Employment Agreement - Cylink Corp. and Fernand Sarrat
AGREEMENT
Agreement made as of the 6th day of November, 1996, by and
between Cylink Corporation, a California corporation with its principal place of
business at 910 Hermosa Court, Sunnyvale, California 94086 (the "Company"), and
Fernand Sarrat residing at ______________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ Executive as its
President and Chief Executive Officer and Executive is willing to serve in such
capacity; and
WHEREAS, the Company and Executive desire to set forth the
terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the Company and Executive
agree as follows:
1. Employment.
The Company hereby agrees to employ Executive, and Executive
agrees to be employed by the Company, on the terms and conditions herein
contained, and, effective as of
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November 6, 1996 as its President and Chief Executive Officer ("CEO") and in
such other executive capacities (not inconsistent with Executive's duties as
President and CEO) with the Company and its affiliated entities as assigned from
time to time by the Board of Directors of the Company (the "Board"). Executive
shall report only to the Board and the Chairman of the Board. As President and
CEO, Executive shall have duties, authority and responsibilities commensurate
with the duties, authority and responsibilities of a president and a chief
executive officer of a similar type company. During the term of Executive's
employment, he shall be based at the principal office of the Company, which is
currently in the Palo Alto, California area, provided, however, that Executive
shall be required to travel as reasonably necessary in connection with the
official business of the Company. Executive shall relocate his permanent
residence and his family to the Palo Alto, California, area within one (1) year
of the Effective Date. During the Employment Term, the Company shall recommend
the Executive for election as a director of the Company. If so requested by the
Board, Executive shall also serve on the Board of Directors of the Company and
as a director and officer of its affiliated entities without additional
compensation. The Executive shall devote substantially all of his business time,
energy, skill and efforts to the performance of his duties hereunder and shall
faithfully and
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diligently serve the Company. The Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner. The foregoing shall not prevent Executive
from participating in not-for-profit activities or from managing his passive
personal investments provided that these activities do not materially interfere
with Executive's obligations hereunder.
2. Term of Employment.
Executive's employment under this Agreement shall be for a
term (the "Employment Term") commencing on November 6, 1996 (the "Effective
Date") and terminating, unless otherwise terminated earlier as provided in
Section 9 hereof, on December 31, 2001 (the "Original Employment Term"),
provided that the Employment Term shall be extended (subject to earlier
termination as provided in Section 9 hereof) for additional one (1) year periods
(the "Additional Terms"), unless, at least thirty (30) days prior to the end of
the Original Employment Term or any Additional Term, the Company or the
Executive has notified the other in writing that the Employment Term shall
terminate at the end of the then current term. If and when this Agreement is so
extended, the term "Employment Term" used herein shall also refer to the
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period of such extension. Notwithstanding anything else herein, the provisions
of Section 12, 13, 14 and 16 hereof shall survive and remain in effect
notwithstanding the termination of the Employment Term or a breach by the
Company or Executive of this Agreement or any of its terms.
3. Compensation.
(a) As compensation for his services under this
Agreement, the Company shall pay Executive a salary at a rate of at least
$300,000 per year ("Base Salary"). Such Base Salary shall be payable in equal
installments (not less frequently than monthly) and subject to withholding in
accordance with the Company's normal payroll practices.
(b) Executive's Base Salary may be increased by the
Board, in its sole discretion, from time to time.
(c) In addition to the Base Salary, for each calendar
year completed during the Employment Term, the Company shall pay to Executive an
annual bonus which shall not be less than $100,000 per year, provided that the
minimum annual bonus for the 1996 calendar year shall be prorated by multiplying
$100,000 by a fraction the numerator of which is
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the number of days during 1996 that the Executive was employed by the Company
and the denominator of which is 365. The Company shall pay fifty percent (50%)
of the minimum annual bonus in July of each calendar year of the Employment
Term, with the remainder of such year's minimum annual bonus paid in January of
the following calendar year. Any annual bonuses beyond the annual minimum bonus
shall be discretionary with the Board or a Committee thereof (the "Committee")
and, if declared and paid, shall be paid at such time as bonuses are generally
paid or as otherwise determined by the Board or Committee.
(d) The Company shall pay Executive a $2,000,000
special bonus in January 2001 if Executive remains continuously employed by the
Company through December 31, 2000. The Company may offset against such special
bonus (after any applicable taxes are withheld) any amounts owed the Company by
the Executive.
(e) The Company shall reimburse Executive for all
reasonable expenses incurred by him in the course of performing his duties under
this Agreement which are consistent with the Company's policies in effect form
time to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect
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to reporting and documentation of such expenses.
4. Benefits and Fringes.
(a) During the Employment Term, Executive shall be
entitled to (i) all benefits and fringes, if any, as are generally provided from
time to time by the Company to its senior executive officers, including, without
limitation, any life, medical and disability insurance plans and pension,
incentive, profit-sharing, deferred compensation and other similar plans,
practices, policies and programs, subject to the Executive's satisfaction of the
applicable eligibility requirements and with due credit against any annual bonus
plan or program for the minimum annual bonus set forth in Section 3(c) hereof,
and (ii) such other benefits and fringes set forth in this Agreement. In
addition, the Company shall reimburse Executive annually during each full
calendar year during the Employment Term for the reasonable annual cost of a
policy of term life insurance in the amount of $1,250,000, upon presentation of
evidence of payment of the premiums on such policy. To the extent a commercial
life insurance policy has not been obtained, the Company will self-fund the
$1,250,000 life insurance policy for the sixty (60) day period commencing on the
Effective Date. In addition, during the Original Employment Term,
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the Company shall reimburse Executive annually during each full calendar year
during the Employment Term for the reasonable annual cost of a policy for
additional term life insurance in the amount of the lesser of (i) $2,000,000, or
(ii) the outstanding principal of the Loan under Section 6 hereof (the
"Additional Life Insurance"). The foregoing reimbursements for life insurance
premiums shall, based on Executive's representation that he is in good health,
be limited to payment of only a reasonable amount (which includes, but is not
limited to, standard premium amounts). The Company shall gross-up for tax
purposes the deemed income to Executive for providing life insurance under this
Section 4(a) such that the economic effect to Executive is the same as if such
insurance was provided to Executive on a non-taxable basis. Such gross up shall
be in accordance with Section 19 hereof. The Executive shall grant the Company a
first security interest through a collateral assignment in the Additional Life
Insurance to secure the loan under Section 6 hereof.
(b) During the Employment Term, the Company shall, in
its discretion, either pay Executive a monthly automobile allowance of $500, or
make available to Executive an automobile of the type provided to other senior
executives of the Company for his
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exclusive use in connection with the official business of the Company and
incidental personal use. If an automobile is made available, Executive shall be
responsible for all costs associated with garaging and operating any such
automobile, other than those costs arising out of the official business of the
Company, provided that the Company shall be responsible for maintenance and
insurance. Executive shall be responsible for any income tax consequences
arising from the use of the automobile under this arrangement.
(c) No later than sixty (60) days after (i) the
Effective Date or (ii) any required increase in coverage hereunder, and subject
to Executive cooperating with the insurance company underwriting requirements
and being accepted for the policy coverage at not more than reasonable premium
rates (with respect to (i) above) and at no more than one hundred twenty-five
percent (125%) of standard premium rates (with respect to (ii) above), the
Company shall provide, during the Employment Term, a long term disability
coverage policy or policies for Executive's benefit in an amount equal to at
least sixty-six and two-thirds percent (66 and 2/3%) of the greater of (A)
$500,000 per annum, or (B) the sum of Executive's then current Base Salary and
minimum annual bonus, provided that the amounts in (A) or (B) above and/or the
percentage
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above shall be limited or reduced to the extent that the Company after good
faith effort is unable to obtain such policy. The long term disability policy
shall be based upon the same waiting period (which shall be no longer than six
(6) months) and substantially the same terms as the Company's current long term
disability policies for its executives.
(d) The Company agrees to reimburse Executive for (i)
all reasonable expenses incurred by Executive in moving any items of personal
property owned by Executive and his family from Connecticut to California, (ii)
the reasonable cost of up to three (3) one-person round trip airfare trips per
month from Connecticut to California (coach class), which may be used by
Executive, his spouse, or any of his children, until Executive relocates his
family to California, but in no event for more than one (1) year after the
Effective Date, and (iii) the reasonable cost of three (3) round trip airfare
trips for Executive's family from Connecticut to California during the same
period as specified in (ii). In addition, during the period prior to his
relocation (but in no event for more than one (1) year from the Effective Date),
the Company shall provide a suitable apartment for Executive's use when he is at
the Company's headquarters. The Company shall also reimburse Executive for the
following reasonable costs:
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(i) All reasonable transaction costs associated
with Executive purchasing his new residence in the area of the Company's current
headquarters, including, but not limited to, closing costs, inspections, title
insurance, reasonable legal expenses (other than for any litigation) and
statutory expenses; and
(ii) All reasonable transaction costs associated
with Executive selling his current principal residence, including, but not
limited to, standard brokerage commissions, closing costs, legal expenses (other
than for any litigation) and statutory fees, but not any costs of repairing,
changing or decorating the residence prior to, or as a condition of, selling or
any costs to pay off or bond any liens or judgments.
