AMENDED AND RESTATED EMPLOYMENT AGREEMENT
XX. XXXXXXX X. XXXXXXX And CYLINK CORPORATION
This Employment Agreement, initially made as of the 18th day of
December, 1997 (the "Effective Date"), by and between Cylink Corporation, a
California corporation with its principal place of business at 0000 Xxx Xxxxxx,
Xxxxx Xxxxx, XX 00000 (the "Company"), and Xxxxxxx X. Xxxxxxx residing at 0000
Xxxxxxx Xxxx Xxxxxxx, Xxx Xxxx, XX 00000 (the "Executive") is hereby restated in
its entirety as of September 1, 2001, to incorporate all amendments agreed
between the parties since the Effective Date.
W I T N E S S E T H :
WHEREAS, the Company desires to employ Executive, initially, as its
Vice President of Strategy and Product Management;
WHEREAS, commencing as of November 4, 1998, 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 mutual covenants and agreements
herein contained, the Company and Executive agree as follows:
1. Employment.
1.1. The Company hereby agrees to employ Executive, and Executive
agrees to be employed by the Company, on the terms and conditions herein
contained, as of the
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Contract of Employment
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Restated September 1, 2001
Effective Date, initially as its Vice President of Strategy and Product
Management, and, as of November 4, 1998, as its President and Chief Executive
Officer, and in such other executive capacities assigned by the Chairman which
are not inconsistent with Executive's duties. Executive's duties, authority and
responsibilities shall be commensurate with those of a similar position for
another company similar in size and business. During the term of Executive's
employment, he shall be based at the Company's principal office; provided,
however, that Executive shall be required to travel as reasonably necessary in
connection with the official business of the Company. Executive shall maintain
his permanent residence within the surrounding community. If so requested by the
Chairman, Executive shall also serve as an officer of the Company's affiliated
entities without additional compensation.
1.2. The Executive shall devote substantially all of his business time,
energy, skill and efforts to the performance of his duties and shall faithfully
serve the Company 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, from sitting on Boards of Directors provided that these
activities do not materially interfere with Executive's obligations hereunder.
In addition, Executive may accept positions or assignments of responsibility
from other organizations, provided: (i) they do not interfere with his duties
and
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Restated September 1, 2001
obligations hereunder, (ii) he gives the Company written notice prior to
accepting such positions, and (iii) the Company does not object. Furthermore,
regardless of whether the Company has given its consent, Executive will advise
Company immediately in the event such positions create the appearance of a
conflict of interest between Executive's activities and his obligations to
Company, and take such action which the Company may deem necessary to prevent
any such conflict from occurring, including but not limited to resigning from
such outside position.
2. Term of Employment.
Executive's employment under this Agreement shall be for a term (the
"Employment Term") commencing on January 1, 1998 and terminating, unless
otherwise terminated earlier as provided in this Agreement, on December 31, 2004
(the "Original Employment Term"), provided that the Employment Term shall be
extended (subject to earlier termination as provided in this Agreement) for
additional one (1) year periods (the "Additional Terms"), unless, at least
ninety (90) 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 in this
Agreement shall include all such extensions. The Executive's obligations
concerning the Company's Inventions, Confidential Information, not to
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compete or solicit the Company's customers or employees, and the Company's
obligations to provide indemnification, as provided elsewhere in this Agreement,
shall survive and remain in effect notwithstanding the termination of the
Employment Term or a breach of this Agreement by either the Company or the
Executive.
3. Compensation.
3.1. As compensation for his services under this Agreement, the Company
shall pay Executive an annual salary of $300,000 ("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.
3.2. Executive's Base Salary may be increased from time to time by the
Compensation Committee, but solely in their discretion and not as an implied
obligation of this Agreement. Executive's Base Salary may also be decreased from
time to time by the Board of Directors upon recommendation of the Compensation
Committee based on their assessment of the Executive's performance or changes in
the scope of Executive's responsibilities, provided that Executive will be given
written notice and a minimum of ninety (90) days to cure any such assessment
which, in the Chief Executive Officer's discretion, warrants such a reduction.
