-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I30hvxP7aG8foui/0obYvhgwAfoJ+Q7GLRc6Bl3Z1dd4xn19+gEtn6o23kq0QY9T 33wWwOItQDdIe2JglPX2Cw== 0000950005-02-000961.txt : 20021030 0000950005-02-000961.hdr.sgml : 20021030 20021030140655 ACCESSION NUMBER: 0000950005-02-000961 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20021030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYLINK CORP /CA/ CENTRAL INDEX KEY: 0001005230 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 953891600 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27742 FILM NUMBER: 02802786 BUSINESS ADDRESS: STREET 1: 3131 JAY STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4088556000 MAIL ADDRESS: STREET 1: 3131 JAY STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 10-K/A 1 p16085_10ka.txt AMENDMENT NO. 1 TO ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-27742 CYLINK CORPORATION (Exact name of Registrant as specified in its charter) California 95-3891600 --------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3131 Jay Street, Santa Clara 95054 ---------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 855-6000 Securities registered under Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on March 27, 2002, as reported by the Nasdaq National Market, was approximately $36,828,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock, based on Schedule 13G filings, have been excluded from the computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes. As of March 27, 2002, there were 33,035,017 shares of the Registrant's Common Stock outstanding. EXPLANATORY NOTE This amendment to Cylink Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 which was filed with the Securities Exchange Commission on April 1, 2002 is being filed to include a revised Exhibit Index and corresponding exhibits. No further changes have been made to the Form 10-K. INDEX TO EXHIBITS Exhibit Number Description of Exhibit - -------------- ---------------------- 3.1 Amended and Restated Articles of Incorporation of the Company. (1) 3.1.1 Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company effective February 13, 1996. 3.1.2 Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company effective October 12, 2000. 3.2 Bylaws of the Company, as amended. (1) 3.2.1 Certificate of Amendment of the Bylaws of the Company effective October 26, 1995. 3.2.2 Certificate of Amendment of the Bylaws of the Company effective December 13, 1995. 10.1 Form of Indemnification Agreement between the Company and each of its officers and directors. (1) (2) 10.2 Amended and Restated Employment Agreement between the Company and William C. Crowell dated September 1, 2001. (2) 10.3 Amended and Restated Executive Retention Agreement between the Company and Robert B. Fougner dated April 1, 2002; Telecommuting Agreement between the Company and Robert B. Fougner dated April 1, 2002; Consultant Agreement between the Company and Robert B. Fougner dated April 1, 2002. (2) 10.4 Employment Agreement between the Company and Philip Breeden dated July 23, 2001. (2) 10.5 Employment Agreement between the Company and Richard F. Walsh dated March 13, 2000; First Amendment to Employment Agreement between the Company and Richard F. Walsh dated January 1, 2002. (2) 10.6 Employment Agreement between the Company and R. Christopher Chillingworth dated November 6, 2000. (2) 10.7 Employment Agreement between the Company and Patrick K. Reilly dated April 30, 2001; First Amendment to Employment Agreement between the Company and Patrick K. Reilly dated January 1, 2002. (2) 10.8 Employment Agreement between the Company and Pamela E. Drew dated December 1, 2000; First Amendment to Employment Agreement between the Company and Pamela E. Drew dated January 1, 2002. (2) 10.9 Registrant's Amended and Restated 1994 Flexible Stock Plan. (2)(3) 10.10 Lease dated May 10, 1999 by and between Orchard Jay Investors, LLC and David J. Brown as Landlord and the Company, as tenant, as amended August 5, 1999. 10.11 Cylink/ARL 1997 Stock Option Plan and form of agreement.(2) 10.12 ATM Technology Center 2000 Stock Option Plan.(2)(3) 10.13 2001 Non-Qualified Stock Incentive Plan.(2)(3) 21.1 Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. - ----------------------------- (1) Incorporated by reference from the Company's Registration Statement on Form S-1 Registration Number 33-80719, effective February 15, 1996. (2) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K pursuant to Item 14(a). (3) Incorporated by reference from the Company's Registration Statement on Form S-8 Registration Number 333-70242, filed September 26, 2001. SIGNATURES Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CYLINK CORPORATION Date: October 30, 2002 /s/ Robert B. Fougner ------------------------------------------------- Robert B. Fougner Vice President, and General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - -------------------------------------------- ---------------------------------------- ---------------------- * President, Chief Executive Officer October 30, 2002 --------------------------- (Principal Executive Officer) William P. Crowell * Vice President of Finance and Chief October 30, 2002 --------------------------- Financial Officer (Principal Financial R. Christopher Chillingworth and Accounting Officer * Director October 30, 2002 --------------------------- Leo A. Guthart * Director October 30, 2002 --------------------------- Paul Gauvreau * Director October 30, 2002 --------------------------- William W. Harris * Director October 30, 2002 --------------------------- Howard L. Morgan *By: /s/ Robert B. Fougner ------------------------------------- Robert B. Fougner, Attorney-in-Fact
CERTIFICATION I, William P. Crowell, certify that: 1. I have reviewed this annual report on Form 10-K/A of Cylink Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. By: /s/ William P. Crowell --------------------------- William P. Crowell Chief Executive Officer Date: October 30, 2002 CERTIFICATION I, R. Christopher Chillingworth, certify that: 1. I have reviewed this annual report on Form 10-K/A of Cylink Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. By: /s/ R. Christopher Chillingworth -------------------------------- R. Christopher Chillingworth Chief Financial Officer Date: October 30, 2002 EX-3.1.1 3 p16085_ex31-1.txt CERTIFICATE OF AMENDMENT ARTICLES OF INC. CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CYLINK CORPORATION, a California Corporation -------------------------------- The undersigned Harold D. Yang and Robert Fougner hereby certify that: ONE: They are the duly elected and acting Vice President and Secretary, respectively, of Cylink Corporation, a California corporation (the "Corporation"). TWO: The Amended and Restated Articles of Incorporation of said Corporation are amended as follows: Article Third shall be amended in its entirety to read as follows: "THIRD: A. Classes of Stock. This Corporation is authorized to issue two classes of shares, designated "Preferred Stock" and "Common Stock." The total number of shares which the Corporation is authorized to issue is forty five million (45,000,000) shares. Forty million (40,000,000) shares shall be Common Stock, $.01 par value, (the "Common Stock") and five million (5,000,000) shares shall be Preferred Stock, $.01 par value (the "Preferred Stock"). B. Preferred Stock. The undesignated shares of Preferred Stock shall be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in these Articles of Incorporation, to fix or alter the individual rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, the liquidation preference of any wholly unissued shares of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series." Article Sixth shall be added to read as follows: "SIXTH: A. Date Effective. This Article shall become effective only when the Corporation shall become a "listed corporation" within the meaning of Section 301.5(d) of the California Corporations Code. B. No Cumulative Voting. The election of directors by the shareholders shall not be by cumulative voting. At each election of directors by the shareholders, each shareholder entitled to vote may vote all the shares held by that shareholder for each of several nominees for director up to the number of directors to be elected. The shareholder may not cast more votes for any single nominee than the number of shares held by that shareholder." Article Seventh shall be added to read as follows: "SEVENTH: A. Date Effective. This Article shall become effective only when the Corporation shall become a "listed corporation" within the meaning of Section 301.5(d) of the California Corporations Code. B. Classified Board of Directors. For so long as the board of directors consists of at least nine directors, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third (1/3) of the total number of directors constituting the entire Board of Directors. The initial classes shall be elected as follows: Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders, successors to the class of directors whose term expires at the annual meeting of shareholders shall be elected for three-year terms. If the number of directors is changed, any increase or decrease shall be elected for three-year terms. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Except as otherwise required by law, any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy occurring in the Board of Directors shall be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor." THREE: The foregoing amendments of Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors of the Corporation. FOUR: The foregoing amendments of Amended and Restated Articles of Incorporation were duly approved by the holders of the requisite number of shares of the Corporation in accordance with Sections 902 of the California General Corporation Law; the total number of outstanding shares entitled to vote with respect to the foregoing amendment was 19,029,490 shares of Common Stock. The number of shares voting in favor of the foregoing amendments equaled or exceeded the vote required, such required vote being a majority of the outstanding shares of Common Stock. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment of Amended and Restated Articles of Incorporation this 9th day of February, 1996. /s/ Harold S. Yang -------------------------------- Harold S. Yang, Vice President /s/ Robert B. Fougner -------------------------------- Robert B. Fougner, Secretary EX-3.1.2 4 p16085_ex31-2.txt CERTIFICATE OF AMENDED AND RESTATED ARTICLES CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CYLINK CORPORATION, a California Corporation -------------------------------- The undersigned Robert B. Fougner hereby certifies that: ONE: He is the duly elected Secretary of Cylink Corporation, a California corporation (the "Corporation"). TWO: The Amended and Restated Articles of Incorporation of said Corporation are amended as follows: Article Third shall be amended in its entirety to read as follows: "THIRD: A. Classes of Stock. This Corporation is authorized to issue two classes of shares, designated "Preferred Stock" and "Common Stock." The total number of shares which the Corporation is authorized to issue is sixty million (60,000,000) shares. Fifty-five million (55,000,000) shares shall be Common Stock, $.01 par value, (the "Common Stock") and five million (5,000,000) shares shall be Preferred Stock, $.01 par value (the "Preferred Stock"). B. Preferred Stock. The undesignated shares of Preferred Stock shall be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in these Articles of Incorporation, to fix or alter the individual rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, the liquidation preference of any wholly unissued shares of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series." CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CYLINK CORPORATION THREE: The foregoing amendments of Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors of the Corporation. FOUR: The foregoing amendments of Amended and Restated Articles of Incorporation were duly approved by the holders of the requisite number of shares of the Corporation in accordance with Sections 902 of the California General Corporation Law; the total number of outstanding shares entitled to vote with respect to the foregoing amendment was 30,440,642 shares of Common Stock. The number of shares voting in favor of the foregoing amendments equaled or exceeded the vote required, such required vote being a majority of the outstanding shares of Common Stock. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment of Amended and Restated Articles of Incorporation as of this 17th day of May, 2000. /s/ Robert B. Fougner -------------------------- Robert B. Fougner Corporate Secretary The undersigned certifies under penalty of perjury that he has read the foregoing Certificate of Amendment of Amended and Restated Articles of Incorporation and know the contents thereof, and that the statements therein are true. Executed at Santa Clara, California, as of May 17, 2000 /s/ Robert B. Fougner -------------------------- Robert B. Fougner Corporate Secretary EX-3.2.1 5 p16085_ex32-1.txt CERTIFICATE OF AMENDMENT OF THE BYLAWS CERTIFICATE OF AMENDMENT OF THE BYLAWS OF CYLINK CORPORATION a California Corporation The undersigned, Robert B. Fougner, hereby certifies: 1. That he is the duly elected and acting Secretary of Cylink Corporation, a California corporation (the "Corporation"). 