Document:

ex10-44.htm

Exhibit 10.44

 

ENERGY RECOVERY INC

ANNUAL INCENTIVE PLAN (AIP)

 

A.           SCOPE

 

This Annual Incentive Plan (the “Plan”) of Energy Recovery, Inc. (the “Company”) and its subsidiaries is effective as of January 1, 2012 and covers eligible employees designated by the Company and approved by the Compensation Committee of the Board of Directors (the “Compensation Committee”).  The Plan shall continue until terminated in accordance with paragraph J. This Plan replaces and supersedes any and all other agreements for participants in this Plan, representations or understandings (either written or oral), with respect to incentive compensation.

B.           PURPOSE

 

The purpose of the Plan is to encourage the performance and retention of eligible employees in recognition of individual achievement that contributes to the strategic and financial success of the Company.

 

	
C.

	
ELIGIBLE EMPLOYEES

 

Full-time, regular employees, unless otherwise required by applicable law, who do not participate in the Company’s Sales Incentive Plan, and who are employed as of October 1 of the applicable Plan Year (as defined below) are eligible to be selected as participants in the Plan (“Participants”).  A committee comprised of the Company’s Chief Executive Officer, Chief Financial Officer, and Human Resources Manager the “Plan Committee”), as administrator of the Plan, shall designate among the eligible employees of the Company and its subsidiaries described in the preceding sentence who are to be participants (the “Participants”) in the Plan for the applicable fiscal year (the “Plan Year”).  Participation in the Plan in one Plan Year is not a guarantee of participation in a future Plan Year.

D.           INDIVIDUAL TARGETS

 

The Plan Committee will establish an incentive award target (“Individual Target”) for each Participant that shall be expressed as a percentage of such Participant’s annual base compensation.  For exempt employees, the percentage will be of the Participant’s annual base compensation that is in effect as of the first day of the Plan Year, or if later, when an Eligible Employee becomes a Participant.  For non-exempt employees, the percentage will be of the Participant’s wages for the Plan Year, inclusive of regular and overtime wages.  Individual Targets will be reviewed and approved by the Plan Committee on an annual basis, and the Compensation Committee will approve Individual Targets for all executive officers of the Company.

 

  

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E.           ANNUAL BONUS POOL

 

Except as may otherwise be set forth herein or as determined by the Plan Committee under certain circumstances, the aggregate amount allocated for payment of bonuses under the Plan is based on corporate performance as measured by the actual attainment level of the Adjusted Operating Income (Loss) for the associated Plan Year (the “Annual Bonus Pool”).  Through the annual budgeting process, the Board of Directors of the Company (the “Board”) will approve the corporate target for Adjusted Operating Income (Loss) (the “Profitability Target”), and the Annual Bonus Pool will be determined by comparing the actual Adjusted Operating Income (Loss) achieved during the Plan Year to the Profitability Target approved by the Board.  The “Target Annual Bonus Pool”, which shall be equal to the aggregate amount of the Individual Targets for the entire population of Participants designated to participate with respect to a Plan Year, will become payable upon 100% achievement of the Profitability Target specified in the approved budget for the associated Plan Year.  For actual performance above or below the Profitability Target, the Annual Bonus Pool will be calculated based on the formula described in Paragraph G below.  The Company shall accrue for accounting purposes for payment of awards under the Plan on a monthly basis in accordance with the Plan Committee’s assessment of interim results as compared to the comparable Profitability Target.

 

F.           ADJUSTED OPERATING INCOME (LOSS)

 

For purposes of this Plan, “Adjusted Operating Income (Loss)” shall be defined as “operating income (Loss) before bonus expense and extraordinary items” of the Company for the Plan Year.  Specifically, Adjusted Operating Income (Loss) shall reflect the consolidated operating income of the Company during the fiscal year, as determined by the Plan Committee in conformity with accounting principles generally accepted in the United States of America and contained in financial statements that are subject to an audit report of the Company's independent public accounting firm, but excluding:

 

(i) the accrued bonus expense under the provisions of this Plan;

 

(ii) transaction and financing costs associated with an acquisition or in anticipation thereof;

 

(iii) restructuring costs for an initiative approved by the Board;

 

(iv) losses associated with the write-down of assets of a subsidiary, business unit, or division that has been designated by the Board as a discontinued business operation or to be liquidated;

 

(v) gains or losses on the sale of any subsidiary, business unit or division, or the assets or business thereof;

 

(vi) gains or losses from the disposition of material capital assets (other than in a transaction described in subsection (iii) through (v) above;

 

(vii) the refinancing of indebtedness, including, among other things, any make-whole payments and prepayment fees;

 

(viii) losses associated with the write-down of goodwill or other intangible assets of the Company due to the determination under applicable accounting standards that the assets have been impaired;

 

  

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(ix) any income statement effect resulting from a change in generally accepted accounting principles, except to the extent that the effect of such a change is already reflected in the Profitability Target;

 

(x) any other material income or loss item, the realization of which is not directly attributable to the actions of current senior management of the Company; and

 

(xi) other extraordinary or unpredicted items proposed by the Plan Committee and accepted by the Compensation Committee.