3.3. In addition to the Base Salary, for each calendar year completed
during the
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Employment Term, the Company shall pay to Executive a minimum annual bonus of
$100,000, payable semiannually, based on performance milestones which shall
incorporate quantifiable objectives ("Performance Goals") to be agreed upon by
the Executive and Chairman each year. The Executive shall be eligible for an
increase in his annual bonus by an amount which the Chairman reasonably believes
is commensurate with Executive's actual performance in excess of his Performance
Goals. In making this determination, the Compensation Committee of the Company's
Board of Directors agree to consider the Executive's waiver of his past bonuses
for the Company's fiscal year 2000 and the first half of fiscal 2001 as part of
the Company's fiscal austerity plan. An increase in Executive's bonus in any one
year shall not affect the minimum annual bonus in any subsequent years. At the
Company's option, any bonus paid in excess of the annual minimum bonus may be
applied, after deduction of all taxes owed by Executive, against the outstanding
amount of the Loan.
3.4. 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 then current policies with respect to
travel, entertainment and other business expenses, subject to the Company's
requirements concerning reporting and documentation of such expenses.
4. Benefits.
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Restated September 1, 2001
4.1. During the Employment Term, Executive shall be entitled to (i) all
benefits, if any, which are generally provided from time to time by the Company
to its senior executive officers, including, without limitation, (i) any life,
medical and disability insurance plans, (ii) incentive, profit-sharing, deferred
compensation and similar such plans, subject to: (A) the Executive's
satisfaction of the eligibility requirements, if any, and (B) with due credit
for the minimum annual bonus already provided under this Agreement, and (iii)
all other benefits provided under this Agreement.
4.2. During the first year of the employment Term, the Company will
contribute an additional $30,000 (the "Retirement Bonus") to Executive's
retirement plans, as follows:
4.2.1. In the event the Company initiates matching contributions for
its employee 401(k) plan, the maximum amount allowable will be
contributed from the Retirement Bonus into Executive's 401(k)
account;
4.2.2. the Retirement Bonus will then be applied, up to the maximum
amount allowable, as a contribution to a non-qualified
retirement plan, if any such plan is exists or is created by
the Company for its officers; and
4.2.3. the balance of the Retirement Bonus (or all of said amount in
the event the Company's benefit plans do not authorize any
further tax deferred contributions) shall be paid into an
annuity or any other fund created by Executive for receipt of
taxable contributions, after deduction of any
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withholding or other taxes which may be required by law.
4.3. The Company will reimburse the travel expenses incurred by
Executive's spouse when she accompanies Executive on overseas trips, not to
exceed two per year. The maximum number of trips entitled to reimbursement under
this paragraph may not be accumulated from year to year.
4.4. The Company agrees to reimburse Executive for all reasonable
expenses incurred by Executive for (i) personal transportation, (ii) moving any
items of personal property owned by Executive and his family from his current
place of residence to the vicinity of the Company's principal place of business,
and (iii) customary closing costs for the purchase of a new principal residence
in Northern California. The Company shall also reimburse Executive for (iv) the
cost of property taxes and insurance, including earthquake insurance on his
principal residence in Northern California.
4.5. The Company will reimburse Executive for the cost of leasing and
insuring an automobile commensurate with his position to provide transportation
for Company business in Northern California.
4.6. [Section intentionally deleted]
4.7. In connection with the transfer of Executive's principal place of
employment from Maryland, the Company shall provide Executive with a five year
interest-free loan
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Restated September 1, 2001
in the amount of up to $750,000 (the "Loan") for purposes of Executive's
acquisition of a new principal residence in Northern California. The Loan shall
not be for more than the purchase price of the residence, including any
improvements which may be required as a condition of ownership under the CC&Rs
of the local community. As of November 4, 1998, the total amount due and owing
by Executive on the relocation Loan equals $748,526.34. The amount outstanding
on this relocation Loan shall be increased by the amount required to complete
Executive's financing of his new principal residence ($362,597), and the total
amount of the relocation Loan shall then be fixed at the total amount
outstanding, which is equal to $1,111,123.34. The relocation Loan shall be
interest free, and shall be due and owing on December 31, 2004, unless sooner
terminated as provided in this Agreement, as Amended.