2. That effective October 26, 1995, Section 3.2 of the Corporation's Bylaws was amended to read as follows: "The number of directors of the corporation shall be not less than seven (7) nor more than nine (9) until changed by amendment of the Articles of Incorporation or by a Bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares, provided that if the minimum number of directors is five (5) or more, any proposal to reduce the minimum number of directors to a number less then five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. The exact number of directors shall be fixed from time to time, within the limits specified in the Articles of Incorporation in this Section 3.2, by a resolution duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the Board of Directors. IN WITNESS WHEREOF, the undersigned has set his hand hereto this 26th day of March, 1997. /s/ Robert B. Fougner -------------------------- Robert B. Fougner Secretary EX-3.2.2 6 p16085_ex32-2.txt CERTIFICATES OF AMENDMENT OF THE BYLAWS CERTIFICATE OF AMENDMENT OF THE BYLAWS OF CYLINK CORPORATION a California corporation The undersigned, Robert Fougner hereby certifies that: 1. He is the duly elected and acting Secretary of Cylink Corporation, a California corporation (the "Corporation"). 2. Effective December 13, 1995 , Section 2.9(d) was added to the Bylaws of the Corporation to read in its entirety as follows: "Section 2.9. Voting. . . . . (d) Notwithstanding any term of this Section 2.9, during any period in which (i) the corporation is a listed corporation, as "listed corporation" is defined in California Corporations Code Section 301.5(d), and (ii) its Articles of Incorporation provide that shareholders of the corporation are not entitled to cumulate their votes in elections of directors, this Section 2.9 shall not be deemed to allow shareholders of the corporation to cumulate their votes in the elections of directors, and further Section 2.9(c) hereof shall not apply with respect to voting in the election of directors." 3. Effective December 13, 1995, Article XIII, Transfer of Shares, has been repealed and deleted in its entirety from the Bylaws of the Corporation. IN WITNESS WHEREOF, the undersigned has set his hand hereto this 26th day of March, 1997. /s/ Robert B. Fougner -------------------------- Robert B. Fougner Secretary EX-10.2 7 p16085_10-2.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT MR. WILLIAM P. CROWELL 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 3131 Jay Street, Santa Clara, CA 95404 (the "Company"), and William P. Crowell residing at 5932 Country Club Parkway, San Jose, CA 95138 (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 1 Contract of Employment William P. Crowell 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 2 Contract of Employment William P. Crowell 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 3 Contract of Employment William P. Crowell Restated September 1, 2001 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 4 Contract of Employment William P. Crowell Restated September 1, 2001 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. 5 Contract of Employment William P. Crowell 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 6 Contract of Employment William P. Crowell Restated September 1, 2001 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 7 Contract of Employment William P. Crowell 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 8 Contract of Employment William P. Crowell 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 9 Contract of Employment William P. Crowell 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 10 Contract of Employment William P. Crowell 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 11 Contract of Employment William P. Crowell 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. 12 Contract of Employment William P. Crowell 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 13 Contract of Employment William P. Crowell Restated September 1, 2001 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" 14 Contract of Employment William P. Crowell 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 15 Contract of Employment William P. Crowell 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 16 Contract of Employment William P. Crowell 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 17 Contract of Employment William P. Crowell 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 18 Contract of Employment William P. Crowell 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 19 Contract of Employment William P. Crowell 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. 20 Contract of Employment William P. Crowell 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 21 Contract of Employment William P. Crowell Restated September 1, 2001 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 22 Contract of Employment William P. Crowell Restated September 1, 2001 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 23 Contract of Employment William P. Crowell 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 William P. Crowell 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 25 Contract of Employment William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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. 31 Contract of Employment William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 Clara County, California. 34 Contract of Employment William P. Crowell 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 Clara 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 William P. Crowell 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 ________________________________ William P. Crowell 42 EX-10.3 8 p16085_10-3.txt AMENDED AND RESTATED EXECUTIVE RETENTION AGMT. EXECUTIVE RETENTION AGREEMENT AMENDED AND RESTATED This Executive Retention Agreement (the "Agreement") is entered into as of June 1, 1998, (the "Effective Date") by and between Robert B. Fougner, who resides at 2475 Elevado Road, Vista, CA 92084 (the "Executive") and Cylink Corporation (the "Company"), and amended and restated as of April 1, 2002. WHEREAS, the Executive has faithfully and diligently served the Company as its General Counsel and Corporate Secretary since December 18, 1989; NOW, THEREFORE in consideration of Executive's past services and to encourage Executive's continued services on the Company's behalf, the parties agree to the following: PART I - NATURE OF AGREEMENT 1. Waiver Of Employment Agreement. In consideration of the special services rendered by Executive and the nature of Executive's duties, this Agreement shall not be construed as a contract of employment. Executive has been and continues to serve "at will", and the Company is free at all times to discharge Executive from its continued service, subject to the terms and benefits described in this Agreement. 2. Conditions For Benefits. This Agreement will address certain benefits in the event of (i) Executive's separation from the Company's service, and (ii) a Change in Control or a Corporate Transaction, as those terms are defined in the Company's 1994 Stock Incentive Plan, as amended (the "Plan"), except that a Corporate Transaction shall also include any acquisition of more than 50% of the Company's outstanding securities by any entity or related group of entities (collectively with a Corporate Transaction, a "Corporate Event"). 3. Executive Compensation. This Agreement shall not replace, affect or limit in any way Executive's eligibility for continued adjustments in compensation and benefits including but not limited to merit increases in salary, bonuses, awards under the Plan and similar benefits offered to other Company executives, provided however that Executive's eligibility for such adjustments shall continue only for so long as Executive remains in the Company's service. Nothing in this Agreement shall be construed as an obligation on behalf of the Company to grant any such adjustments in Executive's compensation and benefits. 4. Commuting and Telecommuting. The Company acknowledges that Executive intends to move his principal place of residence more than 100 miles away from the Company's principal place of business. In consideration for the Executive's agreement Executive Retention Agreement Cylink Corporation Robert B. Fougner to continue his employment at the Company's offices on a full time basis, the Company shall provide Executive, at the Company's expense, with (i) suitable rental living quarters, cleaning services and utilities, for Executive's exclusive use, comparable to those previously provided for relocation of the Company's senior employees, and (ii) payment of all travel expenses for commuting (e.g. airfare, parking and local transportation) between the Executive's principal place of residence and the Company's offices. The Company further agrees to the Telecommuting Agreement attached to this Agreement. PART II - SEPARATION FROM SERVICE 5. Involuntary Termination. In the event Executive's employment is terminated either: (i) by the Company for any reason except for Good Cause, as that term is defined herein, or (ii) by the Executive for Good Reason, as that term is defined herein, then the Company agrees to compensate the Executive with the following remuneration: 5.1 Severance. The Company shall continue to pay Executive salary and bonus for a period of six months (the "Severance Period"), subject to tax withholdings as required by law, based on the highest amount paid by Executive over any twelve month period prior to notice of termination, pro rated monthly, for the duration of the Severance Period. At Executive's option, this severance may be paid in full at time of termination or over the Severance Period in accordance with the Company's standard payroll practices. In the event of termination under subsections (iv) or (v) of Section 8 ("Termination By Executive For Good Reason"), Executive's Severance Period shall be increased to an amount equal twelve (12) months salary and bonus calculated in accordance with this Section 5.1. 5.2 Benefits. The Company shall pay Executive's cost of exercising his rights under COBRA to continuing medical benefits during the Severance Period. 5.3 Consulting Agreement. The Company and Executive shall be deemed to have entered into the Consulting Agreement annexed hereto as Attachment "A" effective immediately as of the date of Executive's 2 Executive Retention Agreement Cylink Corporation Robert B. Fougner separation from service. Except as specifically provided in this Agreement, the Company shall be under no obligation to employ Executive under said Consulting Agreement. 5.4 Extension Of Stock Option Period. Subject to any other time limitations imposed by law, the ninety (90) day period for exercise of all outstanding Stock Options previously issued to Executive shall be extended for the duration of the Consulting Agreement. 5.5 Automobile. The automobile used exclusively by Executive for Company business (the Executive Automobile) shall be transferred to Executive, at the Company's expense, and Executive's severance payments shall be "grossed up" to cover payment of all taxes, fees and costs incurred by Executive as a consequence of this transfer. Executive is authorized to execute a transfer of title and registration on the Company's behalf necessary to effect this transfer. 5.6 Office Equipment. Executive shall be permitted to retain his personal laptop computer, peripheral equipment, and a copy of his work product (subject to his professional obligations and code of ethics concerning client confidentiality) 6. Termination For Good Cause. The following grounds shall serve as the sole basis for termination of Executive's employment by the Company for Good Cause: (i) a material breach by Executive of his duty of loyalty to the Company except when required by law, (ii) a persistent and continuing refusal to follow a written instruction addressed personally to Executive by the Company's Chief Executive Officer, except when Executive has a good faith basis for believing he is precluded by law from doing so, (iii) in the event of material misappropriation by Executive of Company assets for personal use (which shall specifically exclude disputes concerning Executive's handling of his expense accounts and personal property used regularly by Executive in conducting Company business), in the event Executive is convicted of a felony involving fraud (other than disputes concerning taxes) or serious bodily harm (other than those arising from a traffic related accident). 7. Notice Of Termination For Good Cause And Cure. Termination for Good Cause shall be deemed to have occurred ninety (90) days following Notice (as that term is 3 Executive Retention Agreement Cylink Corporation Robert B. Fougner defined herein) which sets forth specifically the grounds which constitute "Good Cause" and the Company's intention to terminate Executive's employment, unless prior to expiration of said ninety (90) day period Executive cures all such stated grounds or, in the event cure within said ninety period is impracticable, Executive commences to effect such cure and diligently continues to do so until cure is completed. 