Document:

exv10w26

 

Exhibit
10.26

MANAGEMENT SERVICES AGREEMENT

     This Management Services Agreement (this “Agreement”) is made and effective as of the 18th day
of April, 2007 (“Effective Date”) by and among Helix BioMedix, Inc., a Delaware corporation
(“Helix”); RMS Group, LLC, an Illinois limited liability company (“RMS”); and DermaVentures, LLC,
an Illinois limited liability company (“DermaVentures”).

RECITALS

     WHEREAS, DermaVentures was formed on December 21, 2006 for the purpose, without limitation, of
marketing and selling skin care products (the “Business”);

     WHEREAS, RMS and Helix are the sole members of DermaVentures and are bound by the terms and
conditions of that certain Operating Agreement of DermaVentures, LLC dated as of January 31,
2007(the “DermaVentures LLC Agreement”);

WHEREAS, RMS is the sole manager of DermaVentures;

     WHEREAS, Helix has licensed a proprietary bioactive peptide to DermaVentures pursuant to the
terms of that certain License Agreement by and between Helix and DermaVentures of even date
herewith (the “License Agreement”); and

     WHEREAS, the parties wish to enter into this Agreement to specify certain management services
that Helix will provide and to impose certain terms and conditions on the parties in connection
with the operation and management of DermaVentures under the DermaVentures LLC Agreement;

     WHEREAS, the parties agree and acknowledge that Helix’s provision of services under this
Agreement may not be compensated unless and until DermaVentures achieves a significant measure of
profitability and may effectively constitute a significant investment by Helix in furtherance of
DermaVentures’ commercial success;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
acknowledged by all parties hereto, the parties agree as follows:

1. Management Services. The parties acknowledge that RMS is designated as the sole manager
of DermaVentures under the DermaVentures LLC Agreement. RMS hereby delegates certain management
duties to an “Executive Manager” (as defined below) and to Helix, as described in Sections 1.1 and
1.2 hereof, respectively. The services to be performed by Helix under Section 1.2 shall be referred
to collectively as the “Management Services.”

     1.1 Executive Manager. RMS shall designate a single individual to act as the
DermaVentures’ Executive Manager. The Executive Manager shall be responsible for, among other
things, reviewing and approving the scope of Management Services (as defined below) to be provided
by Helix hereunder. Prior to taking any material action in connection with the performance of
Management Services hereunder, Helix shall obtain the approval of the Executive Manager, such
approval not to be unreasonably withheld.

- 1 -

 

     1.2 Management Services. Helix is hereby authorized and shall use commercially
reasonable efforts to provide the Management Services listed on the Service Chart attached hereto
as Exhibit A in connection with the operation of DermaVentures, as such Service Chart may
be amended from time to time by the parties in writing, and for which Management Services Helix
may, in its sole discretion, utilize one or more third-party service providers.

2. Expenses.

     2.1 Helix. Helix shall be solely responsible for (i) all expenses incurred by Helix in
connection with its provision of the Management Services hereunder and (ii) any expenses incurred
by DermaVentures which are solely attributable to its relationship with Helix hereunder in an
aggregate amount in any given fiscal year in excess of $25,000, including, with respect to clause
(ii) above, any incremental expenses for legal or audit/accounting services in excess of $7,500
each in any given fiscal year. To the extent Helix incurs any other expenses on behalf of
DermaVentures, Helix shall submit a claim for reimbursement thereof to DermaVentures and
DermaVentures shall promptly reimburse such amount, provided such expenses have been approved in
advance by the Executive Manager.

     2.2 DermaVentures. Except as set forth in Section 2.1 above, DermaVentures shall be
solely responsible for any and all expenses incurred in connection with the Business, including,
without limitation, (i) any expenses incurred by DermaVentures which are solely attributable to its
relationship with Helix hereunder in an aggregate amount in any given fiscal year up to $25,000,
(ii) up to $80,000 each fiscal year in reasonable costs and expenses associated with one or more
consultants engaged by or on behalf of DermaVentures provided that such engagement is approved in
advance by the Executive Manager and (iii) up to $15,000 to purchase a new management process
software program (the “Software”) selected by Helix in order to perform certain Management Services
hereunder, if approved in advance by the Executive Manager. The Software, if so acquired, shall be
the sole property of DermaVentures and shall be used exclusively for the benefit of DermaVentures.