In addition, the Company shall gross up for tax purposes any
deemed income arising pursuant to the benefits provided under this Section 4(d),
including this sentence, so that the economic benefit is the same as if such
benefits were provided on a non-taxable basis. Such gross up shall be in
accordance with Section 19 hereof.
5. Stock Options.
On November 6, 1996, the Compensation Committee of the Board
(the "Compensation Committee") granted Executive non-qualified options to
purchase 1,000,000
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shares of Company common stock at an exercise price of $11.00 per share,
pursuant and subject to the Company's 1994 Flexible Stock Incentive Plan (the
"Plan"), provided that options to purchase 250,000 shares of such common stock
were conditioned on shareholder approval of an amendment to the Plan, adopted at
the Board meeting held on November 6, 1996, increasing the number of shares
permitted to be issued under the Plan and the number permitted to be issued to
any individual. The terms of the Options, which will be set forth in an Option
agreement, substantially in the form as set forth in the Option agreement,
annexed as Exhibit A hereto (as specifically modified by this Section 5),
include that the Options (i) shall fully vest upon the occurrence of a Change in
Control of the Company (as such term is currently defined in the Plan), (ii)
shall be for a maximum ten (10) year term, and (iii) shall vest and become
exercisable ratably over a five (5) year period on the last day of each month
during such period, if the Executive is employed on each vesting date, provided
that the initial twenty percent (20%) of the Options shall not vest and be
exercisable until the first anniversary of the grant. In addition, the Options
will provide that in the event of a termination of Executive's employment (i)
prior to the second anniversary of the Effective Date without Cause or for Good
Reason, or (ii) as a result of
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the Executive's death or Disability, in addition to any Options which are
already vested and exercisable, the Executive's Options shall vest, and become
immediately exercisable for a period of three (3) months after such termination
(except in the case of a death or Disability termination, in which case, the
period will be one (1) year), but in no event beyond the original Option term,
with respect to 200,000 Options, or in the case of Disability, 100,000 Options.
Upon any other termination, the periods of exercise are those set forth in the
annexed form agreement.
6. Relocation Loan; etc.
(a) In connection with the transfer of Executive's
principal place of employment to California from Connecticut, the Company shall
provide Executive with a five (5) year interest-free mortgage loan in the amount
of up to $2,400,000 for purposes of Executive's acquisition of a new principal
residence (the "Loan"). The Loan shall not be for more than the purchase price
of the residence and shall promptly be reduced to $2,000,000 upon sale by
Executive of his residence in Connecticut (or, if Executive does not sell such
residence, within two (2) years after the making of the Loan). The Loan shall be
subject to, and governed by, the terms and conditions of a loan agreement and
mortgage between the Executive and the
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Company, which the parties shall enter into at the time the Executive purchases
the new residence. The Company shall retain a first mortgage security interest
in the residence during the term of the Loan. The Loan is intended to satisfy
the requirements of Temporary Treasury Regulation Section 1.7872-5T(c)(1) and
the parties hereto agree to execute such documents as are necessary to comply
therewith.
(b) In the event the Original Employment Term is
renewed, (i) the Loan, which shall be evidenced by a promissory note, shall be
converted to, or substituted with, an interest-bearing loan (secured by the
first mortgage) with a thirty (30) year amortization schedule and with a rate of
interest equal to the lesser of (i) the rate then charged by Bank of America for
similar mortgages, or (ii) the lesser of (A) eight percent (8%), or (B) the
percentage equal to the number determined by dividing the difference between the
sum of Executive's then current Base Salary and minimum annual bonus less
$400,000 by $10,000 (provided that if originally (B) is the lower amount, as (B)
increases a new calculation under (ii) shall be made and the rate of interest
adjusted accordingly.
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(c) Notwithstanding anything else herein, the Loan
shall become due and payable in full upon the earliest of (i) sale or other
transfer of the residence securing the Loan, (ii) uncured breach of the term of
the mortgage (which shall have normal commercial default provisions) or (iii)
one hundred twenty (120) days after Executive commenced other substantially
full-time employment or consulting. In addition, the Loan shall be promptly
reduced by the after-tax amount of the bonus referred to in Section 3(d) hereof
upon receipt by Executive of such bonus.
(d) The Loan referred to in (a) above shall be
forgiven in the Specified Amount (as defined below), and, to the extent the
Specified Amount exceeds the outstanding balance of the Loan, the Company shall
pay Executive such excess in the event (i) Executive is still employed at the
end of the Original Employment Term, (ii) terminated theretofore for Good
Reason, or (iii) is terminated theretofore by the Company without Cause. In the
case of (i) the Specified Amount is the amount by which the Appraised Value of
his residence secured by the mortgage at the end of the Original Employment Term
is less than his purchase cost of the residence (or, if the residence costs more
than $2.4 million, the relative percentage of the
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difference based on the ratio of $2.4 million to the actual purchase price), but
in no event more than $2,000,000. Appraisal shall be determined by an appraisal
obtained from an appraiser mutually agreed upon by Executive and the Company
(paid for by the Company) and, if they cannot agree on an appraiser, the average
appraisal obtained from three (3) appraisers appointed by the AAA in accordance
with its procedures (paid for by the Company).
In the event of (ii) or (iii), the same terms shall apply, but
the Appraisals shall occur at the time of termination and, if those Appraisals
show a Specified Amount, another Appraisal shall occur at the time the Loan
becomes due. If the second appraisal occurs and shows a Specified Amount, then
the amount due shall be based on the lesser of the two Specified Amounts. If the
first appraisal shows a difference, no payment shall be made, but Interest on
the Loan thereafter shall be paid only on principal of the then remaining amount
on the Loan less the aforesaid difference (subject to the limitation).
In the event of termination of the Employment Term, the
following provisions shall apply:
(A) In the event of termination by the Company for
Cause, the Loan shall become due and payable in full one (l) year after the
termination, provided that, if such
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termination is in the Original Employment Term, the Loan shall be converted to,
or be substituted by, an Interest (as defined herein) bearing similarly secured
loan, with quarterly amortization on a 30-year amortization basis during such
one year period.
(B) In the event of voluntary termination by the
Executive other than for Good Reason or in the event of the Executive's death,
the Loan shall become immediately due and payable in full.
(C) In the event of termination for Disability, by
the Company without Cause or by the Executive for Good Reason, the Loan shall
become due and payable in full three (3) years after the Termination, provided
that, if such Termination is in the Original Employment Term, the Loan shall be
converted to, or be substituted by, an Interest bearing similarly secured loan,
with quarterly payments of Interest (as defined herein) only.
(e) During the Original Employment Term, the Company shall
reimburse Executive's property taxes and reasonable home owner's insurance
(building and furnishings only) including, without limitation, fire, flood,
earthquake, and mudslide coverage for the new residence in the Palo Alto,
California area (the "Residence Reimbursement"). The Residence
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Reimbursement shall be made promptly upon presentation of invoices or notices of
the amount due. The Residence Reimbursement shall not exceed $42,000 for any
calendar year. Notwithstanding the foregoing, in the event Executive's
employment is terminated by the Company for Cause or by the Executive without
Good Reason, Executive will promptly refund to the Company the portion of any
Residence Reimbursement received or made on behalf of expenses which are
allocable to the period subsequent to the date of termination. The Residence
Reimbursement (and the amounts payable under this sentence) shall be grossed up
in such manner than the economic effect to Executive is the same as the
Residence Reimbursement was provided to Executive on a nontaxable basis. The
gross up shall be in accordance with Section 19 hereof.
(f) Interest shall mean the lower of (i) the prevailing
commercial mortgage rates of Bank of America, N.A. for mortgages of similar
amounts, periods and terms, and (ii) eight (8%) percent per annum.
7. Child's Medical and Schooling Expenses.
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Certain benefits as set forth below shall be conferred upon
Executive with respect to Executive's child who is currently in a special
program (the "Child"), provided Executive complies with the provisions of this
Section 7. The Company agrees to pay for the Executive up to $60,000 per
calendar year for COBRA coverage and supplemental medical and schooling expenses
(until the earlier of the end of the Original Employment Term or the Child
completing high school) incurred by the Child in a facility equivalent to the
facility in which the Child is enrolled as of the Effective Date, provided
Executive uses his best efforts to mitigate such expenses through any available
programs (including governmental programs) or other medical coverage (including
available spousal or COBRA coverage). The Executive will provide the Company
with information and documentation to support such expenses consistent with the
Company's requirements with respect to reporting and documentation of expenses.
In addition, the Company shall gross-up for tax purposes any income arising
pursuant to the benefits provided under this Section 7, including this sentence,
so that the economic effect to Executive is the same as if such benefits were
provided in a non-taxable basis. Such gross up shall be in accordance with
Section 19 hereof.
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8. Vacation.
During the Employment Term, Executive shall be entitled to
four (4) weeks paid vacation in each full calendar year (prorated for any
partial year) to be taken at such times as mutually agreed by the Executive and
the Chairman of the Board or the Board. Unused vacation in any calendar year
shall be lost and not carried over from year to year.