8. Termination By Executive For Good Reason. In the event Executive serves written notice to the Company of his resignation due to any one of the following reasons, then Executive's resignation shall be deemed to have occurred for Good Reason: (i) a material change in Executive's responsibility, including without limitation, either the assignment of any of Executive's responsibilities to other personnel or the addition of additional responsibility previously fulfilled by other personnel, without Executive's consent, (ii) a reduction in Executive's title or direct reporting relationship to the Chief Executive Officer of the Company or its parent corporation, if any (iii) a reduction in Executive's salary or denial of bonus payments commensurate with previous bonuses paid to Executive for satisfactory performance, unless such reduction is part of a fiscal plan by the Company for a period of less than twelve months due to the Company's severe financial under performance and provided such plan is applied equitably to all of the Company's officers, (iv) subject to Part III of this Agreement, the occurrence of a Change In Control or a Corporate Event, (v) a change in the Company's Chief Executive Officer, (vi) upon completion of Executive's Year 2001 Goals annexed to this First Amendment as Attachment "A" but, for purposes of this subsection (vi), no earlier than December January 1, 2002, or (vii) at any time after March 29, 2002. Any reduction in the benefits described in Section 4 ("Commuting and Telecommuting") shall be deemed a reduction in salary or bonus for purposes of subsection (iii) of this Section 7 (regardless of whether such reduction is part of a fiscal austerity program). 9. Notice Of Termination For Good Reason. Termination for Good Reason shall be deemed to have occurred thirty (30) days following Notice (as that term is defined herein) which sets forth specifically the grounds which constitute "Good Reason" and the Executive's intention to terminate his employment with the Company. 10. Death or Disability. In the event of Executive's (i) death, or (ii) Executive resigns due to a disability certified by a licensed physician which materially impairs Executive's ability to fulfill his responsibilities for a period exceeding ninety (90) days (a "Disability") then, subject to any other limitations which may be imposed by law, the period for 4 Executive Retention Agreement Cylink Corporation Robert B. Fougner exercise of Executive's Stock Options shall be extended until twelve (12) months from the date of death or commencement of Executive's disability. 11. Indemnification. In the event of Executive's separation from the Company's service for any reason, Executive shall continue to be indemnified and held harmless for claims arising out of or related in any way whatsoever to his activities as an officer of the Company to the full extent provided in the Company's Articles of Incorporation, By-Laws and in accordance with the Indemnification Agreement previously executed by the parties. In addition, the Company shall continue to cover Executive under the Company's Directors and Officers Liability Insurance for any claims related to such activities, regardless of whether the claim is asserted prior to or following the date of termination of Executive's employment. III. CHANGE OF CONTROL OR CORPORATE EVENT 12. Acceleration Of Stock Options. In the event of a Change in Control or a Corporate Event, all outstanding Stock Options issued to Executive shall immediately vest and become exercisable regardless of the date of grant. 13. Special Bonus. In the event of a Corporate Event, Executive shall receive a bonus equal to the cumulative amount of Executive's annual bonuses, consistent with the President's letter dated August 24, 1998, and salary that has been unpaid due to corporate austerity programs in effect since fiscal year 2000. IV. GENERAL PROVISIONS 14. 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. 5 Executive Retention Agreement Cylink Corporation Robert B. Fougner 15. Survival. The provisions of this Agreement which, by their terms, imply continuation beyond the end of Executive's employment shall survive notwithstanding any termination of Executive's employment. 16. 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 provisions of this Agreement or affecting the validity or enforceability of any of the terms of provisions of this Agreement in any other jurisdiction. 17. 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. 18. 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 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 Chief Executive Officer. Either party may change the notice address by notice in accordance with this Section. 19. 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, in such event, only on the condition that the assignee specifically assumes in writing all of the Company's obligations under this Agreement. 20. 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. 6 Executive Retention Agreement Cylink Corporation Robert B. Fougner 21. Arbitration. 21.1 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 Clara County, California. 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. 21.2 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. 21.3 Subject to the arbitration agreement stated in this Article, the federal and state courts located in Santa Clara 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. 7 Executive Retention Agreement Cylink Corporation Robert B. Fougner 22. 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. 23. 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: /s/ William P. Crowell ----------------------------- William P. Crowell President & CEO EXECUTIVE /s/ Robert B. Fougner ----------------------------- Robert B. Fougner 8 Document Form No. D3-301-006 Telecommuting Agreement Revision A October 30, 2001 - -------------------------------------------------------------------------------- TELECOMMUTING AGREEMENT This Telecommuting agreement is entered into between Cylink Corporation ("CYLINK") and Robert B. Fougner ("EMPLOYEE") effective as of April 1, 2002. 1. EMPLOYEE agrees to work at his/her home work space at 2475 Elevado Road, Vista, CA, approximately 1-2 weeks per month, subject to the necessity for Employee's participation in meetings at Cylink's facilities or other locations, as determined by Employee in his best judgment and reasonable discretion (generally referred to as "telecommuting"). 2. CYLINK will provide EMPLOYEE with: (List equipment department will provide) Personal computer, peripherals, fax/printer, dedicated teleco line, --------------------------------------------------------------------------- Broadband service provider, broadband receiver and installation --------------------------------------------------------------------------- --------------------------------------------------------------------------- 3. EMPLOYEE will provide: Facilities, liability insurance, office furnishings --------------------------------------------------------------------------- --------------------------------------------------------------------------- 4. CYLINK agrees to reimburse EMPLOYEE for reasonable business expenses, such as long distance telephone charges, according to the Telecommuting Policy and Finance Department guidelines. CYLINK will not reimburse EMPLOYEE for any other expenses incurred while telecommuting, such as public utility charges. 5. EMPLOYEE is required to comply with the department's record keeping practice regarding attendance and absence notification. 6. EMPLOYEE will be expected to meet all agreed upon performance measures and objectives. 7. The telecommuter shall hold harmless and otherwise indemnify Cylink for any injuries that occur to third parties, including members of telecommuter's family. By entering into the Telecommuting Agreement with Cylink, the employee represents and warrants that they have homeowner's liability insurance coverage for injuries to third parties for an amount not less than $250,000. 8. This Agreement is subject to Employee's Executive Retention Agreement, as Amended and Restated (the "Retention Agreement"). EMPLOYEE continues to be subject to all policies, procedures and guidelines of CYLINK and understands and agrees that certain policies and notices are available and accessible only at CYLINK'S offices. - -------------------------------------------------------------------------------- Cylink Corporation Proprietary Information Page 1 of 2 Document is Uncontrolled When Printed Document No. D3-301-006 Telecommuting Agreement Revision A October 30, 2001 - -------------------------------------------------------------------------------- 9. This Agreement is in effect for as long as Employee is employed under the Retention Agreement. 10. Upon completion of the telecommuting arrangement, EMPLOYEE (may keep/must return): (List equipment EMPLOYEE may keep or must return) --------------------------------------------------------------------------- Employee may keep all equipment provided by Cylink --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- 11. EMPLOYEE has read and understands the Cylink Corporation Telecommuting Policy which is specifically incorporated by reference into this Agreement. Dated: 4/1/02 /s/ [ILLEGIBLE] ---------------------- ---------------------- Employee Name CYLINK CORPORATION Dated: 4/18/02 by: /s/ [ILLEGIBLE] ---------------------- ------------------- Manager's Name - -------------------------------------------------------------------------------- Cylink Corporation Proprietary Information Page 2 of 2 Document is Uncontrolled When Printed ATTACHMENT "A" CYLINK CORPORATION CONSULTANT AGREEMENT THIS AGREEMENT, by and between CYLINK Corporation ("CYLINK"), a California corporation with principal offices located at 910 Hermosa Court, Sunnyvale, California, 94086, and ROBERT B. FOUGNER ("CONSULTANT") is made and entered into as of the date of termination of CONSULTANT's full time employment with CYLINK (the "Effective Date"), in accordance with the terms of CONSULTANT's Executive Retention Agreement dated as of June 1,1998, as Amended and Restated as of April 1, 2002. WITNESSETH In consideration of the undertakings set forth herein, the parties hereby agree with each other as follows: 1. APPOINTMENT CYLINK hereby appoints CONSULTANT, and the CONSULTANT hereby accepts such appointment, to accept employment from CYLINK as an independent consultant in the manner hereinafter described. 2. STATEMENT OF WORK A. At least once a month, CONSULTANT will report in writing to CYLINK on the progress of the work described in Subparagraph B, herein. 2. CONSULTANT agrees to accept employment for the Projects agreed to by both parties in writing from time to time. Nothing stated herein shall be construed as an obligation by either party to employ CONSULTANT for any specific Project. 3. TERM This Agreement commences as of the date of CONSULTANT's termination from CYLINK's full time employment, and shall continue for a period of two years, or until CONSULTANT exercises all of his outstanding options to purchase CYLINK stock, whichever shall first occur. 4. PAYMENT The amount of Payment shall be agreed by the parties in writing for each Project during the term of this Agreement. Any expenses incurred by CONSULTANT in performing the Statement of Work shall be the sole responsibility of CONSULTANT, unless otherwise agreed in the Project Statement. 1 Consultant Agreement Cylink Corporation Robert B. Fougner 5. RELATIONSHIP OF THE PARTIES CONSULTANT will serve as an independent contractor, and this Agreement will not be deemed to create a partnership, joint enterprise, or employment relationship between the parties nor a right to any of the rights or privileges otherwise resulting therefrom. The authority of the CONSULTANT is limited to the performance of the functions set forth in the Agreement. CONSULTANT shall make appropriate filings with taxing authorities as a self-employed entity, and shall be liable for all required payments to the local, State, Federal and other taxing authorities (including income tax and social security and SDI payments). CONSULTANT agrees to indemnify and hold CYLINK harmless for any claims for payments made by said taxing authorities resulting from performance of CONSULTANT pursuant to this Agreement. Neither party shall have authority to make any Agreement or incur any liability on behalf of the other party, nor shall either party be liable for any acts, omissions to act, contracts, commitments, promises or representations made by the other, except as specifically authorized in this Agreement or as the parties may otherwise agree. 6. OTHER OBLIGATIONS CONSULTANT represents and warrants to CYLINK that CONSULTANT is now under no contract or Agreement, with any other person, firm, association or corporation that will, in any manner, prevent CONSULTANT from giving, and CYLINK from receiving, the full benefit of CONSULTANT's services in accordance with the terms of this Agreement. CYLINK agrees that during the Term of this Agreement or any extension or renewal thereof, CONSULTANT may, after written notice to CYLINK, be employed by other persons, firms, or corporations engaged in the same or similar business as that of CYLINK, provided, however, that CONSULTANT will observe all of his ethical obligations the Code of Professional Responsibility governing attorney client confidentiality with respect to CYLINK's confidential information. CONSULTANT agrees that it will not solicit the services of any of the employees, consultants, suppliers or customers of CYLINK during the term of this Agreement and for six (6) months thereafter. 2 Consultant Agreement Cylink Corporation Robert B. Fougner 7. AUDIT AND RECORDS CYLINK or its duly authorized representatives shall have access at all reasonable times during the Term of this Agreement and for a period of three (3) years thereafter to CONSULTANT's records and all other documentation pertaining to CONSULTANT's services hereunder for the purpose of auditing and verifying the cost of such services. CONSULTANT shall also retain all documents, notes and records pertaining to this Agreement or any services rendered hereunder for a period of three (3) years. 