3. Management Fee and Other DermaVentures Allocations.

     3.1 Management Fee. Upon the Effective Date, Helix shall be entitled to receive from
DermaVentures a management fee in the aggregate amount of $400,000 (the “Management Fee”), payable
by DermaVentures in cash; provided, however, that such Management Fee shall be paid on or after the
date (the “Return Date”) on which RMS has received cumulative Cash Flow distributions from
DermaVentures in the aggregate amount of $1,200,000. For purposes of this Section 3, the terms
“Cash Flow” and “Profits” are defined in the DermaVentures LLC Agreement. The parties specifically
acknowledge and agree that the right of Helix to receive the Management Fee is as compensation for
its Management Services provided hereunder up through the Return Date but that the Management Fee
is not subject to any service related or other condition. The parties further acknowledge and
agree that the Management Fee shall not become an obligation or otherwise become a debt of
DermaVentures unless and until the condition set forth in the first sentence of this Section 3.1 is
met and shall only be paid pursuant to Section 3.2 below, and shall be compensation in full for all
services delivered to DermaVentures by Helix through the Return Date and shall constitute any
payment due to Helix in satisfaction of Helix’s membership interest in DermaVentures out of Cash
Flow through that

- 2 -

 

Return Date. It is further agreed and acknowledged that any further compensation due to Helix
for Management Services shall be satisfied by its share of Cash Flow or Profits, as a member of
DermaVentures, payable by DermaVentures as distributions to DermaVentures’ members after the Return
Date.

     3.2 Other DermaVentures LLC Allocations. Notwithstanding anything contained in the
DermaVentures LLC Agreement to the contrary, (a) following the Return Date DermaVentures shall make
all Cash Flow distributions and allocate all Profits entirely to Helix until such distributions and
allocations equal $400,000 in the aggregate; and (b) in each fiscal year DermaVentures shall make
Cash Flow distributions to each of its members in an amount equal to at least 35% of the Profits
allocated to each such member during such year, provided such distributions do not materially
impair the ability of DermaVentures to continue operation of its business.

4. Limitations and Restrictions.

     4.1 Significant Actions. In recognition that Helix’s provision of services under this
Agreement may effectively constitute a significant investment in DermaVentures’ commercial success
and notwithstanding anything contained in the DermaVentures LLC Agreement to the contrary, during
the term of this Agreement DermaVentures shall seek the express written approval by Helix before
causing (i) any material change in the Business, (ii) any amendment of the Articles of Organization
of DermaVentures and (iii) the appointment or replacement of the Manager of DermaVentures. Helix
expressly agrees that such written approval shall not be unreasonably withheld and that its
determination as to whether to grant such approval shall be communicated to the Executive Manager
within thirty days of the request for such approval. The failure by DermaVentures to obtain
Helix’s approval shall not foreclose its ability to proceed with its proposed action, but in the
event that Helix reasonably fails to provide such approval and DermaVentures determines to proceed
with its proposed action notwithstanding its failure to secure Helix’s approval, Helix shall have
the right to terminate this Agreement pursuant to the terms contained in Section 10.1 below.

     4.2 10% Floor. Notwithstanding anything contained in the DermaVentures LLC Agreement
to the contrary, as long as Helix is a member of DermaVentures and continues to perform its
Management Services under this Agreement, Helix’s Percentage (as defined in the DermaVentures LLC
Agreement) shall not be reduced below 10% as a result of any issuance of new or additional units by
DermaVentures; provided, however, that this Section 4.2 shall no longer apply (i) once
DermaVentures has raised a minimum of $2,000,000 in additional equity financing after the Effective
Date or (ii) upon the consummation of a transaction pursuant to a Change of Control Offer (as
defined below).