9. Termination.
(a) Executive's employment under this Agreement shall
terminate prior to December 31, 2001 upon the occurrence of any of the following
events:
(i) Automatically on the date of Executive's
death.
(ii) Upon written notice by the Company to the
Executive, if the Executive (as determined by the Board in good faith) fails to
regularly perform the material duties hereunder by reason of mental or physical
illness or incapacity for an aggregate period of more than 180 days during any
365 day period (a "Disability"), provided that, during the Employment Term prior
to such termination, the Company's obligations hereunder shall be reduced by any
payments being received by Executive under any long-term disability program.
(iii) Upon written notice by the Company to the
Executive for Cause. Cause shall mean (A) the Executive being convicted of (or
pleading nolo contendere to) a felony (other than a traffic-related offense);
(B) the barring of the Executive by any regulatory
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authority from holding his positions or any limitations imposed on the Company
by any regulatory agency if the Executive continued to hold his positions; (C)
willful refusal by the Executive to attempt to properly perform his material
obligations under this Agreement, or attempt to follow any direction of the
Board consistent with this Agreement, which in either case is not remedied
within ten (10) business days (with appropriate reasonable adjustment if
Executive is at the time of notice away on vacation) after receipt by the
Executive of written notice from the Company specifying the details thereof,
provided the refusal to follow a direction shall not be Cause if the Executive
in good faith believes that such direction is not legal and promptly notifies
the Board in writing of such belief; (D) the Executive's willful misconduct or
material gross negligence with regard to the business, assets or employees of
the Company or its affiliated entities (including as willful misconduct, without
limitation, the Executive's willful breach of any fiduciary duty he may owe to
the Company or its affiliates under applicable law or this agreement but not de
minimis personal use of Company assets or reasonable good faith expense account
disputes), (E) the Executive's theft, dishonesty or fraud with regard to the
Company or its affiliates which is intended to enrich the Executive or another
person or entity but not de minimis personal use of Company assets or reasonable
good faith expense account disputes, or (F) any other material breach by the
Executive of this Agreement that remains uncured for twenty (20) days after
written notice thereof is given to the Executive. During any period in which the
Executive is charged with committing a crime covered by (A) above, the Company
may suspend Executive from his titles, duties and authority herein pending
resolution of his status under applicable law; such suspension shall be with pay
for up to six (6) months and thereafter shall be without pay.
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(iv) Immediately upon written notice to the
Executive by the Company without Cause. A termination of this Agreement by
virtue of the Company notifying Executive that the Agreement shall not
automatically extend pursuant to Section 2 hereof shall constitute a termination
of Executive by the Company other than for Cause as of the end of the Employment
Term.
(v) Upon the voluntary termination of the
Executive without Good Reason upon thirty (30) days prior written notice to the
Company (which the Company may, in its sole discretion, make effective earlier).
A notice by Executive of non-renewal of the Employment Term shall be deemed a
voluntary termination by Executive.
(vi) Upon written notice by the Executive for
Good Reason stating with specificity the details of the Good Reason, if the
stated Good Reason is not cured within twenty (20) days of the giving of such
notice. Any notice for Good Reason shall be given within ninety (90) days of the
later of (i) the occurrence of the triggering event, or (ii) the date upon which
Executive could be reasonably expected to know of such event. "Good Reason"
shall mean (A) any material reduction in authority, duties or responsibilities
(except temporarily in connection with a suspension as set forth in (iii) above
or during any period of physical or mental illness); (B) any reduction, in
Executive's title or level of reporting; (C) the relocation of the Executive to
a facility or a location more than fifty (50) miles from the Executive's then
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present location, without the Executive's written consent; or (D) any other
material breach of any provision of this Agreement by the Company, including
without limitation, a reduction by the Company in the Base Salary or minimum
annual bonus of the Executive as in effect; immediately prior to such reduction.
In addition, the Executive may terminate employment by written notice given to
the Company within the thirty (30) day period following the first anniversary of
a Change in Control of the Company (as currently defined in the Plan) and have
such termination treated as a termination for Good Reason.
(b) Upon such earlier termination of the Employment
Term, the Executive shall be promptly paid any unpaid salary and accrued
vacation through his date of termination, a prorated portion of his unpaid
annual minimum bonus for the calendar year of his termination, reimbursed for
any expenses incurred in connection with the business of the Company prior to
his date of termination which he would be otherwise entitled to reimbursement
for in accordance with the Company's policies on the reimbursement of business
expenses, receive any benefits or fringes due under any benefit or fringe plan
or arrangement in accordance with the terms of said plan or arrangement due for
the period prior to such termination. In
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addition, if the termination is pursuant to Section 9(a)(iv) or (a)(vi) above
and prior to the Executive's sixty-fifth birthday, the Executive shall receive
in full settlement of all amounts owed him, provided he signs a release running
to the Company and its related entities and their respective officers, directors
and employees of all claims, relating to his employment and termination thereof
(other than any right to indemnification under the Company's Articles of
Incorporation or By-Laws or the Indemnification Agreement annexed as Exhibit B
hereto, which shall survive) in such form as reasonably requested by the
Company, (i) twelve (12) monthly installments of severance pay each in an amount
equal to the greater of $41,375 or one-twelfth of the then sum of his Base
Salary and minimum annual bonus, subject to the offset of any amounts due under
Section 6 hereof, and (ii) payment by the Company of the premiums for
Executive's and his dependents' COBRA coverage for the Company's health
insurance plan that generally applies to executives for the period in which
Executive is receiving severance pursuant to (i) above or, if earlier, until
Executive and his dependents cease to be eligible for such COBRA coverage. In
addition, in the event Executive's employment is terminated prior to December
31, 2000 pursuant to Section 9(a)(iv) or 9(a)(vi), the Company shall pay,
provided Executive (or, in
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the case of his death, his executors) executes the release of claim described
above, the special bonus in Section 3(d) hereof (subject to the same rights of
offset as set forth therein). The Company's payment obligations under this
Section 9(b) (other than those in the first sentence) shall immediately cease in
the event Executive materially breaches any of his obligations under Sections
12, 13 or 14 of this Agreement.
(c) If the Employment Term ends early pursuant to
Section 9(a)(ii) hereof on account of Disability, and Executive executes the
release of claim set forth in subsection (b) above, the Company shall pay to
Executive monthly, until the second anniversary of the date of the termination
for Disability, the amount of $27,750, less any payments to which Executive is
entitled for such month under any disability benefit plan or the like sponsored,
or contributed to, by the Company (including, without limitation, Social
Security); provided, however, that in the event of Executive's death during the
payment period, the Company shall not be obligated to pay any such amounts
subsequent to the date of Executive's death. In addition, in the event Executive
is terminated for Disability prior to December 31, 2000 and such Disability is a
"Total and Permanent Disability" within the meaning of Section 72(m)(7) of the
Internal
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Revenue Code of 1986, as amended (the "Code"), the Company shall pay (subject to
Executive's execution of the release of claim described in subsection (b) above
and the right to offset as provided in Section 3(d)), the special bonus payable
under Section 3(d) hereof. The Company's payment obligations under this Section
9(c) shall immediately cease in the event Executive materially breaches any of
his obligations under Sections 12, 13 or 14 of this Agreement. After the end of
such two (2) year period, Executive shall only be entitled to receive amounts as
he may be entitled to under any disability policy specified in Section 4(c)
hereof or otherwise sponsored by the Company.
(d) If the Employment Term ends early pursuant to
Section 9 hereof for any reason, except as expressly provided in this Section 9,
Executive shall cease to have any rights to salary, bonus or benefits other
than: (i) salary or bonus which has accrued but is unpaid as of the end of the
Employment Term, and (ii) but only to the extent provided in any benefit or
equity plan or arrangement in which Executive has participated as an employee of
the Company, any benefits or rights which by their specific terms extend beyond
termination of Executive's employment.
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(e) All aforesaid amounts in this Section 9 shall be
subject to required withholding. The Company and its affiliated entities shall
have no other obligations to the Executive upon a termination except as
specifically provided in this Agreement.
10. Special Tax Provision.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that any amount or benefit paid, payable, or to be
paid, or distributed, distributable, or to be distributed to or with respect to
Executive (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change of ownership or effective control covered by Section 280G(b)(2) of the
Code or any person affiliated with the Company or such person) as a result of a
change in ownership or effective control of the Company or a direct or indirect
parent (within the meaning of Section 280G of the Code) thereof (or the assets
of any of the foregoing) covered by Code Section 280G(b)(2) (collectively, the
"Covered Payments") is or becomes subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax,
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together with such interest and penalties, is hereinafter collectively referred
to as the "Excise Tax"), the Company shall pay to Executive an additional amount
(the "Tax Reimbursement Payment") such that after payment by Executive of all
taxes (including, without limitation, any interest or penalties and any Excise
Tax imposed on or attributable to the Tax Reimbursement Payment itself),
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(i) the amount of the Excise Tax imposed upon the Covered Payments, and (ii)
without duplication, an amount equal to the product of (A) any deductions
disallowed for federal, state or local income tax purposes because of the
inclusion of the Tax Reimbursement Payment in Executive's adjusted gross income,
and (B) the highest applicable marginal rate of federal, state or local income
taxation, respectively, for the calendar year in which the Tax Reimbursement
Payment is made or is to be made. The intent of this Section 10 is that after
Executive pays federal, state and local income tax and any payroll taxes,
Executive will be in the same position as if Executive were not subject to the
Excise Tax under Section 4999 of the Code and did not receive the extra payments
pursuant to this Section 10 and this Section 10 shall be interpreted
accordingly.