4.8. [Section intentionally deleted]
4.9. The Loan shall be subject to, and governed by, the terms and
conditions of one or more loan agreements and first Deeds of Trust between the
Executive and the Company in a form satisfactory to the Company's counsel, which
the parties shall enter into at the time the Executive purchases the new
residence. The Company shall retain the Deeds of Trust as a 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
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Contract of Employment
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Restated September 1, 2001
are necessary to comply therewith. The Executive shall enter into an Amended
First Deed of Trust and loan agreement, in a form satisfactory to the Company's
counsel, for the amount of the Loan as of November 4, 1998.
4.10. Executive's salary shall be "grossed up" by the amount of income
taxes owed for the portion of income imputed, if any, due to the Loan, and the
Company's payment of property taxes and all property insurance on Executive's
principal residence. 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 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. 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).
4.11. Without prejudice to the other provisions of this Agreement
concerning acceleration of the Loan, 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
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Contract of Employment
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Restated September 1, 2001
breach of any term of the Loan or Deeds of Trust.
4.12. In the event the Loan becomes due and payable, Executive shall
owe interest at a market rate for comparable loans, but not less than 8% per
annum, on the unpaid principal from the date the Loan became due until fully
repaid, together with all costs, expenses and attorneys fees incurred by Company
in seeking repayment, without prejudice to all of the Company's other rights and
remedies. Executive agrees that Company may accept late or partial payments,
even if marked "payment in full", or otherwise delay in enforcing its rights,
without waiving or affecting any of Executive's obligations or the terms of the
Loan. Executive further waives any requirement of presentment, notice of
dishonor or protest. The Company's claim for non-payment shall not be subject to
setoff or deduction for any counterclaims, and the Company may allocate
Executive's partial payments to outstanding interest and costs of collection
before crediting outstanding principal. In the event of any claim by Company for
non-payment, Executive waives any right to trial by jury and hereby consents to
whatever summary proceedings may be available by law for the collection of this
obligation.
5. Stock Options.
5.1. On December 8, 1997 the Compensation Committee of the Board (the
"Compensation Committee"), or its delegee, authorized granting to Executive
options to purchase 350,000 shares of Company common stock at an exercise price
equal to the
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Restated September 1, 2001
market value of the Company stock at the close of market immediately prior to
the Effective Date, pursuant and subject to the Company's 1994 Flexible Stock
Incentive Plan (the "Plan"). Such Options shall be non-qualified or incentive
stock options, or a combination thereof as determined by the Plan's
Administrator. The terms of the Options, as more fully set forth in the Option
agreement annexed hereto as Attachment A and specifically modified by this
Section 5, provide that the Options (i) 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, provided: (A) the
Executive is employed by the Company on each vesting date, and provided further,
that (B) the initial twenty percent (20%) of the Options shall not be
exercisable unless and until the Executive remains employed by the Company on
the first anniversary of the Effective Date.
5.2. In addition to the Options previously granted under the Agreement,
the Compensation Committee of the Company's Board of Directors authorized the
following grants to purchase the Company's common stock (the "Additional
Options"):
5.2.1. grants on December 11, 1998, and December 14, 1998, totaling
500,000 options, with twenty percent of the grants vested as
of the date of grant, and the balance vesting monthly, as long
as the Executive remains employed by the Company, over the
next four years, pro rata; and
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Contract of Employment
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Restated September 1, 2001
5.2.2. grant on January 29, 1999, of 150,000 options, vesting monthly
over the next four years, pro rata.
5.2.3. The Additional options shall be non-qualified, with a term of
six years from the date of grant or until termination of
Executive's employment, whichever occurs first, and have an
exercise price equal to the market value of the Company stock
on the date of grant. The Additional Options shall be issued
pursuant to the Company's 1994 Flexible Stock Incentive Plan
(the "Plan") and the Option Agreements annexed to this
Amendment, subject to the provisions of this subparagraph 5.2.
5.3. On August 28th, 2001, the Compensation Committee of the Company's
Board of Directors authorized a grant of non-qualified options to purchase
500,000 shares of the Company's common stock (the "2001 Options"), with a term
of six years from the date of grant, or until termination of Executive's
employment, whichever occurs first, vesting monthly over the next two years, pro
rata, at an exercise price of $0.54 per share. The 2001 Options shall be
non-qualified, for a period of six years from the date of grant, and have an
exercise price equal to the market value of the Company stock on the date of
grant. The 2001 Options shall be issued pursuant to the Company's 2001 Stock
Incentive Plan (the "2001 Plan") and the 2001 Option Agreements annexed to this
Amended and Restated Agreement, subject to the provisions of this subparagraph
5.3.