 

The Compensation Committee shall have final authority with respect to any determination by the Plan Committee regarding the definition of “Adjusted Operating Income (Loss)” and, in exercising such authority, may consult with the Company’s independent auditor and/or Audit Committee as it deems necessary and advisable.

 

G.           ANNUAL BONUS POOL DETERMINATION

 

At the onset of each Plan Year, the Compensation Committee shall determine the Profitability Target and Target Annual Bonus Pool.  The actual amount that becomes payable under the Plan shall be determined upon calculation of Adjusted Operating Income (Loss) at the end of the Plan Year, subject to any adjustments required pursuant to Section G herein.

 

	
  

	
·

	
If Adjusted Operating Income (Loss) equals the Profitability Target, 100% of the Annual Bonus Pool will become payable.

	
  

	
·

	
If Adjusted Operating Income (Loss) exceeds the Profitability Target, the Annual Bonus Pool will be calculated based on the allocation curve as illustrated in Exhibit A.

	
  

	
·

	
If Adjusted Operating Income (Loss) exceeds 75%, but is less than 100%, of the Profitability Target, the Annual Bonus Pool will be calculated based on the allocation curve as illustrated in Exhibit A.

	
  

	
·

	
If Adjusted Operating Income (Loss) is less than 75% of the Profitability Target, the Annual Bonus Pool will be equal to minimum discretionary funding established and approved by the Compensation Committee; provided, however, that such minimum amount shall only be awarded to individual Participants for extraordinary performance as determined by the Plan Committee and approved by the Compensation Committee.

The “Allocation Ratio,” which is defined as the Annual Bonus Pool divided by the Target Annual Bonus Pool, will be applied for computation of individual bonus payments made to Participants.  To derive the Allocation Ratio for the purposes of calculating individual bonus payments, the Company will use the allocation curve depicted in Exhibit A.  While there shall be no maximum allocation amount for the Annual Bonus Pool, the Compensation Committee, subject to any required approval of the Board, shall have the ability and authority to increase or decrease the amount of the Annual Bonus Pool calculated in accordance with the provisions of this Plan to reflect any extraordinary or unforeseen events or occurrences during the Plan Year.  In addition, amounts payable are subject to adjustment at the sole discretion of the Plan Committee, and any amounts payable may be increased or reduced, including to zero.

 

  

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H.           BONUS CALCULATION

 

A Participant’s bonus payment under this Plan shall be calculated using the following formula:

 

BONUS = BASE x IND TARGET x ALLOCATION RATIO x IND ACH x PRORATION

 

Where:

	
  

	
·

	
BASE represents the Participant’s compensation as defined in Paragraph D;

	
  

	
·

	
IND TARGET represents the Participant’s Individual Target as defined in Paragraph D;

	
  

	
·

	
ALLOCATION RATIO equals the Annual Bonus Pool divided by the Target Annual Bonus Pool and derived from the allocation curve in Exhibit A;

	
  

	
·

	
IND ACH represents the individual achievement for the Participant in question and is calculated from the supervisor’s assessment of the Participant’s performance against Measurable Business Objectives (“MBOs”) as documented in the Plan Year and approved by the Plan Committee; and

	
  

	
·

	
PRORATION represents the amount of time (in months) that the Participant worked for the Company during the Plan Year in an eligible position divided by twelve months.

 

For example, consider a Participant, hired on July 1, with a base salary of $100,000 and an Individual Target of 10%.  During the Plan Year, the Company achieves Adjusted Operating Income (Loss) just below the Profitability Target, and the allocation curve depicted in Exhibit A yields an Allocation Ratio of 75%.  Moreover, the Participant’s supervisor determines that the Participant achieved 90% of the targeted performance specified in his/her MBOs for the respective Plan Year.  The bonus payment is calculated as follows:

 

BONUS = $100,000 x 0.10 x 0.75 x 0.90 x 0.50 = $3,375

 

To the extent permitted by applicable law, rules and regulations, the Company reserves the right to prorate the bonus award of any Participant who was not in an eligible position for the entire applicable Plan Year, or was not actively working full-time throughout the applicable Plan Year.  Plan bonus awards, if any, will generally be prorated based on the number of full months (rounded to the nearest full month) that a Participant is working in an eligible position; however, the Company reserves the right, in its sole discretion, to prorate bonuses based on hours of service, days, or on any other basis.  For example, the proration factor for a Participant who is eligible for the entire applicable Plan Year will be 1.00; for a Participant who is eligible to participate in the Plan for one-half of the Plan Year, the proration factor will be 0.50.  In summary, Participants in the following situations may have a proration factor that is less than 1.00, to the extent permissible by applicable law: (a) new hires and individuals who transfer into an eligible position during the applicable Plan Year; (b) individuals who transfer between an eligible position and a non-eligible position within the Company; (c) Participants who work less than the applicable full-time standard work week; and (d) Participants who take a leave of absence, as described more fully below.

To the extent permitted by applicable law, rules and regulations, Participants who take unpaid days off or leaves of absence that are not protected by statute or other applicable law will have their bonus awards, if any, prorated based by the number of full months that such Participant is actively working in an eligible position.