8. NOTICES Any notice or demand required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or received by registered mail or certified mail, postage prepaid, at the following respective addresses (or such other address as the parties may agree to): CYLINK CONSULTANT ------ ---------- CYLINK Corporation 2475 Elevado Road 3131 Jay Street Vista, CA 92084 Santa Clara, CA. 95054 (408) 735-5800 760-941-4464 9. ASSIGNMENT This Agreement is not assignable without prior written approval of CYLINK and any attempt to assign any rights, duties or obligations herein without such approval shall be void. 10. GOVERNING LAW AND JURISDICTION This Agreement shall be interpreted, construed and governed by the laws of the State of California. The parties agree to submit all disputes of any kind whatsoever arising out of this Agreement to arbitration in accordance with the procedure stated in CONSULTANT's Executive Retention Agreement. 3 Consultant Agreement Cylink Corporation Robert B. Fougner 11. GENERAL PROVISIONS Deviations from these terms and conditions are not valid unless confirmed in writing by an authorized representative of both parties. All rights and remedies, whether conferred hereby or by any other instrument or law shall be cumulative, and may be exercised singularly or concurrently. Failure by either party to enforce any contract term shall not be deemed a waiver of future enforcement of that or any other term. If any provision of this Agreement is held invalid under any applicable statute or rule of law, such invalidity shall not affect any other provisions of the Agreement which can be given effect without the invalid provisions, and to this end the provisions of this Agreement are declared to be severable. Notwithstanding the above, such invalid provision or clause shall be construed to the extent possible, in accordance with the original intent of the parties. 4 FIRST AMENDMENT TO LEASE This First Amendment to Lease (the "Amendment") is dated as of August 5, 1999, for reference purposes only, and is made between Orchard Jay Investors, LLC, a California limited liability company, and David J. Brown (collectively "Landlord") and Cylink Corporation, a California corporation ("Tenant"), with reference to the following facts and circumstances, which are conclusively agreed between the parties: A. Landlord and Tenant are parties to a lease dated for reference purposes as of May 10, 1999 (the "Lease"). All capitalized words having an assigned meaning in the Lease shall continue to have such meaning in this Amendment unless explicitly modified. B. Pursuant to the Lease, Tenant has leased from Landlord two buildings located at 3131 and 3151 Jay Street, Santa Clara, California (the "Existing Premises"), within Landlord's Project. C. Tenant wishes to lease the remaining building of the Project, located at 3101 Jay Street, Santa Clara, California, on the terms set forth herein. Accordingly, Landlord and Tenant wish to amend the Lease on the terms and conditions set forth below. D. Landlord and Tenant acknowledge Tenant's intent to sublease a portion of the First Floor Space (as defined below) after execution hereof (but also agree that such subleasing shall be subject to the provisions of the Lease relating to subleasing and shall not be deemed approved hereby). Now, therefore, in consideration of all of the foregoing facts and circumstances, and for good and valuable consideration, the receipt of which is acknowledged by each party, Landlord and Tenant agree to and do amend the Lease as follows: 1. Description of Additional Space: Landlord's building at 3101 Jay Street, Santa Clara, California (the "3101 Building"), is a two-story building. As used herein, the first story of the 3101 First Amendment To Lease Page 2 of 16 - -------------------------------------------------------------------------------- Building, comprised of 22,099 square feet of gross leasable area, will be referred to as the "First Floor Space" and the second story of the 3101 Building, comprised of 24,625 square feet of gross leasable area, will be referred to as the "Second Floor Space". The First and Second Floor Spaces are shown on the drawing attached hereto as Exhibit "A". The First Floor Space does not include all space on the first floor of the 3101 Building. Rather, the cross-hatched portion of the first floor is not a part of the First Floor Space, but rather constitutes a lobby and access area which is a part of the Second Floor Space. 2. Demise of Additional Space Pursuant to the terms and conditions hereof, and of the Lease, Landlord hereby leases to Tenant (a) the First Floor Space, beginning on the First Floor Commencement Date (as defined herein) and for the term specified herein; and (b) the Second Floor Space, beginning on the Second Floor Commencement Date and for the term specified herein. Tenant acknowledges and agrees that Landlord is currently party to a lease of the Second Floor Space with TollBridge Technologies, Inc. ("TollBridge"), the current tenant, and that the lease of the Second Floor Space to Tenant is subject to the rights of TollBridge. Landlord is only required to deliver the Second Floor Space to Tenant after TollBridge's possessory interest terminates or is terminated and after Landlord has had a reasonable period of time to deliver the Second Floor Space in accordance with Paragraph 11 below. Landlord represents to Tenant that it is not contractually obligated to TollBridge for a term in excess of five (5) years from the commencement date of such lease (currently estimated to be September 1, 1999) plus whatever partial month may be added pursuant to the terms thereof if the commencement date is not the first day of a month. Landlord shall not agree to extend the term of such lease beyond such five (5) year term. When the commencement date of such lease is established, Landlord shall give Tenant written notice of such date. This Amendment creates an indivisible, single Lease of all of the space leased to Tenant, and shall not under any circumstances be deemed to be divisible into separate leases on the separate buildings. Except as herein provided, all of the terms and provisions of the Lease, including Landlord's - -------------------------------------------------------------------------------- First Amendment To Lease Page 3 of 16 - -------------------------------------------------------------------------------- remedies under the Lease, shall apply to all space leased as a whole, and if Landlord is allowed to terminate the Lease, such right is to be exercised as to all of the property. A termination which occurs at a time when Tenant is not in possession of the Second Floor Space shall nevertheless terminate Tenant's rights to the Second Floor Space. 3. Term for Additional Space The parties agree that this Lease as amended shall expire as to all space (including the Existing Premises, the First Floor Space, and the Second Floor Space) on the same day. Accordingly, the lease terms for the First and Second Floor Spaces shall be as follows. A. The Lease Term for the First Floor Space shall begin on the First Floor Commencement Date (as defined below) and run through the Expiration Date under the Lease (as defined therein) unless the Lease is sooner terminated under and pursuant to its terms. B. The Lease Term for the Second Floor Space shall begin on the Second Floor Commencement Date (as defined below) and run through the Expiration Date under the Lease (as defined therein) unless the Lease is sooner terminated under and pursuant to its terms. 4. Option To Extend Terms on Additional Space The First and Second Floor Spaces shall be subject to the options provided to Tenant pursuant to Paragraph 2 of the First Addendum to Lease. The option granted thereby shall be a single, indivisible option which may be exercised only as to the total space leased by Tenant (including the Existing Premises and the 3101 Building). Rent and other terms during any option term for the First and Second Floor Spaces shall be determined as set forth in said Paragraph 2. 5. Modification Of Option Provision Paragraph 2A of the option granted in Paragraph 2 of the First Addendum - -------------------------------------------------------------------------------- First Amendment To Lease Page 4 of 16 - -------------------------------------------------------------------------------- to the Lease is hereby modified to provide that the Earliest Exercise Date shall be the date which is 360 days before the date the Lease Term would end but for the exercise of the option and the Last Exercise Date shall be the date which is 270 days before the Lease Term would end but for the exercise of the option. 6. Effect On Right Of First Offer With the execution of this Amendment, Tenant's rights under Paragraph 1 of the First Addendum to Lease shall be eliminated, Tenant having obtained the rights to all of the First Offer Space described therein, and such Paragraph 1 shall be of no further force or effect. 7. Commencement Dates The Tenant Improvements for the First Floor Space shall be constructed according to the timeline which is attached hereto as Exhibit "B". If the Tenant Improvements are completed by October 1, 1999, or if they would have been so completed but for delays caused by Tenant in regard to the schedule presented in the timeline, then the First Floor Commencement Date shall be October 1, 1999. However, if Landlord's delay and failure to meet the schedule set forth in such timeline causes the First Floor Space to be completed after October 1, 1999, then the First Floor Commencement Date shall be the date of such completion. In the event that Landlord completes construction and tenders the First Floor Space to Tenant prior to the First Floor Commencement Date, Tenant shall have occupancy thereof without being obligated to pay Base Monthly Rent, and such occupancy shall be subject to all other terms and conditions of the Lease as amended hereby, including the duty to pay Tenant's Share of Operating Expenses. The Second Floor Commencement Date shall be the date on which Landlord shall tender the Second Floor Space to Tenant in compliance with the requirements for condition thereof set forth above and below. Landlord agrees to use reasonable efforts to obtain possession of the Second Floor Space from the then-occupant(s) thereof, by legal process if necessary, in the event of any holdover past the term of the TollBridge Lease. - -------------------------------------------------------------------------------- First Amendment To Lease Page 5 of 16 - -------------------------------------------------------------------------------- Landlord agrees that (1) it will provide Tenant with copies of any Notices of Default given to TollBridge; (2) it will provide Tenant with copies of any Complaint filed against TollBridge seeking possession of the Second Floor Space; (3) it will provide Tenant with copies of any Judgment entered in regard to such a Complaint; (4) it will keep Tenant apprised of progress on any eviction action against TollBridge with the intent that Tenant have good information on the likely date on which Landlord will gain possession of the Second Floor Space; (5) it will reasonably cooperate with Tenant in regard to marketing the Second Floor Space for sublease (without waiving the provisions of the Lease relating to subleases) in advance of Landlord's delivery of possession to Tenant; (6) it will give Tenant written notice when it obtains possession of the Second Floor Space from TollBridge; and (7) it will not, without Tenant's written agreement, tender the Second Floor Space to Tenant any sooner than (a) if such notice is given during the first two years following the First Floor Commencement Date, ninety (90) days after the date Landlord gives notice to Tenant that it has obtained possession of the Second Floor Space from TollBridge, and (b) if such notice is given thereafter, thirty (30) days after the date Landlord gives notice to Tenant that it has obtained possession of the Second Floor Space from TollBridge. Notwithstanding the foregoing, Tenant will not be entitled to any such notices or notice periods if TollBridge's lease ends by its terms on expiration of the lease term thereof. Upon delivery of the Second Floor Space, Landlord and Tenant shall sign a further Amendment to this Lease, in form reasonably prepared and approved by Landlord, reflecting the Second Floor Commencement Date and the acceptance of possession of the Second Floor Space pursuant hereto. However, the failure to execute such an Amendment shall not invalidate or otherwise affect the lease of such space. 