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(b) Except as otherwise provided in Section 10(a),
for purposes of determining whether any of the Covered Payments will be subject
to the Excise Tax and the amount of such Excise Tax, such Covered Payments will
be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of
the Code) and such payments in excess of the Code Section 280G(b)(3) "base
amount" shall be treated as subject to the Excise Tax, unless, and except to the
extent that, the Company's independent certified public accountants appointed
prior to the change in ownership covered by Code Section 280G(b)(2) or legal
counsel (reasonably acceptable to Executive) appointed by such public
accountants (or, if the public accountants decline such appointment and decline
appointing such legal counsel, such independent certified public accountants as
promptly mutually agreed on in good faith by the Company and Executive) (the
"Accountant"), deliver a written opinion to Executive, reasonably satisfactory
to Executive's legal counsel, that, in the event such reporting position is
contested by the Internal Revenue Service, there will be a more likely than not
chance of success with respect to a claim that the Covered Payments (in whole or
in part) do not constitute "parachute payments," represent reasonable
compensation for services actually rendered (within the meaning of Section
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280G(b)(4) of the Code) in excess of the "base amount" allocable to such
reasonable compensation, or such "parachute payments" are otherwise not subject
to such Excise Tax (with appropriate legal authority, detailed analysis and
explanation provided therein by the Accountant); and the value of any Covered
Payments which are non-cash benefits or deferred payments or benefits shall be
determined by the Accountant in accordance with the principles of Section 280G
of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, Executive shall be deemed: to pay federal, state and/or
local income taxes at the highest applicable marginal rate of income taxation
for the calendar year in which the Tax Reimbursement Payment is made or is to be
made, and to have otherwise allowable deductions for federal, state and local
income tax purposes at least equal to those disallowed due to the inclusion of
the Tax Reimbursement Payment in Executive's adjusted gross income.
(d)(i)(A) In the event that prior to the time
Executive has filed any of Executive's tax returns for the calendar year in
which the change in ownership event covered by Code Section 280G(b)(2) occurred,
the Accountant determines, for any reason whatsoever, the
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correct amount of the Tax Reimbursement Payment to be less than the amount
determined at the time the Tax Reimbursement Payment was made, Executive shall
repay to the Company, at the time that the amount of such reduction in Tax
Reimbursement Payment is determined by the Accountant, the portion of the prior
Tax Reimbursement Payment attributable to such reduction (including the portion
of the Tax Reimbursement Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the portion of the Tax Reimbursement
Payment being repaid by Executive, using the assumptions and methodology
utilized to calculate the Tax Reimbursement Payment (unless manifestly
erroneous)), plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set
forth in (A) above is made by the Accountant after the filing by Executive of
any of Executive's tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred but prior to one (1)
year after the occurrence of such change in ownership, Executive shall file at
the request of the Company an amended tax return in accordance with the
Accountant's determination, but no portion of the Tax Reimbursement Payment
shall be required
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to be refunded to the Company until actual refund or credit of such portion has
been made to Executive, and interest payable to the Company shall not exceed the
interest received or credited to Executive by such tax authority for the period
it held such portion (less any tax Executive must pay on such interest and which
Executive is unable to deduct as a result of payment of the refund).
(C) In the event Executive receives a refund
pursuant to (B) above and repays such amount to the Company, Executive shall
thereafter file for any refunds or credits that may be due to Executive by
reason of the repayments to the Company. Executive and the Company shall
mutually agree upon the course of action, if any, to be pursued (which shall be
at the expense of the Company) if Executive's claim for such refund or credit is
denied.
(ii) In the event that the Excise Tax is later
determined by the Accountant or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Tax Reimbursement Payment is
made (including by reason of any payment the existence or amount of which cannot
be determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the
Internal Revenue Service (or other taxing authority) under this Section 10,
subject to the second sentence of
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subpart (i)(C) above, Executive shall permit the Company to control issues
related to this Section 10 (at its expense), provided that such issues do not
potentially materially adversely affect Executive, but Executive shall control
any other issues. In the event the issues are interrelated, Executive and the
Company shall in good faith cooperate so as not to jeopardize resolution of
either issue, but if the parties cannot agree Executive shall make the final
determination with regard to the issues. In the event of any conference with any
taxing authority as to the Excise Tax or associated income taxes, Executive
shall permit the representative of the Company to accompany Executive, and
Executive and his representative shall cooperate with the Company and its
representative.
(iv) With regard to any initial filing for a
refund or any other action required pursuant to this Section 10 (other than by
mutual agreement) or, if not required, agreed to by the Company and Executive,
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at Executive's sole
discretion.
(e) The Tax Reimbursement Payment, or any portion
thereof, payable by the Company shall be paid not later than the fifth day
following the determination by the Accountant, and any payment made after such
fifth day shall bear interest at the rate provided in Code Section
1274(b)(2)(B). The Company shall use its best efforts to cause the Accountant to
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promptly deliver the initial determination required hereunder and, if not
delivered, within ninety (90) days after the change in ownership event covered
by Section 280G(b)(2) of the Code, the Company shall pay Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
In accordance with Section 9(e), the Company may withhold from the Tax
Reimbursement Payment and deposit into applicable taxing authorities such
amounts as they are required to withhold by applicable law. To the extent that
Executive is required to pay estimated or other taxes on amounts received by
Executive beyond any withheld amounts, Executive shall promptly make such
payments. The amount of such payment shall be subject to later adjustment in
accordance with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for (i) all
charges of the Accountant, (ii) if (e) is applicable, the reasonable charges for
the opinion given by Executive's counsel, and (iii) all reasonable charges in
connection with the preparation and filing of any amended tax returns on behalf
of the Executive requested by the Company, required hereunder,
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or required by applicable law. The Company shall gross-up for tax purposes any
income to Executive arising pursuant to this subsection (f) so that the economic
effect to Executive is the same as if the benefits were provided on a
non-taxable basis. Such gross-up shall be in accordance with Section 19 hereof.
(g) Executive and the Company shall mutually agree on
and promulgate further guidelines in accordance with this Section 10 to the
extent, if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 10(d)(i)(C) hereof.
11. No Duty to Mitigate/Set-Off.
The Company's obligation to make payments provided under
Section 9 of this Agreement, other than as specifically set forth in this
Agreement, shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right or action which the Company may have against the
Executive or others. The Company agrees that if Executive's employment with the
Company is terminated during the Employment Term, Executive shall not be
required to seek other employment or to attempt in any way to reduce any amounts
payable to Executive by
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the Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement shall not be reduced by any compensation
earned by Executive or benefit provided to Executive as the result of employment
by another employer or otherwise. Any amounts due under Section 9 are inclusive,
and in lieu of, any amounts payable under any other salary continuation or cash
severance arrangement of the Company and to the extent paid or provided under
any other such arrangement shall be offset from the amount due under Section 9.
12. Inventions and Other Intellectual Property.
The Company and Executive agree to promptly execute the
Proprietary Information and Invention Agreement, annexed as Exhibit C hereto.
13. Confidential Information.
Executive acknowledges that the information, observations and
data obtained by him while employed by the Company pursuant to this Agreement
concerning the business or affairs of the Company or any of its subsidiaries or
affiliates or any predecessor thereof ("Confidential Information") are the
property of the Company or such subsidiary or affiliate.
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Executive agrees that he shall not disclose to any unauthorized person or use
for his own account any Confidential Information without the prior written
consent of the Chairman of the Board or the Board unless and except to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act or, while employed, he discloses based on his good faith determination that
to do so is in the best interests of the Company. If Executive receives legal
process, he may comply with it provided he promptly notifies the Company and
cooperates with the Company in obtaining a protective order. Executive shall
deliver to the Company at the termination of the Employment Term, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, the Work Product or the
business of the Company or any of its subsidiaries or affiliates which he may
then possess or have under his control.
14. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his
employment with the Company pursuant to this Agreement he will become familiar
with trade secrets of and other
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Confidential Information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services will be of special,
unique and extraordinary value to the Company.