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Contract of Employment
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Restated September 1, 2001
5.4. In the event of a "Corporate Transaction" all of the Executive's
outstanding options shall fully vest immediately prior to closing unless the
Company's successor in interest, or its parent, offers to:
5.4.1. (i) assume the Executive's unvested options in accordance with
Section 11 of the Plan or (ii) replace them with equivalent
options to purchase publicly traded shares in the successor
corporation or its Parent by exchanging them at the same rate
of conversion offered to the Company's shareholders in the
Corporate Transaction, and
5.4.2. provided further that the successor in interest agrees to vest
all such assumed or exchanged options on the earlier of: (i)
the first anniversary of his continued employment following
such Corporate Transaction, or (ii) upon termination of the
Agreement by the Company or its successor in interest if such
termination occurs either without good Cause or by the
Executive for Good Reason.
5.5. In the event of a Change In Control, all unvested options shall
vest on the earlier of: (i) the first anniversary of Executive's continued
employment following such Change In Control, or (ii) upon termination of the
Agreement by the Company or its successor in interest if such termination occurs
either without good Cause or by the
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Executive for Good Reason. For purposes of the Agreement and this Amendment, the
terms "Corporate Transaction" and "Change in Control" shall have the definitions
of the Plan, except that a "Corporate Transaction" shall also include the
acquisition of more than 50% of the Company's outstanding securities by any
person or related group of persons as defined in Section 13(d)(3) of the
Securities Act of 1934, other than the entities and transactions identified on
Attachment "B".
5.6. Nothing stated in this Article 5 shall be interpreted as
eliminating the ninety (90) day grace period for exercising all vested options
under all of the foregoing option agreements following the effective date of
termination.
6. 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).
7. Termination.
7.1. Executive's employment under this Agreement shall terminate prior
to expiration of the Employment Term (including any Additional Terms which may
be in effect) upon the occurrence of any of the following events:
7.1.1. Automatically on the date of Executive's death.
7.1.2. Upon written notice by the Chairman to the Executive for
Cause. "Cause"
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Restated September 1, 2001
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
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 Chairman consistent with this Agreement,
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 Company's General Counsel
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
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Restated September 1, 2001
entity but not de minimis personal use of Company assets or
reasonable good faith expense account disputes, (F) the
Executive's inability to competently perform his assigned
duties, provided Executive shall first have been given written
notice of his performance deficiency and a period of ninety
(90) days to effect its correction, or (G) 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. In the
event of a Corporate Transaction or a Change in Control,
sections 7.1.2 (F) and (G) of the Agreement shall no longer be
the basis for good "Cause" for termination.
7.1.3. Upon written notice by the Chairman to the Executive, if the
Executive (as determined by the Chairman 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
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Restated September 1, 2001
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.
7.1.4. Upon written notice by the Executive to the Chairman 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. "Good Reason" shall
mean (i) any material breach of any provision of this
Agreement by the Company, (ii) any reduction in Executive's
duties or responsibilities as Chief Executive Officer and
President, other than those duties which may no longer be
required if the Company ceases to be a publicly traded
company, without his consent, or (iii) notice by the Company
in accordance with Section 2 ("Term of Employment") that the
Agreement will not be extended upon expiration of the current
Employment Term. In addition, the Executive may terminate
employment by written notice given to the Company (iv) within
the thirty (30) day period following the first anniversary of
a Corporate Transaction or a Change in Control of the Company,
or (v) upon any decrease in Executive's Base Salary or minimum
annual bonus following a Corporate Transaction or a
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Restated September 1, 2001
Change of Control, and have such termination treated as a
termination for Good Reason. 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.
7.1.5. Immediately upon written notice to the Executive by the
Chairman without Cause. Notice by the Company of its decision
not to renew the Agreement upon expiration of the current Term
in accordance with Article 2 shall be deemed termination
without Cause.
7.1.6. Upon the voluntary termination by 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.
7.2. Upon such earlier termination of the Employment Term, the
Executive shall be promptly paid (i) any unpaid salary and accrued vacation
through his date of termination, (ii) a prorated portion of his unpaid annual
bonus, as determined by the Chairman in accordance with this Agreement, for the
calendar year of his termination, (iii) reimbursed for any expenses incurred in
connection with the business of the
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Restated September 1, 2001
Company prior to his date of termination which he would be otherwise entitled to
in accordance with the Company's policies on the reimbursement of business
expenses, and (iv) 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.