  

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I.           TIMING OF AWARDS

 

Eligible Employees must be designated as Participants as of October 1 in a Plan Year to be eligible to participate in, and receive payment of an award, under the Plan for that same year, unless otherwise required by applicable law.  A Participant who is employed after January 1 but prior to October 1 of a Plan Year shall only be eligible to receive an award prorated for the amount of time the Participant was employed by the Company in an eligible position during the Plan Year.  Awards for a Plan Year are payable annually in cash and shall be earned and paid in the first quarter of the calendar year following the end of the corresponding Plan Year.  Participants must be an employee in good standing at the time of the bonus payment to earn or receive the same; except where prohibited by applicable law, participants who involuntarily or voluntarily resign or otherwise terminate employment for any reason before the time the awards are paid will not be eligible to earn or receive payment of the bonus, prorated or otherwise.

 

J.           NATURE OF PLAN

 

This Plan is a statement of intent and is not a contract.  Moreover, it is not a guarantee of employment. U.S. Participants’ employment with the Company remains “at will.”  This Plan may be modified, suspended, or terminated at any time, and all awards are at the discretion of the Board or the Compensation Committee, subject to applicable law.  This Plan may be changed during a Plan Year or prior to bonus payments without any obligation of the Company to pay for the elapsed part of the Plan Year in the manner described in the Plan, subject to applicable law. The decisions of Company management, the Plan Committee, the Compensation Committee, and/or the Board in administering and interpreting the Plan are final and binding on all Participants.  Information regarding an employee’s annual incentive payment will be part of the employee’s personnel record.

 

K.           WITHHOLDING TAXES

 

Whenever the payment of an award is made, such payment shall be net of an amount sufficient to satisfy federal, state and local income and employment tax withholding requirements and authorized deductions as determined by the Plan Committee in its sole discretion.

 

L.           NONASSIGNMENT; PARTICIPANTS ARE GENERAL CREDITORS

 

Except as otherwise provided by the Plan Committee in its sole discretion, the interest of any Participant under the Plan shall not be assignable or transferable either by voluntary or involuntary assignment or by operation of law and any attempted assignment shall be null, void, and of no effect.

 

Amounts paid under the Plan shall be paid from the general funds of the Company, and each Participant shall be no more than an unsecured general creditor of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder.  Nothing contained in the Plan shall be deemed to create a trust of any kind for the benefit of any Participant or create any fiduciary relationship between the Company and any Participant with respect to any assets of the Company.

 

  

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M.           SUCCESSORS AND ASSIGNS

 

This Plan shall be binding on the Company and Participant and their respective successors, permitted assigns, executors, administrators, and legal representatives.

 

N.           CODE SECTION 409A

 

The Plan and all Awards made hereunder shall be interpreted, construed and operated to reflect the intent of the Company that all aspects of the Plan and the Awards shall be interpreted to be exempt from the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any regulations and other guidance thereunder.  This Plan may be amended at any time, without the consent of any party, to avoid the application of Section 409A of the Code in a particular circumstance or that is necessary or desirable to satisfy any of the requirements under Section 409A of the Code, but the Company shall not be under any obligation to make any such amendment.  Nothing in the Plan shall provide a basis for any person to take action against the Company or any affiliate based on matters covered by Section 409A of the Code, including the tax treatment of any amount paid or Award made under the Plan, and neither the Company nor any of its affiliates shall under any circumstances have any liability to any Participant or his estate or any other party for any taxes, penalties, or interest due on amounts paid or payable under the Plan, including taxes, penalties, or interest imposed under Section 409A of the Code.

 

O.           INTERPRETATION AND SEVERABILITY

 

In case any one or more of the provisions contained in the Plan shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of the Plan, but the Plan shall be construed as if such invalid, illegal, or unenforceable provisions had never been contained herein.

 

P.           GOVERNING LAW

 

This Plan and all awards made and actions taken hereunder shall be governed by and construed in accordance with the laws of California excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction.  Participants are deemed to submit to the exclusive jurisdiction and venue of the Federal or state courts of California, to resolve any and all issues that may arise out of or relate to the Plan or any related award.

 

  

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Exhibit A

AIP Funding Curve

 

 

	
  

	
·

	
Profitability Target = 2012 Budgeted Adjusted Operating Income (Loss) + Stretch Target

	
  

	
·

	
Minimum Performance Threshold = 75% of 2012 Budgeted Adjusted Operating Income (Loss)

	
  

	
·

	
Minimum Discretionary Funding = To be determined by the Compensation Committee

	
  

	
·

	
Target Annual Bonus Pool = Dollar sum of the aggregate target percentage of base salaries for all Participants as of February 16, 2012

	
  

	
·

	
If Adjusted Operating Income (Loss) = Profitability Target, then Annual Bonus Pool = Target Annual Bonus Pool

	
  

	
·

	
If Adjusted Operating Income (Loss) <= Minimum Performance Threshold, then Annual Bonus Pool = Minimum Discretionary Funding

	
  

	
·

	
If Adjusted Operating Income (Loss) > Minimum Performance Threshold, then Annual Bonus Pool = 0.65*(Adjusted Operating Income (Loss) - Minimum Performance Threshold) + Minimum Discretionary Funding

 

 

Page 7ex10-1.htm

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement effective as of January 2, 2012 (the “Effective Date”) is between AuthenTec, Inc., a Delaware corporation (the “Company” or “AuthenTec”), and Scott Deutsch (“Employee”).