5. Change of Control. Notwithstanding anything contained in the DermaVentures LLC Agreement
to the contrary, as long as Helix is providing Management Services to DermaVentures under this
Agreement or any extension or modification thereto, in the event of a decision by RMS to permit any
party to acquire a majority of the outstanding units of DermaVentures or to acquire substantially
all of DermaVentures’ assets, whether structured as a purchase, equity exchange, merger,
liquidation or other transaction (a “Change of Control Offer”), the parties agree to follow the
steps set forth in Sections 5.1 through 5.3 below:

- 3 -

 

     5.1 RMS shall promptly provide written notice to Helix upon the initiation or entertainment by
RMS or DermaVentures of negotiations with respect to a Change of Control Offer.

     5.2 Helix shall have a period of 60 days, commencing upon receipt of the notice described in
Section 5.1, to make a Change of Control Offer (the “Helix Offer”). The date on which Helix
delivers the Helix Offer is referred to as the “Helix Offer Date.”

     5.3 DermaVentures shall have a period of 90 days commencing from the Helix Offer Date to
obtain a competing offer. If DermaVentures is able to obtain a competing offer that is not
materially equivalent to the Helix Offer and which in DermaVentures’ reasonable discretion is
superior to the Helix Offer whether due to price, structure, or some other way, DermaVentures shall
have an additional thirty days in which to reject the Helix Offer and accept the Change of Control
Offer. If DermaVentures is unable to obtain a competing offer that is not materially equivalent
and superior to the Helix Offer within the ninety day period or the Change of Control Offer is
rejected or the 60-day period following receipt of the Change of Control offer lapses, and
DermaVentures does not reject the Helix Offer in writing, DermaVentures shall be deemed to have
accepted the Helix Offer, and Helix and DermaVentures shall thereafter promptly consummate the
transaction. If DermaVentures does not obtain a Change of Control Offer that is materially
different and superior to the Helix Offer and rejects the Helix Offer, DermaVentures shall be
foreclosed from seeking or accepting any Change of Control Offer from any party other than Helix
for a period of 180 days.

     5.4 Subject to the provisions of Section 3 hereof, any consideration to be paid to members of
DermaVentures upon the consummation of a transaction pursuant to a Change of Control Offer shall be
paid to all members of DermaVentures in proportion to their respective Percentages (as defined in
the DermaVentures LLC Agreement).

6. Representations and Warranties. Each of DermaVentures and RMS hereby represents and
warrants to Helix that:

     6.1 No Consents Required. No consent, approval, or authorization of any third party,
including any member of RMS, is required which has not yet been obtained in connection with the
execution of this Agreement by each of DermaVentures and RMS and the performance of their
respective obligations hereunder, and each of DermaVentures and RMS has all necessary power and
authority to enter into and perform their respective obligations under this Agreement.

     6.2 Good Standing. Each of RMS and DermaVentures is a limited liability company duly
established, validly existing and in good standing under the laws of the State of Illinois.

7. Default and Remedies.

     7.1 Events of Default. The following shall be deemed to constitute a default under
this Agreement:

	 	a.	 	Any material default of the DermaVentures LLC Agreement;

- 4 -

 

	 	b.	 	Any material default of the License Agreement; or
	 
	 	c.	 	Any failure to perform any required obligation under this
Agreement.

     7.2 Cure Period. In the event of a default as described in Section 8.1, the
non-defaulting party shall give written notice of the default to the defaulting party, in which
case the defaulting party shall have a period of 30 days (the “Cure Period”) in which to cure such
default. If the default is not cured within the Cure Period, then the non-defaulting party may
pursue any remedies available under this Agreement and applicable law.

8. Term. Helix shall commence providing the Services on the Effective Date and continue to
provide the Services until the termination of this Agreement pursuant to Section 10 below.

9. Disclaimer of Warranties; Cooperation.

     9.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED HEREIN, HELIX PROVIDES THE
MANAGEMENT SERVICES HEREUNDER “AS IS” AND MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT THERETO.