7.3. In addition, if the termination is by the Company without Cause,
or by the Executive for Good Reason, as provided above, 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 Attachment
C hereto, which shall survive) in such form as reasonably requested by the
Company:
7.3.1. twelve (12) monthly installments of severance pay each in an
amount equal to one-twelfth of the then sum of his Base Salary
and annual bonus, based on the amount paid for service during
the prior twelve month period, pro rated if necessary, and
subject to the offset of any amounts due, and
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Contract of Employment
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Restated September 1, 2001
7.3.2. 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 this
Agreement or, if earlier, until Executive and his dependents
cease to be eligible for such COBRA coverage. The Company's
payment obligations under this Section (other than those in
the first sentence) shall immediately cease in the event
Executive materially breaches any of his obligations under
this Agreement concerning the Company's Inventions,
Confidential Information, and not to compete or solicit the
Company's customers or employees.
7.4. In the event of termination of Executive's employment within less
than one year following a Change in Control or a Corporate Transaction, the
Company agrees to engage Executive as independent consultant under the Company's
standard form of consulting agreement, for a period of not less than one year,
for a minimum of twenty days per year at a rate of $3,000 per day. Executive
shall not be required to provide services in excess of the minimum twenty days
per year, and Executive may terminate this consulting agreement at any time on
thirty (30) days notice.
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Contract of Employment
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Restated September 1, 2001
7.5. If the Employment Term ends early on account of Disability, and
Executive executes the release of claim set forth in Section 7.3 above, the
Company shall pay to Executive monthly, until the second anniversary of the date
of the termination for Disability, the amount of $7,700, 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. The
Company's payment obligations under this Section 7.4 shall immediately cease in
the event Executive materially breaches any of his obligations under Section 9
("Inventions and Other Intellectual Property"), Section 10 ("Confidential
Information"), or Section 11 ("Non-Compete, Non-Solicitation") 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 4.1 hereof or otherwise sponsored by the Company.
7.6. If the Employment Term ends early pursuant to this Section 7 for
any other reason, 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) to the limited extent provided in any
benefit or equity plan or arrangement
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Contract of Employment
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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.
7.7. All aforesaid amounts in this Section shall be subject to required
withholding, if any. The Company and its affiliated entities shall have no other
obligations to the Executive upon a termination except as specifically provided
in this Agreement.
7.8. In the event of termination of the Employment Term, the following
provisions shall apply to the Loan:
7.8.1. In the event of termination by the Company for Cause, the
Loans shall become due and payable on December 31, 2004, or
eighteen months from the date of termination, whichever shall
occur first, provided further that Executive shall have a
minimum of 120 days from the date of termination to repay the
Loan;
7.8.2. In the event of the Executive's death, the Loans shall become
due and payable on December 31, 2004, or eighteen months from
the date of death, whichever shall occur last
7.8.3. In the event of voluntary termination by the Executive other
than for Good Reason, or in the event of the Executive's
death, the Loans shall become
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due and payable in full 120 days after the date of
termination.
7.8.4. 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
date of Termination, or at the expiration of the Original
Employment Term, whichever shall occur first.
7.8.5. In the event the Loan is not due upon the termination of the
employment Term, interest shall be owed on the outstanding
amount of the Loans for the period commencing ninety days
after termination until the date repayment is due at the rate
of 8% per annum.
7.8.6. In consideration of Executive's entering into and compliance
with the provisions in Article 11 ("Non-Compete,
Non-Solicitation") the outstanding balance of the Loan
($1,111,123.34) shall be forgiven in its entirety upon the
closing of a Corporate Transaction unanimously approved by the
Board of Directors (without consideration of abstentions, if
any), except that the Company shall not be liable or
responsible for any "gross up" of the tax consequences of such
forgiveness. To the extent that Executive previously has
repaid any portion of the outstanding balance of the Loan
($1,111,123.34), the Company shall pay to Executive at such
closing an amount equal to all such Loan repayments in
consideration of Executive's
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Contract of Employment
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Restated September 1, 2001
entering into and continued compliance with the provisions in
Article 11 ("Non-Compete, Non-Solicitation").