 

	
1.

	
Employment.  The Company hereby employs Employee and Employee hereby accepts employment with the Company to assist in the development and to promote the operation of the business carried on by the Company subject to the following conditions:

 

	
  

	
(a)

	
Position.  Employee will serve as Vice President of Worldwide Sales, reporting to the Chief Executive Officer, and will perform such duties and will exercise such responsibilities, commensurate with such position, on behalf of the Company as from time to time will be assigned to him.  During his service hereunder, Employee will at all times provide his full working time and best efforts to the performance of his obligations and duties hereunder; provided, however, that nothing herein contained will be deemed to prevent or limit the right of Employee to (i) invest his funds in the capital stock or other securities of any corporation except a competitor or (ii) serve on the boards of directors or advisory committees of charitable organizations, trade organizations or other companies which are not competitors and which are previously approved in writing by the Company or (iii) engage in other personal business matters that do not interfere with the performance of Employee’s duties as described above.

 

	
  

	
(b)

	
Base Compensation.  During the term of his employment hereunder, Employee will be paid an annual base salary at the rate of $ 214,000 (“Base Compensation”), payable in equal bi-weekly installments in arrears; provided however, that beginning with the standard review cycle planned for 2013, the Board will review and, in its discretion, may increase Employee’s Base Compensation based on the Company’s performance and Employee’s contributions. Employee’s Base Compensation shall not be reduced, without prior written agreement, except in accordance with a Board approved reduction that is uniformly applied to all employees who are employed as Directors and above within the Company.

 

	
  

	
(c)

	
Bonus Plan; Annual Bonus.  In addition, Employee will be eligible to participate in AuthenTec’s annual bonus or commission plans which are generally available to other senior level employees of AuthenTec as may be approved from time to time.

 

	
  

	
(d)

	
Equity Grants. The Employee shall be eligible to participate in and receive equity-based grants in any stock option plan, restricted stock plan or other equity-based or equity-related compensation plan, programs or agreements of the Company made available generally to its senior executives; provided that the amount, timing, and other terms of any future grant shall be determined by the Board (or the Compensation Committee thereof) in its sole discretion.

 

	
  

	
(e)

	
Other Benefits.

 

	
  

	
(i)

	
Insurance and Other Benefits.  Employee shall be entitled to participate in all of the benefits afforded full-time AuthenTec employees, subject to the various eligibility requirements of the specific benefit plans and subject, in some cases, to employee contributions to such plans.  These benefits shall include group health and dental plans, a 401(k) deferred compensation plan, life insurance and short term disability coverage, as well as optional supplemental life insurance and long term disability coverages.

 

  

  

  

 

	
  

	
(ii)

	
Vacation.  Employee shall be entitled to an annual vacation as provided by the Company’s then-current policy, but not less than three weeks per year.  Unused vacation shall be accrued pursuant to the Company’s then-current policy.

 

	
  

	
(iii)

	
Reimbursement of Expenses.  The Company shall reimburse Employee for all reasonable travel, temporary lodging, entertainment and other expenses incurred or paid by Employee in connection with or related to the performance of his duties or responsibilities under this Agreement, provided that Employee submits to the Company substantiation of such expenses sufficient to satisfy the Company’s expense reimbursement policies and the record keeping guidelines promulgated from time to time by the Internal Revenue Service.

 

	
  

	
(iv)

	
Indemnification; Liability Insurance:  Company agrees to indemnify Employee and hold Employee harmless to the fullest extent permitted by Delaware law and under the bylaws of Company against and in respect to any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including reasonable attorneys’ fees), losses, and damages resulting from the Employee’s good-faith performance of his duties and obligations.  Company shall cover Employee under directors and officers’ liability insurance in substantially the same amount and on substantially the same terms as Company covers its other active officers and directors.

 

	
2.

	
Term of Employment; Termination.

 

	
  

	
(a)

	
Term.  Nothing in this agreement shall be construed as a contractual guarantee of employment.  Employment is both considered “at will” and, subject to local law, may be discontinued by either party, with or without cause, at any time.

 

	
  

	
(b)

	
Termination; Post-Termination Matters.

 

	
  

	
(i)

	
Termination.

 

	
  

	
(A)

	
Voluntary Termination By Employee.  Employee will give the Company at least thirty (30) days prior written notice as to the date of any voluntary termination by Employee, specifying therein the date of termination.

 

	
  

	
(B)

	
Termination By the Company For Cause.  The Company may terminate Employee’s employment hereunder at any time for Cause.

