO review form by the 15th of the quarter’s first month.

There must be a minimum of three individual objectives and a maximum of six. They
must be directly relevant to the corporate objectives, incremental to the normal tasks of the
role, objectively measurable and specific. The SCM Guide to Performance Expectation Setting
provides more information on setting objectives and expectations generally.

Objectives should not normally be adjusted or changed during the quarter. However, if business
priorities change MBO objectives may be revised to reflect new priorities. Any such changes must
be approved by the Manager and documented in the MBO form.

Objectives for the previous quarter are also evaluated and rated at the beginning of each new
quarter. The participant first reviews and rates his/her own objectives and then discusses them
with the manager. The manager reviews and approves the overall rating using the MBO review form.

MBO review forms for quarterly achievement are submitted by the approving manager to Human
Resources/Payroll by the 15th of the first month of each next quarter.

MBO review forms submitted after this deadline will not be eligible for the quarterly bonus payout.

     2.5. Company Objectives

The Corporate bonus will be determined by Corporate Management and will be generally based on
the achievement of the revenue and gross profit amounts in the most recent updated corporate
financial MBO’s published at or prior to the beginning of the quarter according to the following
guidelines.

In order for any bonus to be earned on the corporate objectives, at least 80% of both forecast
revenues and gross profit must be achieved. If achievement of either or both of these targets is
below 80% — no bonus will be payable on Corporate objectives. At a level of 80% achievement 64%
of the Corporate objective bonus will be paid. At levels between 80% and 100% achievement the
bonus will be pro-rated between 64% and a maximum of 100%. Levels above 100% will be counted as
100% achievement for the purposes of the calculation.

Following are some examples of Corporate objective bonus calculations:

	 	 	 	 	 	 	 	 	 
	 	 	% Revenue	 	 	% Bonus	 
	% GPM Target	 	Target	 	 	Earned	 
	 
	<80%
	 	 	<80	%	 	 	0	%
	 
	100%
	 	 	<80	%	 	 	0	%
	 
	80%
	 	 	80	%	 	 	64	%
	 
	90%
	 	 	90	%	 	 	81	%
	 
	90%
	 	 	100	%	 	 	90	%
	 
	100%
	 	 	95	%	 	 	95	%
	 
	100%
	 	 	100	%	 	 	100	%
	 
	>100%
	 	 	>100	%	 	 	100	%
	 

Corporate Management will determine the final percentage to be paid and in exceptional cases
may adjust this at its discretion above or below the calculated amount.

The quarterly Corporate MBO percentage will be communicated by the end of the 1st month of each
quarter. For regulatory disclosure reasons the gross profit and revenue targets and achievements
will be available only to Senior Management until official quarterly results have been published.
At that time a summary of overall MBO achievement for the previous quarter will be made available
to all participants.

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MBO Guide

     2.6. Individual Employee Bonus Calculation Example

MBO Participant is paid a base quarterly salary of 10,000 with an MBO percentage of 16.67%.
Individual objectives have been met to 90% of target. The Corporate bonus percentage is set at
100%. The bonus for the quarter is calculated as follows:

	 	 	 
	Base Salary
	 	10.000
	MBO%
	 	16,67%
	Target Total Bonus
	 	1.667
	Individual 50%
	 	834
	Corporate 50%
	 	834
	 
	 	 
	Achievement
	 	 
	Individual
	 	90%
	Corporate
	 	100%
	 
	 	 
	Bonus
	 	 
	Individual
	 	750
	Corporate
	 	834
	Total Payment
	 	1.584

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