(b) During the Employment Term and for two (2) years
thereafter, Executive shall not enter into Competition with the Company or its
affiliates to the extent such Competition requires Executive to divulge,
disclose or communicate to any third party any Company "trade secret" as that
term is defined under California law. For purposes of this Agreement,
Competition shall mean participating, directly or indirectly, as an individual
proprietor, partner, stockholder, officer, employee, director, joint venturer,
investor, lender, consultant or in any capacity whatsoever (within the United
States or in any foreign country where the Company or its affiliates do
business) in a business in competition with any business conducted by the
Company or its affiliates with regard to which Executive worked or otherwise had
responsibilities or had access to material Confidential Information while
employed by the Company or its affiliates; provided, however, that such
participation shall not include (i) the mere ownership of not more than two
percent (2%) of the total outstanding stock of a publicly
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held company, (ii) the performance of services for any enterprise to the extent
such services are not performed, directly or indirectly, for a business in the
aforesaid competition, (iii) any activity engaged in with the prior written
approval of the Chairman of the Board, or (iv) Executive's employment by a non
Competitive division (or other business unit) of a company which is in
Competition with the Company so long as Executive is not involved with the
competitive division (or other business unit). Notwithstanding anything else in
this Section 14(b) to the contrary, subsequent to the termination of Executive's
employment hereunder, Executive may, in his sole discretion, passively invest in
any entity, provided Executive does not divulge, disclose or communicate any
Company "trade secrets" or Confidential Information to such company or its
affiliates, employees, officers, consultants, directors, lenders, or investors
and further provided Executive does not render services to such company in
violation of this Section 14 or otherwise violates this Section 14 (other than
by making such passive investments).
(c) During the Employment Term and for two (2) years
thereafter, Executive shall not directly or indirectly solicit for Competitive
products or induce any customer of the Company or its affiliates to terminate,
or otherwise to cease, reduce, or diminish in any
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way its relationship with the Company or its affiliates.
(d) During the Employment Term and the one (1) year
thereafter, Executive shall not recruit, solicit or induce any nonclerical
employees of the Company or its affiliates to terminate their employment with,
or otherwise cease their relationship with, the Company or its affiliates or
hire or assist another person or entity to hire any nonclerical employee of the
Company or its affiliates or any person who within six (6) months before had
been a nonclerical employee of the Company or any of its affiliates.
Notwithstanding the foregoing, if requested by any entity with which Executive
is not affiliated, Executive may serve as a reference for any person who at the
time of the request is not an employee of the Company or any of its affiliates.
(e) If, at the time of enforcement of this Section
14, a court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area
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permitted by law.
15. Enforcement.
Because Executive's services are unique and because Executive
has access to Confidential Information and intellectual properties of the
Company and its affiliates, the parties hereto agree that money damages would be
an inadequate remedy for any breach of this Agreement. Therefore, in the event a
breach or threatened breach of this Agreement, the Company or its successors or
assigns may, in addition to other rights and remedies existing in their favor,
apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce, or prevent any violations of,
the provisions hereof (without posting a bond or other security).
16. Indemnification.
Executive shall be entitled to be indemnified for his
activities as an officer or director to the full extent provided in the Articles
of Incorporation and By-Laws of the Company and in accordance with the
Indemnification Agreement annexed as Exhibit B hereto, which the Company and
Executive agree to promptly execute. In addition, the Company shall cover
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Executive under Directors and Officers Liability Insurance both during and, for
six (6) years after, the Employment Term in the same amount and to the same
extent as the Company covers its other officers and directors.
17. Executive Representations.
Executive represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by Executive does not and
will not conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which Executive is a party
or by which he is bound, (ii) except with respect to agreements which have been
furnished to the Company and relate primarily to confidentiality, intellectual
properties and/or ethical conduct entered into between Executive and IBM or
between Executive and other entities in the course of his employment with IBM,
Executive is not a party to or bound by any employment agreement, change in
control agreement, non-compete agreement or confidentiality agreement with any
other person or entity, (iii) upon the execution and delivery of this Agreement
by the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms, (iv) Executive is a United
States citizen or a
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resident alien thereof entitled to work therein, and (v) Executive will in
performing his duties not utilize any confidential information of any other
person or entity.
18. Entire Agreement; Modification.
This Agreement constitutes the full and complete understanding
of the parties hereto and will supersede all prior agreements and
understandings, oral or written, with respect to the subject matter hereof. Each
party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by either party, or
anyone acting on behalf of either party, which are not embodied herein and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended except by an
instrument in writing signed by the party against whom or which enforcement may
be sought.
19. Gross Ups.
All gross ups hereunder shall be determined by agreement of
the Company's, and Executive's accountants. The Executive shall provide the
Company's accountants with such information as they reasonably request in order
to make the necessary determination as to
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Executive's tax rates and the deductibility of various items. In calculating the
gross up, the Company's gross up items when combined with Executive's other
deductions shall receive the most favored treatment and the Company shall get
the full benefits of any deductions available. If Executive voluntarily
terminates employment without Good Reason or is terminated with Cause, any lost
tax deduction on any gross up item shall be treated as if such termination did
not occur. Gross ups shall be paid as soon as reasonably possible after payment
of the respective item (and shall generally be withheld and paid to the
applicable taxing authorities), subject to adjustment at year end (including, if
applicable, repayment).
20. Survival.
The provisions of this agreement which by their terms imply
continuation beyond the end of the Employment Term shall survive notwithstanding
any termination of the Employment Term.
21. Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or
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unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms of provisions of this Agreement in any other jurisdiction.
22. Waiver of Breach.
The waiver by any party of a breach of any provisions of this
Agreement, which waiver must be in writing to be effective, shall not operate as
or be construed as a waiver of any subsequent breach.
23. Notices.
All notices hereunder shall be in writing and shall be deemed
to have been duly given when delivered by hand, or one (1) day after sending by
express mail or other "overnight mail service," or three (3) days after sending
by certified or registered mail, postage prepaid, return receipt requested.
Notice shall be sent as follows: if to Executive, to the address as listed in
the Company's records, and if to the Company, to the Company at the address set
forth on the first page of this Agreement, attention of the Chairman of the
Board. Either party may change the notice address by notice given as aforesaid.
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24. Assignability; Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of Executive and Executive's legal representatives, heirs and distributees, and
shall be binding upon and inure to the benefit of the Company, its successors
and assigns. This Agreement may not be assigned by the Executive. This Agreement
may not be assigned by the Company, except in connection with a merger or a sale
by the Company of all or substantially all of its assets and then only provided
the assignee specifically assumes in writing all of the Company's obligations
hereunder.
25. Legal Fee Reimbursement.
The Company agrees to pay Executive's reasonable legal fees
associated with entering into this Agreement up to $10,000 upon presentation of
an invoice and time sheets for such legal services.
26. Governing Law.
All issues pertaining to the validity, construction, execution
and performance of this Agreement shall be construed and governed in accordance
with the laws of the State of California, without giving effect to the conflict
or choice of law provisions thereof.
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27. Headings.
The headings in this Agreement are intended solely for
convenience or reference and shall be given no effect in the construction or
interpretation of this Agreement.
28. Counterparts.
This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed and Executive has hereunto set his hand as of the date first
set forth above.
CYLINK CORPORATION
By: _________________________
Name:
Title:
________________________________
Fernand Sarrat
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EXHIBIT A
CYLINK CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement is made as of November 6, 1996, between CYLINK
CORPORATION, a California corporation (the "Company"), and Fernand Sarrat
("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted its 1994 Flexible Stock
Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part of it; and
WHEREAS, the Company regards Optionee as a valuable employee
of or service provider to the Company, and has determined that it would be to
the advantage and in the interests of the Company and its shareholders to grant
the options provided for in this Agreement to Optionee as an inducement to
remain in the employ or service of the Company and as an incentive for increased
efforts during such employment or service;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the
right and option to purchase from the Company on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 1,000,000 shares of
the Company's Common Stock, $0.01 par value (the "Stock"). This option is not
intended to satisfy the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and qualify as an incentive stock option. All
of the terms and conditions of this Option Grant are subject to Optionee's
Employment Agreement dated November 6, 1996 (the "Employment Agreement"), and in
the event of any conflict between Optionee's Employment Agreement and this
Option Grant, the terms of the Employment Agreement shall prevail.
2. Option Price. The per share purchase price of the Stock
subject to this option shall be $11.00, which price is not less than one hundred
percent (100%) of the per share fair market value of such Stock as of the Grant
Date (defined below) as determined by the Board of Directors of the Company or a
Committee designated by it (the "Committee"). The term "Option Price" as used in
this agreement refers to the per share purchase price of the Stock subject to
this option.
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3. Option Period. This option shall be exercisable only during
the Option Period, and during such Option Period, the exercisability of the
option shall be subject to the limitations of paragraph 4 and the vesting
provisions of paragraph 5. The Option Period shall commence on November 6, 1996
(the "Grant Date") and except as provided in paragraph 4, shall terminate ten
(10) years from the Grant Date (the "Termination Date").
4. Limits on Option Period. The Option Period may end before
the Termination Date, as follows:
(a) If Optionee ceases to be a bona fide employee of
or service provider to the Company or an Affiliate (as defined in the Plan) for
any reason other than disability (within the meaning of subparagraph (c)) or
death during the Option Period, unless otherwise determined by the Committee,
(i) the Option Period shall terminate three (3) months after the date of such
cessation of employment or service or on the Termination Date, whichever shall
first occur, and (ii) the option shall be exercisable only to the extent
exercisable under paragraph 5 on the date of Optionee's cessation of employment
or service and shall thereafter cease to be exercisable.