     9.2 Good Faith Cooperation; Consents. The parties will use good faith efforts to
cooperate with each other in all matters relating to this Agreement. Such cooperation shall
include exchanging information and obtaining all third-party consents, licenses, sublicenses or
approvals necessary to permit each party to perform its obligations hereunder.

10. Termination; Survival.

     10.1 Termination by DermaVentures/RMS. Either DermaVentures or RMS may terminate this
Agreement and/or the obligation of Helix to perform any or all of the Management Services at any
time, for any reason or for no reason, upon thirty (30) days prior written notice to Helix. Upon
such termination, RMS shall be obligated to provide or secure the provision of equivalent services.
Helix shall have the option of bearing the costs of such services, in which case it shall retain
its full twenty-five percent (25%) membership interest in DermaVentures. If Helix declines to
bear the costs of such services, all costs of such services shall be borne solely by DermaVentures
and Helix hereby agrees that its membership interest in DermaVentures shall be reduced to ten
percent (10%).

     10.2 Termination by Helix. During the first year after the Effective Date, Helix may
only terminate this Agreement and/or its obligation to provide some or all of the Management
Services for cause upon thirty (30) days prior written notice to RMS and DermaVentures. Thereafter,
Helix may terminate this Agreement and/or its obligation to provide some or all of the Management
Services, for any reason or for no reason, upon thirty (30) days prior written notice to RMS and
DermaVentures. If Helix terminates this Agreement or its provision of all, or substantially all, of
the Management Services, then its Percentage measure of its Membership Interest in DermaVentures
shall be reduced to 10%.

- 5 -

 

     10.3 Survival. Any and all provisions of this Agreement which, by its or their nature,
would reasonably be expected to apply after the termination of this Agreement or the termination of
any obligation to perform services hereunder shall survive and be enforceable after such
termination, including, but not limited to, Sections 2.2, 3, 4.2, 5, 9, 11 and 12.

     11. Limitation of Liability. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY LOST
PROFITS, LOSS OF DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF
LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT.

12. Miscellaneous.

     12.1 Entire Agreement. This Agreement, the DermaVentures LLC Agreement, the License
Agreement, and any agreements, exhibits or schedules referenced or attached hereto and thereto
constitute the entire agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof and thereof. In the event of any conflict
between this Agreement and the DermaVentures LLC Agreement, this Agreement shall prevail.

     12.2 Governing Law. This Agreement shall be construed in accordance with the laws of
the State of Washington, excluding its conflict of law rules. The parties hereby consent to
jurisdiction and venue in the state and Federal courts sitting in the State of Washington. If
either party employs attorneys to enforce any rights arising out of or relating to this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys’ fees.

     12.3 Notices. Notices, offers, requests, or other communications required or
permitted to be given by any party pursuant to the terms of this Agreement shall be given in
writing to the respective parties at the following addresses:

	 	 	 	 	 
	 

	 	if to Helix:
	 	Helix BioMedix, Inc.
	 

	 	 	 	22118 10th Avenue S.E., Suite 204
	 

	 	 	 	Bothell, WA 98021
	 

	 	 	 	Attention: President
	 

	 	 	 	Fax: (425) 806-2999
	 
	 	 	 	 
	 	 	if to RMS or to DermaVentures:
	 
	 	 	 	 
	 

	 	 	 	c/o RMS Group, LLC
	 

	 	 	 	440 S. LaSalle St., Suite 3400 Chicago, IL 60605
	 
	 	 	 	 
	 

	 	 	 	Attn:     Ralph Katz
	 
	 	 	 	 
	 

	 	 	 	Fax:      (312) 260-5523

- 6 -

 

or to such other address as the party to whom notice is given may have previously furnished to the
other in writing as provided herein. Any notice involving nonperformance or termination shall be
sent by hand delivery, recognized overnight courier or, within the United States, may also be sent
via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed
by first class mail. All notices shall be deemed to have been given and received on the earlier of
actual delivery or three (3) days from the date of postmark.