8. No Duty to Mitigate/Set-Off.
Except as specifically stated in this Agreement, the Company's
obligation to make any payments to the Executive 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 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 7 are inclusive,
and in lieu of, any amounts payable under any other salary continuation or cash
severance arrangement of the Company. To the extent any such payments are made
to Executive under any other salary continuation or cash severance arrangement,
such payments shall be offset from the amount due Executive under Section 7.
24
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
9. Inventions and Other Intellectual Property.
The Company and Executive agree to promptly execute the Proprietary
Information and Invention Agreement, annexed hereto as Attachment D, and any
revised versions which are subsequently issued by the Company as part of its
standard terms of employment.
10. Confidential Information.
Executive acknowledges that the trade secrets, know how, and
proprietary information and observations concerning the business or affairs of
the Company, or any of its subsidiaries or affiliates or any predecessor thereof
(collectively "Confidential Information"), obtained by him while employed by the
Company pursuant to this Agreement are the property of the Company or such
subsidiary or affiliate. 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 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. If Executive receives legal process, he may comply with it provided he
promptly notifies the Company and diligently 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
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Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
documents and data (and copies thereof) relating to the Confidential Information
or business of the Company or any of its subsidiaries or affiliates which he may
then possess or have under his control.
11. Non-Compete, Non-Solicitation.
11.1. Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar with the
Company's Confidential Information and that his services will be of special,
unique and extraordinary value to the Company.
11.2. 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, or make use of, any Company Confidential
Information. 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
which develops or markets high speed commercial encryption equipment, software
26
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
management systems for encryption equipment or public key infrastructure ("PKI")
systems; 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 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, (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), and, provided further, that
Competition shall not include any line of encryption or PKI products which the
Company divests or otherwise ceases to engage in developing or marketing.
Notwithstanding anything else in this Section 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 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 or otherwise violates this Section (other than by making such passive
investments).
11.3. During the Employment Term and for two (2) years thereafter,
Executive shall
27
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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 way its business relationship with the Company or its
affiliates.
11.4. During the Employment Term and one (1) year thereafter, Executive
shall not recruit, solicit or induce any nonclerical employees of the Company or
its affiliates to terminate their employment or otherwise cease their business
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. Executive agrees not to circumvent this prohibition by hiring any
such employee within six (6) months after the employee terminates his employment
with the Company or 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.
11.5. If, at the time of enforcement of this Section, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties 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 permitted by law.
28
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
12. Refund Of Benefits.
In the event Executive is in breach of Section 11 ("Non-Compete,
Non-Solicitation"), or such modified version as may be required by law, after
first (i) being provided by the Company with written notice that describes the
breach and grants Executive no less than thirty (30) days to cease all conduct
giving rise to such breach, and (ii) Executive having failed to comply with the
Company's notice, Executive will then relinquish to the Company:
12.1. all stock options and other benefits under any stock incentive
plan, including the Options granted under this Agreement and Attachment "A",
which vested in the Executive's interest during the six months preceding the
last day of Executive's employment by the Company. In the event Executive sells
or otherwise transfers any such Options, Executive will refund to the Company
the amount of the gross economic value realized by Executive.
12.2. all bonus payments, or any pro rata portions thereof, which were
paid or otherwise owed to Executive for his services rendered during the six
months preceding the last day of Executive's employment by the Company.
12.3. all severance payments calculated on the basis of salary, bonus
or both.
12.4. in the event the Loan has been previously forgiven following a
Corporate
29
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
Transaction in accordance with Section 7.8.6, the Loan shall be reinstated as if
the Corporate Transaction had not occurred, including all of Executive's
obligations for repayment of the Loan under this Agreement and all related
documents.
12.5. The relinquishment of the foregoing benefits in accordance with
this Section shall not limit or otherwise preclude all other rights and remedies
of the Company due to the Executive's breach of this Agreement.
13. Enforcement.
Because Executive's services are unique and because Executive has
access to Confidential Information of the Company and its affiliates, the
parties hereto agree that money damages, while not waived, 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,
including the award of money damages, 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).