(b) If Optionee dies while in the employ of or
service to the Company or an Affiliate, unless otherwise determined by the
Committee, (i) the Option Period shall end one (1) year after the date of death
or on the Termination Date, whichever shall first occur, and (ii) Optionee's
executor or administrator or the person or persons to whom Optionee's rights
under this option shall pass by will or by the applicable laws of descent and
distribution may exercise this option only to the extent exercisable under
paragraph 5 on the date of Optionee's death.
(c) If Optionee's employment or service is terminated
by reason of medically determinable disability, unless otherwise determined by
the Committee, (i) the Option Period shall end one (1) year after the date of
Optionee's cessation of employment or service or on the Termination Date,
whichever shall first occur, and (ii) the option shall be exercisable only to
the extent exercisable under paragraph 5 on the date of Optionee's cessation of
employment or service.
(d) If Optionee is on a leave of absence from the
Company or an Affiliate because of Optionee's disability, or for the purpose of
serving the government of the country in which the principal place of employment
of Optionee is located, either in a military or civilian capacity, or for such
other purpose or reason as the Committee may approve, Optionee shall not be
deemed during the period of such absence, by virtue of such absence alone, to
have terminated employment or service with the Company or an Affiliate except as
the Committee may otherwise expressly provide.
5. Vesting of Right to Exercise Options. Subject to the terms
of the Employment Agreement, and any limitations contained in this Agreement,
the Optionee shall
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have the right to exercise the options granted hereunder as to 1.666% of the
number of shares of Stock covered by the option per month for each month
following the Grant Date, such that the option shall be fully exercisable five
(5) years after the Grant Date. Provided, however, that the Optionee shall not
have the right to exercise any options unless and until the Optionee remains in
the Company's employment for a period of one year from the date the Optionee
commences his employment by the Company.
(a) Any portion of the option that is not exercised
shall accumulate and may be exercised at any time during the Option Period prior
to the Termination Date. No partial exercise of this option may be for less than
five percent (5%) of the total number of shares of Stock then available under
this option. In no event shall the Company be required to issue fractional
shares.
6. Method of Exercise. Optionee may exercise this option with
respect to all or any part of the shares of Stock then subject to such exercise
as follows:
(a) By giving the Company written notice of such
exercise, specifying the number of such shares of Stock as to which this option
is exercised. Such notice shall be accompanied by an amount equal to the Option
Price of such shares, in the form of any one or combination of the following:
cash, a certified check, bank draft, postal or express money order payable to
the order of the Company in lawful money of the United States. The Committee, at
its sole discretion, may also permit Optionee to pay the Option Price with
shares of Stock valued at fair market value, a promissory note of the Optionee
or in any combination of the foregoing. The shares of Stock shall be valued in
accordance with procedures established by the Committee. Any note used to
exercise this option shall be a full recourse, interest-bearing obligation
containing such terms as the Committee shall determine. If a promissory note is
used, the Optionee agrees to execute such further documents as the Committee may
deem necessary or appropriate in connection with issuing the note, perfecting a
security interest in the Stock purchased with the note, and any related terms or
conditions that the Committee may propose. Such further documents may include,
not by way of limitation, a security agreement, an escrow agreement, a voting
trust agreement and an assignment separate from certificate. In the event that
the exercise price is satisfied by the Committee retaining from the shares of
Stock otherwise to be issued to Optionee shares of Stock having a value equal to
the exercise price, the Committee may issue Optionee an additional option, with
terms identical to this option agreement, entitling Optionee to purchase
additional Stock in an amount equal to the number of shares of Stock so
retained.
(b) Optionee shall be required, as a condition
precedent to acquiring Stock through exercise of the option, to execute one or
more agreements relating to obligations in connection with ownership of the
Stock or restrictions on transfer of the Stock no less restrictive than the
obligations and restrictions to which the other shareholders of the Company are
subject at the time of such exercise.
(c) If required by the Committee, Optionee shall give
the Company satisfactory assurance in writing, signed by Optionee or Optionee's
legal representative, as the
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case may be, that such shares are being purchased for investment and not with a
view to the distribution thereof; provided, however, that such assurance shall
be deemed inapplicable to (1) any sale of such shares by such Optionee made in
accordance with the terms of a registration statement covering such sale, which
may hereafter be filed and become effective under the Securities Act of 1933, as
amended (the "Securities Act"), and with respect to which no stop order
suspending the effectiveness thereof has been issued, and (2) any other sale of
such shares with respect to which in the opinion of counsel for the Company,
such assurance is not required to be given in order to comply with the
provisions of the Securities Act.
As soon as practicable after receipt of the notice required in
paragraph 6(a) and satisfaction of the conditions set forth in paragraphs 6(b)
and 6(c), the Company shall, without transfer or issue tax and without other
incidental expense to Optionee, deliver to Optionee at the office of the
Company, at 910 Hermosa Court, Sunnyvale, California 94086, attention of the
Secretary, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates of such shares of Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with
applicable registration requirements under the Securities Act, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange or the Nasdaq Stock Market, and requirements under
any other law or regulation applicable to the issuance or transfer of such
shares.
7. Corporate Transactions.
(a) If there should be any change in a class of Stock
subject to this option, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of two
percent (2%)) or other change in the corporate structure of the Company, the
Company may make appropriate adjustments in order to preserve, but not to
increase, the benefits to Optionee, including adjustments in the number of
shares of such Stock subject to this option and in the per share purchase price
thereof. Any adjustment made pursuant to this paragraph 7 as a consequence of a
change in the corporate structure of the Company shall not entitle Optionee to
acquire a number of shares of such Stock of the Company or shares of stock of
any successor company greater than the number of shares Optionee would receive
if, prior to such change, Optionee had actually held a number of shares of such
Stock equal to the number of shares subject to this option.
(b) For purposes of this paragraph 7, a "Corporate
Transaction" shall include any of the following shareholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state of the Company's
incorporation;
(ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company in
liquidation or dissolution of the Company; or
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<PAGE>
(iii) any reverse merger in which the
Company is the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a holder or holders
different from those who held such securities immediately prior to such
merger.
(c) In the event of any Corporate Transaction, this
option shall terminate as of the closing of the Corporate Transaction to the
extent unexercised; provided, however, that notwithstanding the terms of this
option, the surviving or acquiring corporation or its parent company may assume
the outstanding option, or issue in place hereof options providing substantially
equal value and having substantially equivalent provisions as this option.
8. Limitations on Transfer. This option shall, during
Optionee's lifetime, be exercisable only by Optionee, and neither this option
nor any right hereunder shall be transferable by Optionee by operation of law or
otherwise other than by will or the laws of descent and distribution. In the
event of any attempt by Optionee to alienate, assign, pledge, hypothecate, or
otherwise dispose of this option or of any right hereunder, except as provided
for in this Agreement, or in the event of the levy of any attachment, execution,
or similar process upon the rights or interest hereby conferred, the Company at
its election may terminate this option by notice to Optionee and this option
shall thereupon become null and void.
9. No Shareholder Rights. Neither Optionee nor any person
entitled to exercise Optionee's rights in the event of his death shall have any
of the rights of a shareholder with respect to the shares of Stock subject to
this option except to the extent the certificates for such shares shall have
been issued upon the exercise of this option.
10. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF
ANY WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE
WHICH EMPLOYS OPTIONEE) SHALL HAVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF
EMPLOYMENT OF OPTIONEE AT ANY TIME AND FOR ANY REASON WHATSOEVER, WITH OR
WITHOUT CAUSE.
11. Notice. Any notice required to be given under the terms of
this Agreement shall be addressed to the Company in care of its Secretary at the
Office of the Company set forth in Section 6 hereof, and any notice to be given
to Optionee shall be addressed to Optionee at the address given by Optionee
beneath Optionee's signature to this Agreement, or such other address as either
party to this Agreement may hereafter designate in writing to the other. Any
such notice shall be deemed to have been duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, registered or certified and
deposited (postage or registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
12. Lock-Up Agreement. Optionee, if requested by the Company
and an underwriter of Common Stock or other securities of the Company, agrees
not to sell or otherwise
5
<PAGE>
transfer or dispose of any Common Stock of the Company held by the Optionee
(except Common Stock included in such registration) during the 180 day period
following the effective date of a registration statement of the Company filed
under the Securities Act, or such shorter period of time as the underwriter
shall require. The Company may impose stop-transfer instructions with respect to
such Common Stock subject to the foregoing restriction until the end of said
period.
13. Committee Decisions Conclusive. All decisions of the
Committee upon any question arising under the Plan or under this Agreement shall
be conclusive.
14. Successors. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's spouse,
executor, administrator or other legal representative or the person or persons
to whom Optionee's rights pass by will or the applicable laws of descent and
distribution.
15. Withholding. Optionee agrees to withholding of shares from
exercise for satisfaction of any applicable federal, state or local income tax
or employment tax withholding requirements. The Committee may issue Optionee an
additional option, with terms identical to this option agreement, entitling
Optionee to purchase additional Stock in an amount equal to the number of shares
so retained.