     12.4 Nonassignability. No party may, directly or indirectly, in whole or in part,
whether by operation of law or otherwise, assign or transfer this Agreement, without the other
parties’ prior written consent, and any attempted assignment, transfer or delegation without such
prior written consent shall be void. For purposes of this Section 12.4, any change in the
ownership of, or power to vote, a majority of the outstanding membership interests in
DermaVentures, any sale, lease, distribution or other disposition of all or substantially all of
DermaVentures’ assets, or any dissolution or termination of DermaVentures, shall in each case
constitute an assignment of the rights and obligations of DermaVentures hereunder.

     12.5 Severability. If any term or other provision of this Agreement is determined by
a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal substance of the
transactions contemplated is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable of being enforced,
the parties shall negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible.

     12.6 Amendment. No change or amendment will be made to this Agreement, including the
Service Chart, except by an instrument in writing signed on behalf of each of the parties hereto.

     12.7 Headings. The headings and subheadings used in this Agreement are for ease of
reference only and are not to be given substantive or interpretive effect.

     12.8 No Hire. During the term of this Agreement and for a period of one (1) year
thereafter, each of the parties hereby covenants and agrees not to hire any employee or contractor
of any of the other parties hereto without such other party’s prior written consent.

- 7 -

 

     IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed by its duly
authorized representatives on the date first written above.

	 	 	 
	 

	 	Helix BioMedix, Inc.
	 

	 	a Delaware corporation
	 
	 	 
	 

	 	By:    /s/ R. Stephen Beatty
	 

	 	 
	 

	 	Its:    President and Chief Executive Officer
	 
	 	 
	 

	 	RMS Group, LLC,
	 

	 	an Illinois limited liability company
	 
	 	 
	 

	 	By: BKB Partners, LLC, its  sole
Manager
	 
	 	 
	 

	 	By:    /s/ Ralph Katz
	 

	 	 
	 

	 	Its:    Manager
	 
	 	 
	 

	 	DermaVentures, LLC,
	 

	 	an Illinois limited liability company
	 
	 	 
	 

	 	By: RMS Group, LLC, its  sole
Manager
	 
	 	 
	 

	 	By: BKB Partners, LLC, its  sole
Manager
	 
	 	 
	 

	 	By:    /s/ Ralph Katz
	 

	 	 
	 

	 	Its:   Manager

- 8 -

 

EXHIBIT A

HELIX SERVICE CHART

	 	 	 	 	 
	Service Category	 	Additional Description of Service	 	Start/End Date
	Bookkeeping

	 	Creation of general ledger /chart
of accounts. Accounts
payable / management of cash
assets / financial reporting
	 	Ongoing
	 
	 	 	 	 
	Managing third party
formulators

	 	Oversight of contractors
	 	Ongoing
	 
	 	 	 	 
	Managing third party
manufacturers

	 	Supply chain and finance service
provided by Helix to include
cost accounting, MRP,
purchasing. Oversight of
product change notifications or
new product development issues.
	 	Ongoing
	 
	 	 	 	 
	Managing relationship
with communications 

agencies / suppliers

	 	Oversight of contractors and
suppliers. Additional Helix
support of AP and cash flow
management.
	 	Ongoing
	 
	 	 	 	 
	Managing third party 

call-in centers

	 	Oversight of contractors
(marketing associates and
suppliers). Helix provides AP
and other accounting support.
	 	Ongoing
	 
	 	 	 	 
	Managing banking 

relationships

	 	Helix finance to support
establishment of DV merchant
accounts, receipt and booking of
revenues, keeping books.
	 	Ongoing
	 
	 	 	 	 
	Fulfillment services

	 	Identify fulfillment house and
integrate various functions
(call center sales, Internet
sales, customer service,
contract manufacturing, merchant
account) with fulfillment house.
	 	Ongoing
	 
	 	 	 	 
	General Administrative

	 	Identification of support
services including, but not
limited to legal and audit (to
be approved and paid by DV, but
engaged by Helix service team).
Telephone and computer
maintenance, clerical support.
	 	Ongoing

A-1exv10w1

 

EXHIBIT 10.1

2007 SENIOR MANAGEMENT BONUS PLAN

PURPOSE

The 2007 Senior Management Bonus Plan (“2007 Bonus Plan”) was developed to promote a shared sense
of responsibility for the growth and financial success among the leadership employees of the
Company. The 2007 Bonus Plan is intended to motivate and reward Plan Participants for Company and
individual performance that contribute to the success and prosperity of the Company.