8. Base Monthly Rent As used in both of the tables set forth in this Paragraph, Month 1 is the first full month after the Commencement Date under the Lease and Month 120 is the final month of the Lease. Notwithstanding this reference, however, Tenant shall begin to make Base Monthly Rent payments for the First Floor Space on the First Floor Commencement Date and for the Second Floor Space on the Second - -------------------------------------------------------------------------------- First Amendment To Lease Page 6 of 16 - -------------------------------------------------------------------------------- Floor Commencement Date, as more fully set forth in the examples which follow each table. The Base Monthly Rent from the First Floor Commencement Date until the Second Floor Space is tendered to Tenant shall be as set forth in the following Table I, where Column A represents the Base Monthly Rent under the Lease for the Existing Premises, Column B represents the additional Base Monthly Rent paid for occupancy of the First Floor Space, and Column C represents the sum of Columns A and B and thus the total Base Monthly Rent which is due: TABLE I: BASE MONTHLY RENT UNTIL SECOND FLOOR SPACE IS DELIVERED ----------------------------------------------------------- A B C ----------------------------------------------------------- Mo. Thru BMR/Existing BMR 1st Fl. Total BMR ----------------------------------------------------------- ----------------------------------------------------------- 1 12 $174,406.96 $47,512.85 $221,919.81 ----------------------------------------------------------- 13 24 $179,639.17 $48,617.80 $228,256.97 ----------------------------------------------------------- 25 36 $185,028.34 $49,722.75 $234,751.09 ----------------------------------------------------------- 37 48 $190,579.19 $50,827.70 $241,406.89 ----------------------------------------------------------- 49 60 $196,296.57 $51,932.65 $248,229.22 ----------------------------------------------------------- 61 72 $202,185.47 $53,037.60 $255,223.07 ----------------------------------------------------------- 73 84 $208,251.03 $54,142.55 $262,393.58 ----------------------------------------------------------- 85 96 $214,498.56 $55,247.50 $269,746.06 ----------------------------------------------------------- 97 108 $220,933.52 $56,352.45 $277,285.97 ----------------------------------------------------------- 109 120 $227,561.52 $57,457.40 $285,018.92 ----------------------------------------------------------- However, rent for the First Floor Space under Table I shall be applicable only from and after the First Floor Commencement Date. Thus, for purposes of example, if the First Floor Commencement Date occurs on the first day of Month 2 of the Lease, then the Base Monthly Rent for the Existing Premises for Month 1 would be $174,406.96 and the Base Monthly Rent for the First Floor Space would not be payable in Month 1, the Base Monthly Rent for the First Floor Space for Month 2 would be $47,512.85, the total Base Monthly Rent for Month 2 would be $221,919.81 and the rent for the following 118 months of the Lease - -------------------------------------------------------------------------------- First Amendment To Lease Page 7 of 16 - -------------------------------------------------------------------------------- for the First Floor Space and the Existing Premises would be as set forth for months 3 through 120 in Table I. In the event that, for any reason, the Commencement Date of the Lease for the Existing Premises does not occur until after First Floor Commencement Date, Tenant shall nonetheless begin paying Base Monthly Rent on the First Floor Space on the First Floor Commencement Date at the rate shown in Column B above, and shall continue at that rate through the Commencement Date under the Lease and thence for 120 months at the total rates shown in Table I, Column C. The Base Monthly Rent for all space leased from Landlord from the Second Floor Commencement Date until the end of the Lease Term shall be as set forth in the following Table II, where Column A represents the Base Monthly Rent under the Lease for the Existing Premises, Column B represents the additional Base Monthly Rent paid for occupancy of the First Floor Space, Column C represents the additional Bases Monthly Rent paid for occupancy of the Second Floor Space, and Column D represents the sum of Columns A, B, and C, and thus the total Base Monthly Rent which is due: TABLE II: BASE MONTHLY RENT AFTER SECOND FLOOR SPACE IS DELIVERED ---------------------------------------------------------------------------- A B C D ---------------------------------------------------------------------------- Mo. Thru BMR/ Existing BMR 1st Fl. BMR 2nd Fl. Total BMR ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 1 12 $174,406.96 $47,512.85 $52,943.75 $274,863.56 ---------------------------------------------------------------------------- 13 24 $179,639.17 $48,617.80 $54,175.00 $282,431.97 ---------------------------------------------------------------------------- 25 36 $185,028.34 $49,722.75 $55,406.25 $290,157.34 ---------------------------------------------------------------------------- 37 48 $190,579.19 $50,827.70 $56,637.50 $298,044.39 ---------------------------------------------------------------------------- 49 60 $196,296.57 $51,932.65 $57,868.75 $306,097.97 ---------------------------------------------------------------------------- 61 72 $202,185.47 $53,037.60 $59,100.00 $314,323.07 ---------------------------------------------------------------------------- 73 84 $208,251.03 $54,142.55 $60,331.25 $322,724.83 ---------------------------------------------------------------------------- 85 96 $214,498.56 $55,247.50 $61,562.50 $331,308.56 ---------------------------------------------------------------------------- 97 108 $220,933.52 $56,352.45 $62,793.75 $340,079.72 ---------------------------------------------------------------------------- 109 120 $227,561.52 $57,457.40 $64,025.00 $349,043.92 ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------- First Amendment To Lease Page 8 of 16 - -------------------------------------------------------------------------------- However, the amounts of rent shown in Table II shall be applicable only from and after the Second Floor Commencement Date. Thus, for purposes of example, if the Second Floor Commencement Date occurs on the first day of Month 61 of the Lease, then this Table II would not be applicable for months 1 through 60 of the Lease, the Base Monthly Rent for the Second Floor Space for the first month of occupancy (Month 61) would be $59,100.00 and the rent for the following 59 months of the Lease for the Second Floor Space would be as set forth for months 62 through 120 in the table, Column C. If the Second Floor Commencement Date does not fall on the first day of a month, then the partial month in which it falls shall be prorated. The amounts of Base Monthly Rent for the First Floor Space set forth under Column B in each of the above tables shall be in addition to all other sums payable under the Lease as Base Monthly Rent for the Existing Premises, and the amounts payable for the Second Floor Space under Column C of Table II shall be in addition to all amounts payable for the First Floor Space and the Existing Premises. All sums stated as Base Monthly Rent in this Paragraph shall be in addition to all Additional Rent, expenses, and other sums required to be paid by Tenant pursuant to the Lease as amended by this Amendment. 9. Tenant Improvements Landlord shall construct improvements for Tenant in the First Floor Space pursuant to the plans identified as follows: "Project 845 - Jay Street, Building A, First Floor Tenant Improvements, Permit 2, dated 1/12/99, by DES Architects" (the "Plans"), and at a cost to be paid by Landlord which is expected to be $447,561.00. Except as provided below in regard to changes to the Plans which cause increased expenses, or unless Tenant otherwise causes increased expense, Tenant will not be responsible for any cost of construction in excess of this amount. If Tenant wishes changes in the Plans, any increased expenses of constructing the improvements as a result of Tenant's requested changes shall be paid by Tenant under the provisions of Exhibit "B" to the Lease, the - -------------------------------------------------------------------------------- First Amendment To Lease Page 9 of 16 - -------------------------------------------------------------------------------- Improvement Agreement, Paragraph 5A and B. Such expenses shall include, but not be limited to, all hard construction costs, architecture costs, engineering costs, City fees, and any and all other expenses reasonable and normally incurred in conjunction with such construction. Such construction shall be conducted pursuant to the following additional terms and conditions: A. The provisions of Exhibit B, the Interior Improvement Agreement, shall not apply to construction of Tenant Improvements for Tenant in the First Floor Space except as specifically adopted and incorporated herein. B. Landlord and Tenant will consult on the Plans, and Tenant will have a reasonable opportunity to request and obtain changes therein, and will thereafter execute an approved set of Plans as modified and a memorandum approving any increase in costs occasioned by the modifications to the Plans, if any. Thereafter, any changes to the Plans will be made only on written Change Order, executed by both parties and containing agreement to Tenant's payment of additional costs of such Change Orders. In each case, at the time of agreement to the changes, Tenant will pay Landlord the agreed amount of additional cost at the times specified above C. In the event of any changes or modifications to the Plans which increase the cost of construction, Tenant will pay Landlord, in addition to all other amounts specified hereunder, Landlord's construction management fee of Four Percent (4%) of the hard costs of construction on such increased costs. D. Upon Landlord's completion of the Tenant Improvements called for hereby, Landlord and Tenant shall walk through the First Floor Space, using reasonable efforts to locate and identify any defective or incomplete construction. Thereafter, an agreement shall be executed which will contain a list of all "punch list" items which the parties agree are to be corrected by Landlord, and - -------------------------------------------------------------------------------- First Amendment To Lease Page 10 of 16 - -------------------------------------------------------------------------------- Landlord will use reasonable diligence to correct and complete same. E. Landlord and Tenant adopt and incorporate Paragraphs 9 and 12 of the Interior Improvement Agreement as applicable to the Tenant Improvements being constructed in the First Floor Space by Landlord. If there is any inconsistency between this Amendment and the Lease (including the Interior Improvement Agreement), this Amendment shall prevail. F. Tenant shall not be entitled to any credit or payment or future construction of improvements if the improvements shown on the Plans, with or without any further changes or adjustments, are constructed by Landlord at a lesser cost than set forth herein. Notwithstanding the foregoing, in the event that, after the accounting called for by Paragraph 5C of the Interior Improvement Agreement, Exhibit B to the Lease, it is determined that amounts paid by Tenant exceed what is due hereunder, Landlord shall refund the overpayment. 10. Warranty for Building Shell and Grounds The limited warranty provided by Paragraph 8 of the First Addendum to Lease shall apply to the 3101 Building and surrounding parking, landscaping, and grounds as they existed prior to construction of the Tenant Improvements referenced in Paragraph 9 above and prior to the construction of the TollBridge tenant improvements referenced in Paragraph 11 below. 11. Condition of Second Floor Space Tenant has reviewed the plans for construction of tenant improvements in the Second Floor Space for the existing tenant, which are described as follows: "Project 845 - Jay Street, Building A, Second Floor Tenant Improvements, Permit 3 Re-submittal, dated 7/30/99, by DES Architects". Tenant will accept the Second Floor Space for the term created hereby in their "AS-IS" condition with the construction set forth in such plans (and including reasonable changes - -------------------------------------------------------------------------------- First Amendment To Lease Page 11 of 16 - -------------------------------------------------------------------------------- made by Landlord by agreement with TollBridge, or its successors during the course of construction) completed at Landlord's expense, with all latent and patent faults, without warranty or obligation on the part of Landlord to provide any further interior improvements or tenant improvement allowances. Notwithstanding the foregoing, in the event that Tenant takes possession of the Second Floor Space prior to the expiration of said warranties (as set forth below in this paragraph), Tenant shall be entitled to the same warranties with regard to the Second Floor Space as Landlord granted to Tenant under Paragraph 9 of the Interior Improvement Agreement, Exhibit B to the Lease, for a period beginning on the Commencement Date for the Existing Premises or the commencement date of the TollBridge lease, whichever is earlier, and running for eighteen (18) months thereafter. Tenant shall have no obligation to restore the Second Floor Space to a better condition than it's condition when it was delivered to Tenant. Upon surrender of possession of the Second Floor Space by the current tenant thereof, Landlord will attempt to cause the person or persons obligated under the Lease with TollBridge to return the Second Floor Space in accordance with the requirements of the current tenant's lease. If the current tenant does not turn the Second Floor Space over to Landlord in the required condition, then Landlord will remove or cause to be removed all items of personal property which are not attached to the premises; will cause the Second Floor Space to be cleaned to "broom clean" condition; and, to the extent that Landlord has funds available pursuant to the current Tenant's security deposit or from