16. California Law. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the Company and Optionee have executed
this Agreement as of the day and year first above written.
CYLINK CORPORATION GRANTEE
By: ------------------------------------- -------------------------------------
Robert B. Fougner
Title: Corporate Secretary
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Address:
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EXHIBIT B
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of 11/6, 1996 by and between
CYLINK CORPORATION, California corporation (the "Company"), and Fernand Sarrat
("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable person available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims currently being asserted against directors and
officers of corporations; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company, and in order to induce Indemnitee to provide
services to the Company as a director and/or officer, the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by California law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the above premises and of Indemnitee's
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties agree as
follows:
1. Certain Definitions:
(a) Board: the Board of Directors of the Company.
(b) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of
<PAGE>
the Company, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 30% or more of the total voting power represented by the Company's
then outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board and
any new director whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board, or, or
(iii) the shareholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation that
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company (in one transaction or a series of transaction) of all or
substantially all of the Company's assets.
(c) Expenses: any expense, liability, or loss, including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be
paid in settlement, any interest, assessments, or other charges imposed thereon,
and any federal, state, local, or foreign taxes imposed as a result of the
accrual or deemed receipt of any payments under this Agreement, paid or incurred
in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence that takes place either
prior to or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity, whether or not the
basis of the Proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent of the Company, as described above.
(e) Independent Counsel: the person or body appointed in connection with
Section 3.
(f) Potential Change in Control: shall be deemed to have occurred if (i)
the Company enters into an agreement or arrangement, the consummation of which
would
<PAGE>
result in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; (iii) any person
(other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company acting in such capacity or a corporation owned,
directly or indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company), who is or becomes
the Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the date
hereof, or (iv) the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
(g) Proceeding: (i) any threatened, pending, or completed action, suit,
or proceeding, or whether civil, criminal, administrative, investigative, or
other; (ii) any inquiry, hearing, or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit, or proceeding.
(h) Reviewing Party: the person or body appointed in accordance with
Section 3.
(i) Voting Securities: any securities of the Company that vote generally
in the election of directors.
2. Agreement to Indemnify:
(a) General Agreement. In the event Indemnitee was, is, or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from
and against any and all Expenses to the fullest extent permitted by law, as the
same exists or may hereafter be amended or interpreted (but in the case of any
such amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto). The parties hereto intend that this
Agreement shall provide for indemnification in excess of that expressly
permitted by statute, including, without limitation, any indemnification
provided by the Company's Articles of Incorporation, its bylaws, vote of its
shareholders or disinterested directors, or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this Agreement
to the contrary, Indemnitee shall not be entitled to indemnification pursuant to
this Agreement in connection with any Proceeding initiated by Indemnitee against
the Company or any director or officer of the Company unless (i) the Company has
joined in or the Board has consented to the initiation of such Proceeding; (ii)
the Proceeding is one to enforce
<PAGE>
indemnification rights under Section 5; or (iii) the Proceeding is instituted
after a Change in Control and Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company shall
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that, if and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid. If Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, as provided in Section 4, any determination
made by the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or have lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other provision of
this Agreement (other than Section 2(f) below), to the extent that Indemnitee
has been successful on the merits in defense of any Proceeding relating in whole
or in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to this
Agreement shall be paid by the Company on account of any Proceeding in which
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Act or similar provisions of any federal,
state, or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification: after a Change in Control, the Reviewing Party shall be the
Independent Counsel referred to below. With respect to all matters arising after
a Change in Control (other than a Change in Control approved by a majority of
the directors on the Board who were directors immediately prior to such Change
in Control) concerning the rights of Indemnitee to indemnity payments and
Expense Advances under this Agreement or any other agreement or under applicable
law or the Company's Articles of
<PAGE>
Incorporation or Bylaws now or hereafter in effect relating to indemnification
for Indemnifiable Events, the Company shall seek legal advice only from
independent Counsel selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company or the Indemnitee (other than in connection
with indemnification matters) within the last five years. The Independent
Counsel shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent the Indemnitee should be permitted to be indemnified under
applicable law. The Company agrees to pay the reasonable fees of the Independent
Counsel and to indemnify fully such counsel against any and all expenses
(including attorneys' fees), claims, liabilities, loss, and damages arising out
of or relating to this Agreement or the engagement of Independent Counsel
pursuant hereto.
4. Indemnification Process and Appeal.
(a) Indemnification Payment. Indemnitee shall be entitled to
indemnification of Expenses, and shall receive payment thereof, from the Company
in accordance with this Agreement as soon as practicable after Indemnitee has
made written demand on the Company for indemnification, unless the Reviewing
Party has given a written opinion to the Company that Indemnitee is not entitled
to indemnification under applicable law.
(b) Suit to Enforce Right. Regardless of any action by the Reviewing
Party, if Indemnitee has not received full indemnification within thirty days
after making a demand in accordance with Section 4(a). Indemnitee shall have the
right to enforce its indemnification rights under this Agreement by commencing
litigation in any court in the State of California having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any determination by the Reviewing
Party or any aspect thereof. The Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
not challenged by the Indemnitee shall be binding on the Company and Indemnitee.
The remedy provided for in this Section 4 shall be in addition to any other
remedies available to Indemnitee in law or equity.
(c) Defense to Indemnification, Burden of Proof and Presumptions. It
shall be a defense to any action brought by Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. In connection with any such action or any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent
<PAGE>
legal counsel, or its shareholders) to have made a determination prior to the
commencement of such action by Indemnitee that indemnification of the claimant
is proper under the circumstances because Indemnitee has met the standard of
conduct set forth in applicable law, nor an actual determination by the
Reviewing Party or Company (including its Board, independent legal counsel, or
its shareholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. For purposes of this
Agreement, the termination of any claim, action, suit, or proceeding, by
judgment, order, settlement (whether with or without court approval),
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The Company
shall indemnify Indemnitee against any and all Expenses and, if requested by
Indemnitee, shall (within ten business days of such request), advance such
Expenses to Indemnitee, that are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for
(i) Indemnification of Expenses or Expense Advances by the Company under
this Agreement or any other agreement or under applicable law or the Company's
Articles of Incorporation or Bylaws now or hereafter in effect relating to
indemnification for Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance
policies maintained by the Company.
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification. Expense Advances, or insurance recovery, as the case may be.
6. Notification and Defense of Proceeding.
(a) Notice. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding. Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof, but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which Indemnitee
notifies the Company of the commencement thereof, the Company shall be entitled
to participate in the Proceeding at its own expense and except as otherwise
provided below, to the extent the Company so wishes, it may assume the defense
thereof with counsel reasonably satisfactory to Indemnitee. After notice from
the company to Indemnitee of its election to assume the defense
<PAGE>
of any Proceeding, the Company shall not be liable to Indemnitee under this
Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in
connection with the defense of such Proceeding other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right to
employ his or her own legal counsel in such Proceeding, but all Expenses related
thereto incurred after notice from the Company of its assumption of the defense
shall be at Indemnitee's expense unless: (i) the employment of legal counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, (iii) after Change in Control, the
employment of counsel by Indemnitee has been approved by the Independent
Counsel, or (iv) the Company shall not in fact have employed counsel to assume
the defense of such Proceeding, in each of which case all Expenses of the
Proceeding shall be borne by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company or
as to which Indmenitee shall have made the determination provided for in (ii)
above.
(c) Settlement of Claims. The Company shall not be liable to indemnify
Indemnitee under this Agreement or otherwise for any amounts paid in settlement
of any Proceeding effected without the Company's written consent, provided,
however, that if a Change in Control has occurred, the Company shall be liable
for indemnification of Indemnitee for amounts paid in settlement if the
Independent Counsel has approved the settlement. The Company shall not settle
any Proceeding in any manner that would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Company nor the
Indemnitee will unreasonably withhold their consent to any proposed settlement.
The Company shall not be liable to indemnify the Indemnitee under this Agreement
with regard to any judicial award if the Company was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action; he Company's liability hereunder shall not be excused if participation
in the Proceeding by the Company was barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control or a
Potential Change in Control, the Company shall, upon written request by
Indemnitee, create a Trust for the benefit of the Indemnitee and from time to
time upon written request of Indemnitee shall fund the Trust in an amount
sufficient to satisfy any and all Expenses reasonably anticipated at the time of
each such request to be incurred in connection with investigating, preparing
for, participating in, and/or defending any Proceeding relating to an
Indenmifiable Event. The amount or amounts to be deposited in the Trust pursuant
to the foregoing funding obligation shall be determined by the Reviewing Party.
The terms of the Trust shall provide that upon a Change in Control, (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within ten business
days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the Trust under the same circumstances
for which the Indemnities would be required to reimburse the Company under
Section 2(c) of this Agreement, (iii) the Trust shall continue to be funded by
the Company in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be
<PAGE>
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in the Trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that the Indemnitee has been fully indemnified under the terms
of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in
this Section 7 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the Trust shall be reported
as income by the Company for federal, state, local, and foreign tax purposes.