 

	
  

	
(C)

	
Termination By The Company Without Cause.  The Company may terminate Employee’s employment upon at least thirty (30) days prior written notice Without Cause.  Any such termination Without Cause will be within the sole discretion of the Company.  Such discretion if exercised by the Company will be unlimited and will not be subject to any test of reasonableness by any court of law or by Employee.

 

  

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(D)

	
Constructive Termination Of Employee.  Employee may terminate his employment upon written notice to the Company of any one of the following events that occurs, if not cured and corrected by the Company or its successor within thirty (30) days after written notice thereof by the Employee to the Company or its successor (“Good Reason”):  (i) any adverse change in the Employee’s titles or position that constitutes a material diminution or material adverse change in authority as compared to the authority of the Employee’s title or position as of the Effective Date; (ii) any material reduction in the Employee’s annual Base Compensation as in effect on the Effective Date (other than as set forth in the proviso to item (v)); (iii) a substantial diminution or material adverse change in the Employee’s duties and responsibilities (other than a change due to the Employee’s total and permanent disability or as an accommodation under the Americans With Disabilities Act); (iv) any requirement that the Employee relocate, by more than 50 miles, the principal location from which he performs services for the Company as compared to such location as of the Effective Date; (v) any other material breach of this Agreement by the Company which is not cured within thirty (30) days after receipt of written notice, provided that a reduction in the Employee’s Base Compensation that is proportional under a Board approved plan affecting all other employees who are employed as Directors and above within the Company shall not be deemed a material breach of this Agreement; (vi) failure of Company to obtain the agreement from any successor to Company to assume and agree to perform this Agreement;  provided, however, that no diminution of title, position, duties or responsibilities shall be deemed to occur solely because the Company becomes a subsidiary of another corporation or entity or because there has been a change in the reporting hierarchy incident thereto involving the Employee.

 

	
  

	
(ii)

	
Severance.

 

	
  

	
(A)

	
If Employee’s employment is terminated pursuant to Sections 2(b)(i)(A) or (B), the Company shall pay Employee only his Base Compensation through his actual day of termination, and the Company shall have no further liability or obligation to Employee, his executors, heirs, assigns or other persons claiming under or through his estate.

 

	
  

	
(B)

	
Subject to Sections 2(b)(ii)(C) and 2(b)(ii)(D) below, if the Company terminates Employee’s employment Without Cause pursuant to Section 2(b)(i)(C) or Employee terminates his employment in accordance with Section 2(b)(i)(D) then, provided Employee executes a general release with language acceptable to the Company (a “Release”), the Company shall provide Employee with the following:

 

	
  

	
(I)

	
Payment in an aggregate amount equal to nine (9) months of Employee’s then-applicable annual Base Compensation, plus an amount equal to 9/12ths of Employee’s annual bonus as most recently paid by the Company for the period immediately preceding the year of termination, if any such bonus was achieved, less applicable withholding, payable as a lump sum within sixty (60) days after Employee’s termination of employment.

 

	
  

	
(II)

	
Payment in an aggregate amount equal to nine (9) months of the COBRA costs associated with continuation of benefits under the Company’s employee healthcare benefit plans (medical, dental, prescription) in which Employee participated immediately prior to Employee’s termination of employment. Payment will be made to the Employee within sixty (60) days after Employee’s termination of employment.

 

	
  

	
(III)

	
The assignment, at Employee’s option, of life and disability insurance policies insuring Employee, provided that, notwithstanding paragraph (I) above, Employee shall thereafter be responsible for any premium payments and transfer of any vested funds or other benefits under any of the Company’s ERISA or other benefit plans and such assignment shall only be permitted if allowed under the terms of the applicable insurance policy.

 

  

3

  

 

	
  

	
(IV)

	
the treatment of outstanding equity awards, as follows:

 

	
  

	
(i)

	
the portion of Employee’s outstanding stock options, stock appreciation rights and other awards in the nature of rights that may be exercised that would have become vested and exercisable within nine (9) months following the effective date of his termination shall become fully vested and exercisable as of the effective date of his termination and shall thereafter remain exercisable for a period of nine (9) months or until the earlier expiration of the original term of the award;

 

	
  

	
(ii)

	
all time-based vesting restrictions on Employee’s outstanding equity awards that would have lapsed within nine (9) months following the effective date of his termination shall lapse as of the effective date of his termination; and

 

	
  

	
(iii)

	
the payout level under all of Employee’s performance-based awards that (A) were outstanding immediately prior to the effective date of his termination, and (B) would have been eligible to have been earned within nine (9) months following the effective date of his termination, shall be determined and deemed to have been earned as of the effective date of his termination based upon an assumed achievement of all relevant performance goals at the “target” level, and there shall be a pro rata payout to Employee on the 60th day after the effective date of his termination of employment (or such later date as may be required pursuant to Section 4(g)), based upon the length of time within the performance period that has elapsed prior to the effective date of termination of employment.

 

Any outstanding equity awards that do not vest pursuant to the foregoing provisions, if any, shall remain outstanding for an additional six (6) months following the effective date of Employee’s termination, but such outstanding equity awards shall not continue to vest or become exercisable during such 6-month period except as otherwise provided in Section 2(b)(ii)(D) below.  At the end of such 6-month period, Employee’s outstanding and unvested equity awards shall be cancelled and Employee shall forfeit all of his right, title and interest in and to such equity awards as of such date, without further consideration or any act or action by Employee.