available insurance proceeds actually received, Landlord will use such funds to restore the Second Floor Space to the condition in which the current tenant is required to return it. Landlord shall not be required to expend its own funds beyond what is available through the current tenant's security deposit for such restoration, and may reserve and not spend on restoration sufficient funds from the security deposit to pay for any rent loss during the period between turnover of possession by the current tenant and the Second Floor Commencement Date. 12. Increased Security Deposit; Amendment to Security Deposit Clause Tenant has provided to Landlord, on execution of the Lease, a Security Deposit in the total sum of $827,561.22, of which $227,561.22 (the "Cash Deposit") is a cash deposit and the remaining $600,000.00 (the "Additional - -------------------------------------------------------------------------------- First Amendment To Lease Page 12 of 16 - -------------------------------------------------------------------------------- Deposit") is currently made by a letter of credit. On execution hereof, Tenant shall deposit an additional cash deposit as part of the Cash Deposit in the sum of $57,457.40. In addition thereto, Tenant shall deposit a letter of credit or cash to increase the Additional Deposit from $600,000.00 to $1,400,000.00. Following these deposits, the total Security Deposit, including Cash Deposit and Additional Deposit, will be $1,685,018.60. Upon delivery of the Second Floor Space, Tenant shall further increase the Cash Deposit by a further cash deposit of $64,025.00, with the result that the total Security Deposit, including Cash Deposit and Additional Deposit, will be increased to $1,749,043.60. The foregoing deposits shall be held, treated, and applied pursuant to the provisions of the Lease relating thereto, as amended hereby. Paragraph 3B of the First Addendum to Lease is deleted hereby, and the following is substituted therefore: B. Notwithstanding the foregoing, the Additional Deposit, whether then held as a cash or letter of credit deposit, shall be released by Landlord if (1) four years have passed after the Commencement Date under the Lease and (2) Tenant has achieved all of the following goals during the calendar quarters immediately preceding the date of release 1. Net Income per Tenant's audited financial statements has been profitable each quarter for six consecutive calendar quarters immediately preceding the release; 2 Income from Continuing Operations per Tenant's audited financial statements has been profitable each quarter for six consecutive calendar quarters immediately preceding the release; 3. The aggregate total of profit for Net Income and Income from Continuing Operations per - -------------------------------------------------------------------------------- First Amendment To Lease Page 13 of 16 - -------------------------------------------------------------------------------- Tenant's audited financial statements for the six immediately preceding calendar quarters as shown by Tenant's audited financials is at least $15,000,000.00. 4. Tenant is not then in default past any applicable cure period provided in the Lease In addition, the achievement of these goals must be documented to Landlord in form and substance reasonably approved by Landlord, and Tenant's audited financials must be in accordance with generally accepted accounting principles, consistently applied. Release of the Additional Deposit shall not take place until at least four years have passed after the Commencement Date under the Lease. 13. Tenant's Share Beginning on the First Floor Commencement Date, the Tenant's Share under the Lease shall remain 100% of the Existing Premises, shall be increased to 47.30% of the 3101 Building, and shall be increased to 82.73% of the Project. In the event Tenant takes early occupancy of the First Floor Space prior to the First Floor Commencement Date, then the Tenant's Share shall be so increased from the first day of early occupancy. Notwithstanding the foregoing, until the Commencement Date for the Existing Premises (if such Commencement Date is later than the First Floor Commencement Date), Tenant's Share of the Existing Premises shall be 0% and Tenant's Share of the Project shall be determined solely by the space of which it has possession, if any.. Beginning on the Second Floor Commencement Date, the Tenant's Share under the Lease shall be 100% of each of the three Buildings (the 3101 Building and the Existing Premises) and 100% of the Project. 14. Parking Effective on the First Floor Commencement Date, Tenant's Allocated Parking Stalls shall be increased to 445 stalls. Effective on the Second Floor Commencement Date, Tenant's Allocated Parking Stalls shall be all on-site - -------------------------------------------------------------------------------- First Amendment To Lease Page 14 of 16 - -------------------------------------------------------------------------------- parking stalls. From and after the Second Floor Commencement Date, Tenant may designate a further five (5) parking stalls for use as "Visitor" spaces, subject to all of the terms and provisions of the Lease and in particular, to Paragraph 7 of the First Addendum to Lease. 15. Continuing Obligation Except as expressly set forth in this Amendment, all terms and conditions of the Lease remain in full force and effect, and all terms and conditions of the Lease are incorporated herein as though set forth at length. 16. Effect of Amendment This Amendment modifies the Lease. In the event of any conflict or discrepancy between the Lease and/or any other previous documents between the parties and the provisions of this Amendment, then the provisions of this Amendment shall control. Except as modified herein, the Lease shall remain in full force and effect. 17. Authority Each individual executing this Amendment represents and warrants that he or she is duly authorized to and does execute and deliver this Amendment pursuant to express authority from Tenant or Landlord, as applicable, pursuant to and in accordance with the By-Laws and the other organic documents of the signing party. 18. Entire Agreement The Lease, as modified by this Amendment, constitutes and contains the entire agreement between the parties, and there are no binding agreements or representations between the parties except as expressed herein. Tenant acknowledges that neither Landlord nor Landlord's Agents have made any legally binding representations or warranties as to any matter except for such matters which are expressly set forth herein and in the Lease, including any representations or warranties relating to the condition of the Premises or the improvements thereto or the suitability of the Premises or the Project for Tenant's - -------------------------------------------------------------------------------- First Amendment To Lease Page Page 15 of l6 - -------------------------------------------------------------------------------- business. 19. Commissions Commissions on this transaction will be subject to the provisions of Paragraph 15.13 of the Lease, and commissions to Retained Real Estate Brokers will be paid by Landlord pursuant to Landlord's separate written agreement with such Brokers. 20. Subordination and Non-Disturbance Agreement Not later than the First Floor Commencement Date, Landlord will obtain for Tenant the written agreement of Wells Fargo Bank incorporating this Amendment into the Subordination and Non-Disturbance Agreement executed by said lender with regard to the original Lease. 21. Elevator Access Tenant acknowledges that, from time to time during the period when the Second Floor Space is not under Tenant's control, the tenant thereof, currently TollBridge, will be required to service, maintain, and when necessary repair the elevator, which requires access to elevator facilities through a portion of the First Floor Space. Tenant agrees that during such period, Tenant will cooperate reasonably with the Second Floor Space tenant and its vendors and service providers to allow such service, maintenance, and repair at reasonable times and on reasonable conditions. Tenant shall not be responsible for any damage caused by such entry and access into the First Floor Space. - -------------------------------------------------------------------------------- First Amendment To Lease Page 16 of 16 - -------------------------------------------------------------------------------- LANDLORD: TENANT: Orchard Jay Investors, LLC, a Cylink Corporation, a California California limited liability company corporation By: ___________________ By: /s/ [ILLEGIBLE] Michael J. Biggar ------------------------ Managing Member /s/ [ILLEGIBLE] Dated: ___________________ --------------------------- [Print Title] CFO David J. Brown --------------------------- [Print Title] By: /s/ Robert B. Fougner ------------------------ By: Orchard Jay Investors, LLC his authorized agent Robert B. Fougner --------------------------- [Print Name] By: _________________________ Corporate Secretary Michael J. Biggar --------------------------- Managing Member [Print Title] Dated: ______________________ - -------------------------------------------------------------------------------- Exhibit A First Floor Space, 3101 Building [GRAPHIC OMITTED] Not a part of First Floor Space Page One of Two Exhibit A Second Floor Space, 3101 Building [GRAPHIC OMITTED] Page Two of Two Exhibit B Schedule of Performance First Floor Tenant Improvements Action Responsible Items Due Date Party ------ -------- ----------- A. Delivery to Completed. Tenant Landlord of Tenant's Interior Interior B. Delivery to Completed. Landlord Tenant of Revised First Floor Plans C. Approval by 8/10/99 Tenant Tenant of Revised First Floor Plans D. Delivery to Tenant 8/11/99 Landlord of Constuction Cost Estimate for Revised Plans E. Approval by Tenant 8/13/99 Tenant of Construction Costs for Revised Plans F. Issuance of 8/9/99 Landlord Building Permit for Original Plans G. Commencement of 8/23/99 Landlord construction of First Floor Improvements H. Issuance of Building 8/31/99 Landlord Permit for Revised Plans I. Substantial 10/1/99 Landlord Completion of First Floor Improvements EX-10.4 9 p16085_10-4.txt EMPLOYMENT AGREEMENT - BREEDEN EMPLOYMENT AGREEMENT Agreement made as of the 23rd day of July, 2001 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Mr. Philip Breeden residing at 57 San Benito Ave., Atherton, CA 94027 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as Vice President Engineering, 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 Effective Date, as its Vice President Engineering, and in such other executive capacities assigned by the Chief Executive Officer 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 1 Employment Agreement Phillip Breeden July 23, 2001 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 Chief Executive Officer, 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 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 the "Effective Date" and terminating, unless otherwise terminated earlier as provided in this Agreement, on July 23, 2006 (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 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 expire at the end of the then 2 Employment Agreement Phillip Breeden July 23, 2001 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 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 $185,000 ("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 Chief Executive Officer, but solely in his discretion and not as an implied obligation of this Agreement. Executive's Base Salary may also be decreased from time to time by the Chief Executive Officer in his sole discretion based on his 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 Employment Agreement Phillip Breeden July 23, 2001 3.3. In addition to the Base Salary, for each calendar year completed during the Employment Term, the Company shall pay to Executive an annual bonus of $70,000 based, in part, on achievement of performance goals which shall be determined by the Chief Executive Officer in consultation with the Executive. The actual bonus may vary in the sole discretion of the Chief Executive Officer based on his assessment of the Executive's performance (and subject to any Company austerity plans). 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. 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 4 Employment Agreement Phillip Breeden July 23, 2001 Agreement, and (iii) all other benefits provided under this Agreement. 5. Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee"), or its delegee, authorized granting to Executive on September 4, 2001, options to purchase 170,000 shares of Company common stock at an exercise price of $0.54 per share, 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, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a two (2) year period on the last day of each month during such period, provided the Executive is employed by the Company on each vesting date. 5.2. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of all of the Executive's then unvested options (the "Accelerated Options") under all option agreements granted during the period of his employment, subject to the provisions of this Section 5: 5.2.1. In the event of a "Corporate Transaction" the Accelerated Options shall 5 Employment Agreement Phillip Breeden July 23, 2001 fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 5.2.2. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan and allow them to continue vesting in accordance with their terms, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, 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 common shareholders in the Corporate Transaction, and 5.2.3. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated 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. 5.3. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 Executive for Good Reason. For purposes of the 6 Employment Agreement Phillip Breeden July 23, 2001 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". 6. Paid Time Off ("PTO"). During the Employment Term, Executive shall be entitled to PTO, including vacation, equal to the greater of: (i) fifteen days plus one additional day for each year of employment by the Company, or (ii) twenty days plus one additional day for each year of employment under this Agreement; but in no event more than 25 days, in each full calendar year (prorated for any partial year) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 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 Chief Executive Officer to the Executive for 7 Employment Agreement Phillip Breeden July 23, 2001 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 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 Chief Executive Officer 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 or is contrary to a specific provision of published Professional Standards applicable to Executive's duties, 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 8 Employment Agreement Phillip Breeden July 23, 2001 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, (F) the Executive's inability to competently perform his assigned duties, or (G) any other material breach by the Executive of this Agreement that remains uncured for thirty (30) 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 any Corporate Transaction or Change in Control, subsections (F) and (G) shall be deemed eliminated and without force or effect. 7.1.3. Upon written notice by the Chief Executive Officer to the Executive, if the Executive (as determined by the Chief Executive Officer 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 9 Employment Agreement Phillip Breeden July 23, 2001 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 Chief Executive Officer 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 any material breach of any provision of this Agreement by the Company, including but not limited to (i) any reduction in Executive's duties or responsibilities as Vice President of Engineering (other than those duties which may no longer be required if the Company ceases to be a publicly traded company) or (ii) any demand that he relocate his principal residence beyond any of the counties immediately adjacent to San Francisco Bay, without his consent. 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 Chief Executive Officer 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 10 Employment Agreement Phillip Breeden July 23, 2001 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 Chief Executive Officer 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 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, 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 11 Employment Agreement Phillip Breeden July 23, 2001 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. Thirteen bi-weekly installments of severance pay each in an amount equal to one twenty-sixth of the then sum of his Base Salary and annual bonus, based on the amount paid for service during the prior six month period (or, in the event of a corporate austerity program applied to Executive together with other officers of the Company, then the amount that otherwise would have been paid in accordance with Section 3.3), pro rated if necessary, and subject to the offset of any amounts due, and 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 12 Employment Agreement Phillip Breeden July 23, 2001 compete or solicit the Company's customers or employees. 7.3.3. If the Employment Term ends early on account of Disability, Executive shall be entitled to receive only such amounts as he otherwise be entitled to under any disability policy sponsored by the Company in accordance with this Agreement. 7.4. 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 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. 7.4.1. All aforesaid amounts in this Section 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. 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, 13 Employment Agreement Phillip Breeden July 23, 2001 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. 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. 14 Employment Agreement Phillip Breeden July 23, 2001 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 Chief Executive Officer 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 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 15 Employment Agreement Phillip Breeden July 23, 2001 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 one (1) year 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, officer, employee, director, joint venturer, 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 goods, services or intangible property which is similar to any of those marketed or developed 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 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 Chief Executive Officer, or (iv) Executive's employment by a non Competitive division (or other business unit) of a company which is in Competition with 16 Employment Agreement Phillip Breeden July 23, 2001 the Company so long as Executive is not involved with the competitive division (or other business unit). 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 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. 17 Employment Agreement Phillip Breeden July 23, 2001 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. 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, Executive will 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. 18 Employment Agreement Phillip Breeden July 23, 2001 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. 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). 19 Employment Agreement Phillip Breeden July 23, 2001 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 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 20 Employment Agreement Phillip Breeden July 23, 2001 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. 16. Entire Agreement; Modification. This Agreement, and all documents incorporated herein, constitute 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. 21 Employment Agreement Phillip Breeden July 23, 2001 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 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. 22 Employment Agreement Phillip Breeden July 23, 2001 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 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 23 Employment Agreement Phillip Breeden July 23, 2001 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 Clara County, California. 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 Clara 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 24 Employment Agreement Phillip Breeden July 23, 2001 assist the arbitrators in performing their arbitral duties, to confirm their award and to enforce any such award as a judgement of said court. 24. Headings And Gender Neutrality. 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. The use of either masculine or feminine pronouns in this Agreement are merely a convenience of the draftsperson and shall be not be deemed determinative of any person's gender. 25. 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. 25 Employment Agreement Phillip Breeden July 23, 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: /s/ William P. Crowell ------------------------ Name: William P. Crowell Title: CEO and President EXECUTIVE /s/ Philip Breeden ------------------ Philip Breeden 26 EX-10.5 10 p16085_10-5.txt EMPLOYMENT AGREEMENT - WALSH EMPLOYMENT AGREEMENT Agreement made as of the 13th day of March 2000 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Richard F. Walsh residing at 40 Glen Eyrie Ave. #26, San Jose CA 95125 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as Vice President, Chief Information 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 Agreement Richard F. Walsh March 13, 2000 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 Effective Date, as its Vice President, Chief Information Officer, and in such other executive capacities assigned by the Chief Executive Officer 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 Chief Executive Officer, 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 provided that these activities do not materially interfere with Executive's obligations hereunder. 2 Employment Agreement Richard F. Walsh March 13, 2000 2. Term of Employment. Executive's employment under this Agreement shall be for a term (the "Employment Term") commencing on the "Effective Date" and terminating, unless otherwise terminated earlier as provided in this Agreement, on March 13, 2005 (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 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 in this Agreement shall include all such extensions. The Executive's obligations concerning the Company's Inventions, Confidential Information, not to 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 $150,000 ("Base Salary"). Such Base Salary shall 3 Employment Agreement Richard F. Walsh March 13, 2000 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 Chief Executive Officer, but solely in his discretion and not as an implied obligation of this Agreement. Executive's Base Salary may also be decreased from time to time by the Chief Executive Officer in his sole discretion based on his 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 Employment Term, the Company shall pay to Executive an annual bonus of $40,000 based, in part, on achievement of performance goals which shall be determined by the Chief Executive Officer in consultation with the Executive. The actual bonus may vary in the sole discretion of the Chief Executive Officer based on his assessment of the Executive's performance. 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 4 Employment Agreement Richard F. Walsh March 13, 2000 business expenses, subject to the Company's requirements concerning reporting and documentation of such expenses. 4. Benefits. 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. 5. Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee"), or its delegee, authorized granting to Executive on March 31, 2000, options to purchase 125,000 shares of Company common stock at an exercise price of $14.50 per share, 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, shall provide that (i) they shall be for a 5 Employment Agreement Richard F. Walsh March 13, 2000 maximum six (6) year term from the grant date, and (ii) shall vest and become exercisable ratably over a four (4) 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 five percent (25%) 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. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of a certain percentage of the Executive's then unvested options (the "Accelerated Options"), subject to the provisions of this Section 5, with the percentage being determined as follows: 5.2.1. If the Corporate Transaction or Change in Control occurs on or after one year from the Effective Date, the Accelerated Options shall equal 100% of the Executive's then unvested Options. 5.2.2. If the Corporate Transaction or Change in Control occurs within less than one year from the Effective Date, the Accelerated Options shall equal 50% of the Executive's then unvested Options. 5.3. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 6 Employment Agreement Richard F. Walsh March 13, 2000 5.3.1. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, 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 common shareholders in the Corporate Transaction, and 5.3.2. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated Options on the earlier of: (i) the first anniversary of 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. 5.4. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 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 80% of the Company's outstanding 7 Employment Agreement Richard F. Walsh March 13, 2000 securities by any entity or related group of entities. 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) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 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 Chief Executive Officer 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 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 Chief Executive Officer consistent with this Agreement, provided the refusal to follow a 8 Employment Agreement Richard F. Walsh March 13, 2000 direction shall not be Cause if the Executive in good faith believes that such direction is not legal or is contrary to a specific provision of published Professional Standards applicable to Executive's duties, 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 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, or (G) any other material breach by the Executive of this Agreement that remains uncured for thirty (30) 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 9 Employment Agreement Richard F. Walsh March 13, 2000 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 any Corporate Transaction or Change in Control, subsections (F) and (G) shall be deemed eliminated and without force or effect. 