PARTICIPATION

In order to participate in the 2007 Bonus Plan an employee must meet the following criteria:

	 	•	 	Be a regular full-time employee with the Company or its subsidiaries in a Director,
Principal Architect, Fellow, Senior Director, Senior Fellow, Vice President, Chief
Technical Officer, Chief Financial Officer (“CFO”), Chief Operating Officer, President,
Chief Executive Officer (“CEO”) position, or a position equivalent to any one of those
positions; and
	 
	 	•	 	Be employed in a position eligible to participate in the 2007 Bonus Plan for a minimum
of three months during the 2007 calendar year.

DEFINITIONS

The following terms, when used in this plan document, shall have the meanings defined below.

	 	 	 
	Guideline Award:

	 	The percentage of salary intended to be paid to a
participant if performance achievement is 100%. The
specific guidelines awards are detailed in Appendix
B.
	 
	 	 
	Plan Administrator:

	 	Board of Directors. The Board of Directors may
assign certain administrative duties for the 2007
Bonus Plan to be performed by employees of the
Company.
	 
	 	 
	Plan Participant:

	 	An employee of the Company or its subsidiaries,
approved for participation in the 2007 Bonus Plan by
the Plan Administrator.
	 
	 	 
	Plan Year:

	 	January 1, 2007 through December 31, 2007.
	 
	 	 
	Performance Factors:

	 	Specific goals approved by the Board of Directors.
	 
	 	 
	Termination:

	 	Cessation of employment for any reason except
retirement, death or disability.

Page 1 of 6

 

death or disability

AWARDS

The Guideline Awards are the percentage of salary intended to be paid to a participant if the
achievement of goals for all applicable components of performance criteria total 100% for the year.
Guideline Awards are expressed as a percentage of base salary; therefore actual awards will vary
in direct proportion with the salary of each Plan Participant.

The CEO and Vice Presidents have a target bonus level equal to 100% and 50%, respectively of their
2007 annual base salary. The specific Guideline Awards for other levels of senior management are
detailed in Appendix B.

Actual awards will be determined by the office of the CEO and CFO and approved by the Plan
Administrator.

PERFORMANCE CRITERIA

The bonus awards are based on performance against two goals: 1) Revenue and Earnings Before
Interest, Taxes, Depreciation and Amortization (“EBITDA”) and 2) Product Design Wins. The
weighting for each goal as a percentage of the total target bonus is as follows:

	 	 	 	 	 
	Goal	 	Weight
	Revenue and EBITDA
	 	 	50	%
	Product Design Wins
	 	 	50	%

Revenue and EBITDA. A participant has the opportunity to receive 125% of their target bonus
allocated to this goal for performance in excess of the base level goal. If performance does not
meet the baseline goal, no amount will be earned under this goal.

Product Design Wins. This goal is reduced proportionately based on the number of design wins
achieved versus a predetermined quantity of qualifying design wins for 2007.

The specific performance criteria for Revenue and EBITDA and Product Design Wins goals are detailed
in Appendix A.

PERFORMANCE DETERMINATION

At the end of each quarter during the calendar year, the CFO will compare actual company
performance against the pre-established goals and accrue bonuses on a year-to-date basis based on
performance against the performance criteria. The Board of Directors will review performance
against goals on a quarterly basis.

2007 Senior Management Bonus Plan

Page 2 of 6

 

 

INDIVIDUAL PERFORMANCE

Each Plan Participant will be evaluated at the end of the calendar year, reviewing that Plan
Participant’s performance against any pre-established individual performance objectives and overall
contribution. This will be the annual performance appraisal for each Plan Participant. While each
Plan Participant is assigned a Guideline Award based on position, adjustments to an individual
bonus award may be made based on individual performance.