 

	
  

	
(C)

	
Notwithstanding Section 2(b)(ii)(B) above, If the Company terminates Employee’s employment Without Cause pursuant to Section 2(b)(i)(C) or Employee terminates his employment in accordance with Section 2(b)(i)(D) during the twelve (12) months following the effective date of a Change of Control, then, provided Employee executes a Release, the Company shall provide Employee with the following (which payments and benefits shall be in lieu of any payments under Sections 2(b)(ii)(B)(I) through 2(b)(ii)(B)(III)):

 

  

4

  

 

	
  

	
(I)

	
Payment in an aggregate amount equal to twelve (12) months of Employee’s then-applicable annual Base Compensation, plus a pro-rata portion of his target bonus opportunity under AuthenTec’s annual bonus plan for the year in which his termination occurs (with the pro-ration based on the portion of the fiscal year for which he was employed), which amount will be paid to Employee in a single lump sum on the 60th day after his termination of employment.

 

	
  

	
(II)

	
Payment in an aggregate amount equal to twelve (12)  months of the COBRA costs associated with continuation of benefits under the Company’s Employee healthcare benefit plans (medical, dental, prescription) in which Employee participated immediately prior to Employee’s termination of employment.  Payment will be made to the Employee within sixty (60) days after Employee’s termination of employment.

 

	
  

	
(III)

	
The assignment, at Employee’s option, of life and disability insurance policies insuring Employee, provided that Employee shall thereafter be responsible for any premium payments and such assignment shall only be permitted if allowed under the terms of the applicable insurance policy.

 

	
  

	
(D)

	
Notwithstanding Section 2(b)(ii)(B) above, if the Company terminates Employee’s employment Without Cause pursuant to Section 2(b)(i)(C) or Employee terminates his employment in accordance with Section 2(b)(i)(D) either (1) during the six months prior to the effective date of a Change of Control, unless the Company reasonably demonstrates that such termination of employment was not in connection with or anticipation of a Change of Control, or (2) during the twelve (12) months following the effective date of a Change of Control, then, provided Employee executes a Release, the Company shall provide Employee with the following (which payments and benefits shall be in lieu of any payments under Section 2(b)(ii)(B)(IV)):

 

	
  

	
(I)

	
All of Employee’s options, stock appreciation rights, and other awards in the nature of rights that may be exercised that were outstanding immediately prior to the effective date of the Change of Control shall become fully vested and exercisable as of the effective date of his termination and shall thereafter remain exercisable for a period of one (1) year or until the earlier expiration of the original term of the award;

 

	
  

	
(II)

	
all time-based vesting restrictions on Employee’s equity awards that were outstanding immediately prior to the effective date of the Change of Control shall lapse as of the effective date of his termination; and

 

  

5

  

 

	
  

	
(III)

	
the payout level under all of Employee’s performance-based equity awards that were outstanding immediately prior to the effective date of the Change of Control shall be determined and deemed to have been earned as of the effective date of the Change of Control based on an assumed achievement of all relevant performance goals at the “target” level, and there shall be a payout of the full award to Employee on the 60th day after the effective date of his termination of employment (or such later date as may be required pursuant to Section 4(g)).

 

	
  

	
(E)

	
The parties acknowledge and agree that this letter serves to amend the applicable Equity Award grant agreements to comport with the provisions set forth herein.

 

	
  

	
(iii)

	
Definitions.  As used in this Agreement.

 

	
  

	
(A)

	
A “voluntary termination” of employment means any termination of Employee’s employment with the Company, other than Termination for Cause or Without Cause by the Company, termination due to death or disability or termination by Employee for Good Reason.

 

	
  

	
(B)

	
“Termination for Cause” means Employee’s termination if such termination results from any one or more of the following events, circumstances or occurrences:  (i) the Employee’s material breach of any written employment, consulting, advisory, proprietary information, nondisclosure or other agreement with the Company and his or her subsequent failure to cure such breach to the satisfaction of the Company within thirty (30) days following written notice of such breach to the Employee by the Company; (ii) the Employee’s conviction of, or entry of a plea of guilty or nolo contendere to, a felony or any misdemeanor involving moral turpitude if the Board reasonably determines that such conviction or plea materially adversely affects the Company; (iii) the commission of an act of fraud or dishonesty by the Employee if the Company reasonably determines that such act materially adversely affects the Company; or (iv) Employee’s intentional damage or destruction of substantial property of the Company.  The determination of “cause” shall be made in good faith by the Company and its determination shall be final and conclusive.

 

	
  

	
(C)

	
A termination “Without Cause” means a termination at the will of the Company other than Termination for Cause.

 

	
  

	
(D)

	
“Change of Control” shall mean the earliest to occur of (i) a merger or consolidation to which the Company is a party and which results in, or is effected in connection with, a change in ownership of a majority of the outstanding shares of voting stock of the Company, (ii) any sale or transfer of all or substantially all of the assets of the Company to an unaffiliated third party or (iii) a liquidation or dissolution of the Company.