The Company shall pay all costs of establishing and maintaining the Trust and
shall indemnify the Trustee against any and all expenses (including attorney's
fees), claims, liabilities, loss, and damages arising out of or relating to this
Agreement or the establishment and maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in addition
to any other right Indemnitee may have under the Company's Articles of
Incorporation, Bylaws, applicable law, or otherwise. To the extent that a change
in applicable law (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Company's Articles of Incorporation. Bylaws, applicable law, or this Agreement,
it is the intent of the parties that Indemnitee enjoy by this Agreement the
greater benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of the
Company against Indemnitee, Indemnitee's spouse, heirs, executors, or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, or such longer period as may be required by
state law under the circumstances. Any claim or cause of action of the Company
or its affiliate shall be extinguished and deemed released unless asserted by
the timely filing of a legal action within such period; provided, however, that
if any shorter period of limitations is otherwise applicable to any such cause
of action the shorter period shall govern.
11. Amendment of this Agreement. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall
operate as a waiver of any other provisions hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver. Except as specifically
provided herein, no failure to exercise or any delay in exercising any right or
remedy hereunder shall constitute a waiver thereof.
12. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure
<PAGE>
such rights, including the execution of such documents necessary to enable the
Company effectively to being suit to enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.
14. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though he
or she may have ceased to serve in such capacity at the time of any Proceeding.
15. Severability. If any provision (or portion thereof) of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, or
otherwise unenforceable, the remaining provisions shall remain enforceable to
the fullest extent permitted by law. Furthermore, to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of this Agreement containing any provision held to be invalid, void, or
otherwise unenforceable, that is not itself invalid, void, or unenforceable)
shall be constructed so as to give effect to the intent manifested by the
provision held valid, void or uneforceable.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.
<PAGE>
17. Notices. All notices, demands, and other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:
CYLINK CORPORATION
910 Hermosa Court
Sunnyvale, CA 94086
Attn: President
and to Indemnitee at:
Same as above
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Attn: Fernand Sarrat
Notice of change of address be effective only when given in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of delivery or on the third business day after
mailing.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day specified above.
CYLINK CORPORATION INDEMNITEE:
By: /s/ ROBERT FOUGNER /s/ FERNAND SARRAT
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[Signature] [Signature]
Title: Corporate Secretary FERNAND SARRAT
------------------------ ---------------------------
[Print Name]
<PAGE>
EXHIBIT C
CYLINK CORPORATION
PROPRIETARY INFORMATION AND
INVENTIONS AND EMPLOYMENT AGREEMENT
I recognize that Cylink Corporation (the "Company") a California
corporation, is engaged in a continuous program of research, development and
production respecting its business, present and future. As used in this
Agreement, the term "Company" means Cylink Corporation, its successor companies,
subsidiaries and all affiliated companies or operations in which it may have an
interest whether by stock ownership, joint venture arrangements or otherwise.
I understand that:
A. As part of my employment by the Company, I am expected to make new
contributions and inventions of value to the Company;
B. My employment creates a relationship of confidence and trust between me
and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of the Company,
which may be made known to me by the Company or by any client or customer of the
Company, or learned by me in such context during the period of my employment.
C. The Company possesses and will continue to possess information that has
been created, discovered, developed, or otherwise become known to the Company
(including, without limitation, information created, discovered, developed, or
made known by me during the period of or arising out of my employment by the
Company) and/or in which property rights have been assigned or otherwise
conveyed to the Company, which information has commercial value in the business
in which the Company is engaged. All of the aforementioned information is
hereinafter called "Proprietary Information". By way of illustration, but not
limitation, Proprietary Information includes trade secrets,
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<PAGE>
processes, structures, formulas, data and know-how, improvements, inventions,
techniques, marketing plans, strategies, forecasts, and customer lists.
D. As used herein, the period of my employment includes any time in which I
may be retained by the Company as a consultant.
In consideration of my employment or continued employment, as the case may
be, and the compensation received by me from the Company from time to time, I
hereby agree as follows:
1. All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the Company
any right I may have or acquire in such Proprietary Information. At all times,
both during my employment by the Company and after its termination, I will keep
in confidence and trust all Proprietary Information, and I will not use or
disclose any Proprietary Information or anything directly relating to it without
the written consent of the Company, except as may be necessary in the ordinary
course of performing my duties as an employee of the Company. Notwithstanding
the foregoing, it is understood that, at all such times, I am free to use (a)
information in the public domain not as a result of a breach of this Agreement
and (b) my own skill, knowledge, know-how and experience to whatever extent and
in whatever way I wish.
2. I agree that during the period of my employment by the Company I will
not, without the Company's express written consent, engage in any employment or
business other than for the Company.
3. In the event of the termination of my employment by me or by the Company
for any reason, I will deliver to the Company all documents and data (whether
written or electronically stored) of any nature pertaining to my work with the
Company and I will not take with me or deliver to anyone else any documents or
data of any description or any reproduction of any description containing or
pertaining to any Proprietary Information.
4. I will promptly disclose to the Company, or any persons designated by
it, all improvements, inventions, designs, ideas, copyrightable works,
discoveries, trade marks, copyrights, trade secrets, formulas, processes,
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<PAGE>
techniques, know-how, and data, whether or not patentable, made or conceived or
reduced to practice or learned by me, either alone or jointly with others,
during the period of my employment which are related to or useful in the
business of the Company, or result from tasks assigned me by the Company or
result from use of premises owned, leased, or contracted for by the Company (all
said improvements, inventions, designs, ideas, copyrightable works, discoveries,
trade marks, copyrights, trade secrets, formulas, processes, techniques,
know-how, and data shall be collectively hereinafter call "Inventions").
5. I agree that all Inventions shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in such Inventions. I further agree as to all
such Inventions to assist the Company in every proper way (but at the Company's
expense) to obtain and from time to time enforce patents on said inventions in
any and all countries, and to that end I will execute all documents for use in
applying for and obtaining such patents thereon and enforcing same, as the
Company may desire, together with any assignments thereof to the Company or
persons designated by it. My obligation to assist the Company in obtaining and
enforcing patents for such Inventions in any and all countries shall continue
beyond the termination of my employment, but the Company shall compensate me at
a reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
Any provision in this Agreement requiring me to assign my rights in any
invention does not apply to an invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code. That section provides
as follows:
Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret information
except for those inventions that either;
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<PAGE>
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
I acknowledge that receipt and execution of this Agreement by me constitutes
written notification, as required by Section 2872 of the California Labor Code,
regarding above Section 2870 and its protective effect on certain inventions by
me.
6. As a matter of record I have identified on Exhibit A attached hereto all
inventions or improvements relevant to the subject matter of my employment by
the Company which have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company, which I
desire to remove from the operation of this Agreement; and I covenant that such
list is complete. If there is no such list on Exhibit A, I represent that I have
made no such inventions and improvements at the time of signing this Agreement.
7. I represent that my performance of all the terms of this Agreement and
as an employee of the Company does not, to the best of my present knowledge and
belief, and will not breach any agreement or duty to keep in confidence
proprietary information acquired by me in confidence or in trust prior to my
employment by the Company. I have not entered into, and I agree I will not enter
into, any agreement either written or oral in conflict herewith.
8. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment or continued employment by
the Company, that I have not brought and will to bring with me to the Company or
use in the performance of my responsibilities at the Company any materials or
documents of a former employer which are not generally available to the public,
unless I have obtained written authorization from the former employer for their
possession and use.
Accordingly, this is to advise the company that the only materials or
documents of a former employer which are not generally available to the public
that I will bring to
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<PAGE>
the Company or use in my employment are identified on Exhibit A attached hereto,
and as to each such item, I represent that I have obtained prior to the
effective data of my employment with the Company written authorization for their
possession and use in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality or duty that I have to former
employers, and I agree that I shall fulfill all such obligations during my
employment with the Company.
9. I agree that the Company is not by reason of this Agreement obligated to
continue me in its employment.
10. I agree that any breach of this Agreement by me would cause irreparable
damage to the Company and that, in the event of such breach, the Company shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder.
11. If any provision hereof shall be declared unenforceable for any reason,
such unenforceability shall not affect the enforceability of the remaining
provisons of this Agreement. Further, such provision shall be reformed and
construed to the extent permitted by law so that it would be valid, legal and
enforceable to the maximum extent possible.
12. This Agreement shall be effective as of the first day of my employment
by the Company, namely:________________________________________________________.
13. This Agreement shall be binding upon me, my heirs, executors, assigns,
and administrators, shall inure to the benefit of the Company, is successors,
and assigns and shall survive my employment by the Company.
Dated Date of Hire By /s/ Fernand Sarrat
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ACCEPTED AND AGREED TO:
CYLINK CORPORATION
By Robert Fougner
---------------------------
Corporate Secretary
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<PAGE>
CYLINK CORPORATION
Dear Sirs:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by Cylink Corporation (the
"Company") which have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company:
X No inventions or improvements
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See Below
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Additional sheets attached
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2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
X No materials
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See Below
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Additional sheets attached
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The signature below confirms that my continued possession and use of these
materials is authorized.
Very truly yours,
/s/ Fernand Sarrat
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