DISCRETIONARY ELEMENT

The CEO has the authority to recommend adjustments to individual awards for extraordinary results
or other uncommon factors. Extraordinary results or uncommon factors are situations considerably
outside the norm but by definition are subjective. The Plan Administrator has the authority over
the granting of any discretionary adjustment.

AWARD DISTRIBUTION

Any award paid will be tied to actual salary paid during the Plan Year. Salary will include all
base pay actually paid to the participant but will exclude any allowances, bonus payments, or other
compensation. Awards will normally be distributed within the first quarter of the following year.

PLAN ADMINISTRATION AND AUTHORITIES

Responsibility for the overall administration of the Plan rests with the CEO of the Company with
support from Human Resources.

Bonus awards are not earned until the Board of Directors approves them.

In order to receive an award, a participant must be actively employed by the Company on the day
awards are paid. If the Plan Participants’ employment is terminated for any reason other than
death, retirement or extended disability before the Plan Administrator approves the bonus, the
award(s) shall be forfeited.

Partial year Plan Participants may be eligible for an award provided they are incumbent in a bonus
eligible position for at least three months during the Plan Year. All mid-year participation will
be paid on a pro rata basis at year-end.

A Participant may receive a pro-rata share of an award if he or she leaves the company during the
year due to death, retirement, or extended disability. In such an event, the participant must have
been actively employed in a bonus eligible position for at least three months during the year in
which they leave the Company.

All pro rata awards will be determined by using the salary actually paid to the Participant during
the portion of the Plan Year the individual was a Participant.

If during the year the Participant is promoted, demoted, or changes job responsibilities

2007 Senior Management Bonus Plan

Page 3 of 6

 

 

his/her Guideline Award percentage will be re-evaluated. If a change is warranted, it will be
effective on the date of the change in responsibilities for the balance of the year. If due to a
change in responsibilities or demotion the Participant is no longer in an eligible position, any
accrued bonus shall be forfeited.

To provide for those unusual occasions when business achievement is realized through little or no
effort on the part of Participants, the Company reserves the right to declare such business a
“windfall.” Windfall business is subject to special treatment. Such treatment will be handled at
the sole discretion of the Board of Directors.

Adjustments to performance may be made to provide for circumstances where performance is not
achieved due to factors beyond the control of the Participants. Such treatment will be handled at
the sole discretion of the Board of Directors.

This Plan is not a contract of employment. It creates no rights for the Participant to continue
employment with the Company for any length of time, nor does it create any rights for the
Participant or any obligations on the part of the Company, other than those set forth herein.

All awards are subject to the final approval of the Board of Directors of Pixelworks, Inc. The CEO
shall have the authority to act as the final arbiter of any appeals, disputes or interpretations
emanating from the 2007 Bonus Plan except in matters related to his own participation. All
decisions, actions or interpretations by the CEO shall be final and conclusive and binding on all
parties. The Board of Directors shall arbitrate any disputes related to the CEO’s participation.

The Company reserves the right, in its sole discretion, to continue, amend, modify or terminate the
2007 Bonus Plan at any time.

2007 Senior Management Bonus Plan

Page 4 of 6

 

 

PIXELWORKS, INC.

2007 SENIOR MANAGEMENT BONUS PLAN

APPENDIX A: PERFORMANCE FACTORS

[confidential]

2007 Senior Management Bonus Plan

Page 5 of 6

 

 

PIXELWORKS, INC.

2007 SENIOR MANAGEMENT BONUS PLAN

APPENDIX B: GUIDELINE AWARDS

The guideline awards intended to be paid if the achievement of goals for all applicable
components of performance total 100% for the year. Guideline awards are expressed as a percentage
of base salary; therefore actual awards will vary in direct proportion with the salary of each Plan
Participant.

Actual awards will be determined by the Chief Executive Officer and Chief Financial Officer and
approved by the Plan Administrator. The Plan Administrator must approve any deviation from the
following chart.

[confidential]

2007 Senior Management Bonus Plan

Page 6 of 6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00123-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00123-of-00352.parquet"}]]