 

	
  

	
(E)

	
“Equity Award” means any option, stock appreciation right, restricted stock, restricted stock unit, performance share or performance unit award or other award with respect to shares of the capital stock of the Company granted to you by the Company prior to a Change in Control, including any such award which is assumed or continued by, or for which a replacement award is substituted by, any successor to the Company in connection with the Change in Control.

 

	
  

	
(c)

	
Post-Termination Matters.

 

  

6

  

 

	
  

	
(i)

	
Return of Materials.  Upon any termination of Employee’s employment, Employee will promptly return to the Company all personal property of the Company and all copies and originals of documents and other tangible impressions, in any medium, containing confidential or proprietary information of the Company.

 

	
  

	
(ii)

	
Expenses.  The Company will pay to Employee all expenses permitted to be reimbursed hereunder within ten (10) days after appropriate documentation has been submitted by Employee.

 

	
  

	
(iii)

	
Noncompete; Nonsolicitation.  During the term hereof and the period specifically indicated in subsections (A), (B), (C) and (D) below, following termination of Employee’s employment for any reason, Employee will not, directly or indirectly, on behalf of himself or any behalf of anyone else:

 

	
  

	
(A)

	
for a period of twelve (12) months, as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent (5%) of the total outstanding stock of a publicly-held company), engage in any business activity that directly competes with the kind or type of products or services of developed or being developed, produced marketed, distributed, planned, furnished or sold by the Company while Employee was employed by the Company;

 

	
  

	
(B)

	
for a period of twelve (12) months, call upon any of the customers of the Company who are such at the time of Employee’s termination of employment hereunder, for the purpose of soliciting or providing any product or service the same as that provided by the Company or for the purpose of providing customers to any person or entity conducting a business in direct competition with the business of the Company, as conducted at the date of Employee’s termination (a “Competitive Business”);

 

	
  

	
(C)

	
for a period of twelve (12) months, communicate with any of the other employees, consultants or representatives of the Company for the purpose of inducing such employees, consultants or representatives to discontinue their relationship with the Company or to establish a relationship with Employee or any Competitive Business; and

 

	
  

	
(D)

	
for a period of twelve (12) months, solicit, divert or take away or attempt to solicit, divert or take away any of the customers, clients, licenses, strategic partners or patrons of the Company who are such at the time of the Employee’s termination of employment with the Company.

 

	
  

	
(iv)

	
Reasonableness of Covenants.  Employee covenants and agrees with the Company that, if Employee violates any of his covenants or agreements under Section 2(c)(iii), the Company will be entitled, subject to any limitations of Florida law, to an accounting and repayment of all profits, compensation, commissions, remuneration or benefits that Employee has directly realized or may directly realize as a result of, growing out of or in connection with any such violation; such remedy will be in addition to and not in limitation of any injunctive relief or other rights or remedies that the Company is or may be entitled at law or in equity or under this Agreement.  In the event that, notwithstanding the foregoing, any part of the covenants set forth in Section 2(c)(iii) is held by a court of competent jurisdiction to exceed the restrictions which such court deems reasonable and enforceable, such restrictions will be deemed to become and thereafter be the maximum restrictions that such court deems reasonable and enforceable.

 

  

7

  

 

	
3.

	
Proprietary Information and Inventions.  Employee has executed and delivered (or will execute and deliver on the date hereof) such customary confidentiality and invention assignment agreements during the term hereof as the Company requests of its employees (the “Employee NDA”).  Employee represents and warrants to the Company that Employee is not bringing with him, and covenants with the Company that he will not use in the course of his employment with Company, any proprietary rights or intellectual property rights to which he does not lawfully possess.

 

	
4.

	
Miscellaneous.

 

	
  

	
(a)

	
Governing Law.  Subject to Section 1(e)(iv), this Agreement will be subject to and governed by the laws of the State of Florida, without regard to its conflict of laws provisions.

 

	
  

	
(b)

	
No Waiver; Amendment.  Failure to insist upon strict compliance with any provision hereof will not be deemed a waiver of such provision of any other provision hereof.  This Agreement may not be modified except by a written agreement executed by the parties hereto.

 

	
  

	
(c)

	
Severability; Context.  The provisions of this Agreement will be deemed severable, and the invalidity or unenforceability of any one or more of the provisions hereof will not affect the validity or enforceability of the other provisions hereof.  Whenever required by the context, the singular number will include the plural and the masculine or neuter gender will include all genders.

 

	
  

	
(d)

	
Survival and Priority.  Provisions herein which by their terms so provide will survive any termination of this Agreement or of termination of Employee’s employment by the Company.  Each of the parties hereto acknowledge and agrees that this Agreement supersedes any existing agreements and any agreements entered into after the date hereof (unless specifically stating otherwise therein) to which the Company and Employee are parties or subject to relating to the subject matter contained herein; provided, however, that nothing contained herein shall be deemed to terminate or limit in any way the rights of the Company under the Employee NDA.