14. Indemnification.
Executive shall be entitled to be indemnified for his activities as an
officer to the full extent provided in the Articles of Incorporation and By-Laws
of the Company and in
30
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
accordance with the Indemnification Agreement annexed as Attachment C hereto,
which the Company and Executive agree to promptly execute. In addition, the
Company shall cover Executive under Directors and Officers Liability Insurance
during the Employment Term in the same amount and to the same extent as the
Company covers its other officers.
15. 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 his former
employer(s), 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 lawfully resident alien entitled to
work within the United States, and (v) Executive will in performing his duties
not utilize any confidential information of any other person or entity.
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Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
16. Entire Agreement; Modification.
This Agreement, and all documents incorporated herein, 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 in this Agreement, 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.
17. 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.
18. 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 unenforceability without rendering invalid
or unenforceable the remaining terms and
32
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
provisions of this Agreement or affecting the validity or enforceability of any
of the terms of provisions of this Agreement in any other jurisdiction.
19. 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 or
be construed as a waiver of any subsequent breach.
20. 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 last known address provided by
the Executive in the Company's records and, if to the Company, at the address
set forth on the first page of this Agreement, attention of the General Counsel.
Either party may change the notice address by notice in accordance with this
Section.
21. 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
33
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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, in such event, only on the condition that
the assignee specifically assumes in writing all of the Company's obligations
under this Agreement.
22. 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.
23. Arbitration.
23.1. In the event of any dispute of any kind whatsoever between the
parties, arising out of or related in any way to this Agreement, the parties
agree to submit all such disputes to binding arbitration. Each party shall be
entitled to appoint one arbitrator, who shall not be an affiliate, officer,
director, employee, agent, vendor or contractor of that party. The appointed
arbitrators shall then appoint a neutral arbitrator who shall serve as Chairman,
and the arbitration shall be conducted by the arbitrators so chosen. The
parties' arbitrators shall be experienced executives in the technology industry,
and the Chairman shall be an attorney practicing litigation in the field of
employment law. The arbitration shall be conducted in Santa Xxxxx County,
California.
34
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
Demand for arbitration shall be made in writing and shall be served upon the
party or parties to whom the demand is addressed in the manner provided for the
tender of notices in this Agreement. If the party receiving the demand for
arbitration does not appoint its arbitrator within 30 days after receiving such
notice, the arbitrator appointed by the party serving the demand for arbitration
shall be further empowered to serve as the sole arbitrator, notwithstanding that
he fails to meet the qualifications for the Chairman set forth in this Section.
23.2. The arbitrators are authorized to award any remedy, legal or
equitable, as well as any interim relief as they deem appropriate in their
discretion. However, notwithstanding the foregoing, the arbitrators shall have
no power to add to, subtract from, or modify any of the terms or conditions of
this Agreement.
23.3. Subject to the arbitration agreement stated in this Article, the
federal and state courts located in Santa Xxxxx County, California shall have
exclusive jurisdiction over all other legal proceedings between the parties.
Executive agrees to the personal jurisdiction of said courts and to the receipt
of service of process in the same form as other notices under this Agreement.
Application may be made to any such court to assist the arbitrators in
performing their arbitral duties, to confirm their award and to enforce any such
award as a judgment of said court.
35
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
24. Special Tax Provision.
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, 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
36
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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 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, and this Section shall be
interpreted accordingly.
Except as otherwise provided in this Section 24 ("Special Tax
Provision"), 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
37
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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 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.
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.
38
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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 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. In the event that the
foregoing determination 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,
39
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
but no portion of the Tax Reimbursement Payment shall be required 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). In the
event Executive receives such a refund 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.
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.
In the event of any controversy with the Internal Revenue Service (or
other
40
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
taxing authority) under this Section, Executive and the Company shall in good
faith cooperate so as not to jeopardize resolution of said controversy. 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.
With regard to any initial filing for a refund or any other action
required pursuant to this Section (other than by mutual agreement) or, if not
required, agreed to by the Company and Executive, Executive shall cooperate
fully with the Company.
Executive and the Company shall mutually agree on and promulgate
further guidelines in accordance with this Section to the extent, if any,
necessary to effect the reversal of excessive or shortfall Tax Reimbursement
Payments.
25. 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.
26. 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.
41
Contract of Employment
Xxxxxxx X. Xxxxxxx
Restated September 1, 2001
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: _____________________________
EXECUTIVE
________________________________
Xxxxxxx X. Xxxxxxx
42