 

	
  

	
(e)

	
Successors.

 

	
  

	
(i)

	
Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that assumes this Agreement or that becomes bound by the terms of this Agreement by operation of law.

 

	
  

	
(ii)

	
Employee’s Successors.  Without the written consent of the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity.  Notwithstanding the foregoing, except as provided herein,  the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

  

8

  

 

	
  

	
(f)

	
Equitable Relief; Arbitration.

 

	
  

	
(i)

	
In the event of a breach or threatened breach by Employee of the provisions of this Agreement, the Company will, in addition to any other rights and remedies available to it, at law or otherwise, be entitled to an injunction to be issued by any court of competent jurisdiction enjoining and restraining Employee from committing any present violation or future violation of this Agreement.

 

	
  

	
(ii)

	
The parties agree that any controversy, claim or dispute arising out of or relating to this agreement, or the breach thereof, except as discussed herein or arising out of or relating to the employment of the Employee, or the termination thereof, including any statutory or common law claims under federal, state or local law, including all laws prohibiting discrimination in the workplace, shall be resolved by arbitration in Melbourne, Florida, in accordance with the employment dispute resolution rules of the American Arbitration Association.  The parties agree that any award rendered by the arbitrator shall be final and binding, and that judgment upon the award may be entered in any court having jurisdiction thereof.  The parties further acknowledge and agree that, due to the nature of the confidential information, trade secrets, and intellectual property belonging to the Company to which Employee has or will be given access, and the likelihood of significant harm that the Company would suffer in the event that such information was disclosed to third parties, nothing in this Section 4(f)(ii) shall preclude the Company from going to court to seek injunctive relief to prevent Employee from violating the obligations established in Sections 2 and 3 of this Agreement.  Subject to Section 4(f)(iii), each party shall bear its own costs in any such arbitration, but the Company shall bear the direct and indirect expenses of the arbitrator.

 

	
  

	
(iii)

	
Employee shall be entitled to receive interest (at the Wall Street Journal prime rate) on any overdue payments of severance compensation (accruing from the sixtieth day after termination) or expenses hereunder if the Company shall fail to make the payments provided for herein and is in breach hereof at the time of termination (no inference being created that the Company shall have any right to withhold payment). Employee shall be entitled to retain counsel at the Company’s expense to receive advice regarding Employee’s rights hereunder; the Company also agrees to advance as incurred (upon receipt of Employee’s undertaking to repay if the Company shall prevail in the litigation) the reasonable fees and expenses of counsel for such advice or for bringing or defending any proceedings arising directly or indirectly out of this agreement.

	 

 

	
  

	
(g)

	
Compliance with Section 409A.

 

	
  

	
(i)

	
If the Company determines in good faith that any provision of this Agreement would cause Employee to incur an additional tax, penalty, or interest under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”), the Compensation Committee and Employee shall use reasonable efforts to reform such provision, if possible, in a mutually agreeable fashion to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Section 409A or causing the imposition of such additional tax, penalty, or interest under Section 409A.  The preceding provision, however, shall not be construed as a guarantee by the Company of any particular tax effect to Employee under this Agreement.

 

  

9

  

 

	
  

	
(ii)

	
For purposes of Section 409A, the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

 

	
  

	
(iii)

	
With respect to any reimbursement of expenses of, or any provision of in-kind benefits to, Employee, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (1) 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; (2) 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 (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

 

	
  

	
(iv)

	
“Termination of employment,” or words of similar import, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation subject to Section 409A, the Employee’s “separation from service” as defined in Section 409A.

 

	
  

	
(v)

	
If a payment obligation under this Agreement or other compensation arrangement arises on account of Employee’s separation from service while Employee is a “specified employee” (as defined under Section 409A and determined in good faith by the Compensation Committee), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue without interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of Employee’s estate following his death.

 

	
  

	
(h)

	
Notices.  Unless otherwise herein provided, notice required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed given under this Agreement on the earliest of:  (i) the date of personal delivery; (ii) the date of delivery by facsimile; or (iii) the next business day after deposit with a nationally-recognized courier or overnight service, including FedEx or Express Mail, for United Sates deliveries or three (3) business days after such deposit for deliveries outside of the United States.  All notices not delivered personally or by facsimile will be sent with postage and other charges prepaid and properly addressed to the party to be notified at the address set forth on the signature page of this Agreement, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.  All notices for delivery outside the United States will be sent by facsimile, or by nationally recognized courier or overnight service, including Express Mail.  Notices to the Company by Employee will be marked to the Chairman of the Board.

 

	
  

	
(i)

	
Counterparts.  This Agreement may be executed in counterparts, each of which will be an original and both of which together will constitute one instrument.

 

(Signatures on next page)

 

  

10

  

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

 

	  	
AUTHENTEC, INC.

	
EMPLOYEE:

	  	  	  
	  	  	  
	
By:

	/s/ Lawrence J. Ciaccia                               	/s/ Scott Deutsch                               
	
Name:

	
Lawrence J. Ciaccia

	
Scott Deutsch

	
Title:

	
Chief Executive Officer

	  

 

 

 

11

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