7.1.3. Upon written notice by the Chief Executive Officer to the Executive, if the Executive (as determined by the Chief Executive Officer 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. 7.1.4. Upon written notice by the Executive to the Chief Executive Officer 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 any material breach of any provision of this Agreement by the Company, including but not limited to (i) any reduction in Executive's duties or responsibilities as Vice President, 10 Employment Agreement Richard F. Walsh March 13, 2000 Chief Information Officer (other than those duties which may no longer be required if the Company ceases to be a publicly traded company) or (ii) any demand that he relocate his principal residence beyond any of the counties immediately adjacent to San Francisco Bay, without his consent. 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 Chief Executive Officer 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 Chief Executive Officer in accordance with this Agreement, for the calendar year of his termination, (iii) reimbursed for any expenses incurred in connection with the business 11 Employment Agreement Richard F. Walsh March 13, 2000 of the 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, 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 Attachment B hereto, which shall survive) in such form as reasonably requested by the Company: 7.3.1. Six (6) 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 six month period (or, in the event of a corporate austerity program applied to Executive together with other officers of the Company, then the amount that otherwise would have 12 Employment Agreement Richard F. Walsh March 13, 2000 been paid in accordance with Section 3.3), pro rated if necessary, and subject to the offset of any amounts due, and 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. 7.3.3. If the Employment Term ends early on account of Disability, Executive shall be entitled to receive only such amounts as he otherwise be entitled to under any disability policy sponsored by the Company in accordance with this Agreement. 7.4. 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 13 Employment Agreement Richard F. Walsh March 13, 2000 Term, and (ii) to the limited 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. 7.4.1. All aforesaid amounts in this Section 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. 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 14 Employment Agreement Richard F. Walsh March 13, 2000 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. 9. Inventions and Other Intellectual Property. The Company and Executive agree to promptly execute the Proprietary Information and Invention Agreement, annexed hereto as Attachment C, 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 Chief Executive Officer 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 15 Employment Agreement Richard F. Walsh March 13, 2000 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 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 one (1) year 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, officer, employee, director, joint venturer, lender, consultant or in 16 Employment Agreement Richard F. Walsh March 13, 2000 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 goods, services or intangible property which is similar to any of those marketed or developed 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 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 Chief Executive Officer, 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 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 17 Employment Agreement Richard F. Walsh March 13, 2000 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. 18 Employment Agreement Richard F. Walsh March 13, 2000 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, Executive will 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. 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 19 Employment Agreement Richard F. Walsh March 13, 2000 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 accordance with the Indemnification Agreement annexed as Attachment B 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, 20 Employment Agreement Richard F. Walsh March 13, 2000 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. 16. Entire Agreement; Modification. This Agreement, and all documents incorporated herein, constitute 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 21 Employment Agreement Richard F. Walsh March 13, 2000 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 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. 22 Employment Agreement Richard F. Walsh March 13, 2000 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 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 23 Employment Agreement Richard F. Walsh March 13, 2000 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 Clara County, California. 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. 24 Employment Agreement Richard F. Walsh March 13, 2000 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 Clara 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 judgement of said court. 24. 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. 25. 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. 25 Employment Agreement Richard F. Walsh March 13, 2000 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: /s/ William P. Crowell -------------------------- Name: William P. Crowell Title: CEO and President EXECUTIVE /s/ Richard F. Walsh -------------------------- Richard F. Walsh 26 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment is made as of the 1st day of January, 2002 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Richard F. Walsh, residing at 40 Glen Eyrie Ave. #26, San Jose CA 95125 (the "Executive"). WHEREFORE, the Company and Executive executed an Employment Agreement (the "Agreement") having an Effective Date of March 13, 2000; WHEREFORE, the Company has revised some of the standard terms of its executive Employment Agreements; NOW THERFORE, the parties agree as follows: 1. Article 5 of the Agreement is revised to state: Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee") authorized granting to Executive on March 31, 2000, options to purchase 125,000 shares of Company common stock at an exercise price of $14.50 per share, 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 First Amendment Employment Agreement Richard F. Walsh Section 5, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a four (4) 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 five percent (25%) 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. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of all of the Executive's then unvested options (the "Accelerated Options") under all option agreements granted during the period of his employment, subject to the provisions of this Section 5: 5.2.1. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 5.2.2. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan and allow them to continue vesting in accordance with their terms, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, to purchase publicly traded shares in the successor corporation or its Parent by exchanging them at the same rate of conversion offered to the 28 First Amendment Employment Agreement Richard F. Walsh Company's common shareholders in the Corporate Transaction, and 5.2.3. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated 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. 5.3. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 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 the Attachment to this Amendment. 29 First Amendment Employment Agreement Richard F. Walsh 2. Article 6 is revised to state: Paid Time Off ("PTO"). During the Employment Term, Executive shall be entitled to PTO, including vacation, equal to the greater of: (i) fifteen days plus one additional day for each year of employment by the Company, or (ii) twenty days plus one additional day for each year of employment under this Agreement; but in no event more than 25 days, in each full calendar year (prorated for any partial year) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 3. All other terms and conditions of the Agreement shall remain in full force and effect as if restated in their entirety herein. 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: /s/ R. Fougner --------------------- Name: R. Fougner Title: VP, Corporate Secretary 30 First Amendment Employment Agreement Richard F. Walsh EXECUTIVE By /s/ Richard F. Walsh --------------------- Richard F. Walsh 31 EX-10.6 11 p16085_10-6.txt EMPLOYMENT AGREEMENT - CHILLINGWORTH EMPLOYMENT AGREEMENT Agreement made as of the 6th day of November, 2000 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and R. Christopher Chillingworth residing at 46 W. Fourth Street, Avenue #106, San Mateo, CA 94402 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as Vice President Finance and Chief Financial 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 Effective Date, as its Vice President Finance and Chief Financial Officer, and in such other executive capacities assigned by the Chief Executive Officer 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 1 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Chief Executive Officer, 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 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 the "Effective Date" and terminating, unless otherwise terminated earlier as provided in this Agreement, on November 6, 2005 (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 perio2ds (the "Additional Terms"), unless, at least thirty (30) days prior to the end of the 2 Employment Agreement R. Christopher Chillingworth November 6, 2000 Original Employment Term or any Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall expire 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 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 $175,000 ("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 Chief Executive Officer, but solely in his discretion and not as an implied obligation of this Agreement. Executive's Base Salary may also be decreased from time to time by the Chief Executive Officer in his sole discretion based on his assessment of the Executive's performance or changes in the scope of Executive's responsibilities, 3 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Employment Term, the Company shall pay to Executive an annual bonus of $75,000 based, in part, on achievement of performance goals which shall be determined by the Chief Executive Officer in consultation with the Executive. The actual bonus may vary in the sole discretion of the Chief Executive Officer based on his assessment of the Executive's performance (and subject to any Company austerity plans). 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. 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 4 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 5. Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee") authorized granting to Executive on November 6, 2000, options to purchase 100,000 shares of Company common stock at an exercise price of $2.625 per share, 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, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a four (4) 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 five percent (25%) of the options shall be deemed exercisable immediately. 5.2. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of all of the Executive's then unvested options (the "Accelerated Options") under all option 5 Employment Agreement R. Christopher Chillingworth November 6, 2000 agreements granted during the period of his employment, subject to the provisions of this Section 5: 5.2.1. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 5.2.2. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan and allow them to continue vesting in accordance with their terms, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, 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 common shareholders in the Corporate Transaction, and 5.2.3. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated 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. 5.3. In the event of a Change In Control, the Accelerated Options shall vest on 6 Employment Agreement R. Christopher Chillingworth November 6, 2000 the earlier of: (i) the first anniversary of 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 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". 6. Paid Time Off ("PTO"). During the Employment Term, Executive shall be entitled to PTO, including vacation, equal to the greater of: (i) fifteen days plus one additional day for each of employment by the Company, or (ii) twenty days plus one additional day for each year of employment under this Agreement; but in no event more than 25 days, in each full calendar year (prorated for any partial year) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 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 7 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Chief Executive Officer 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 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 Chief Executive Officer 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 or is contrary to a specific provision of published Professional Standards applicable to Executive's duties, 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 8 Employment Agreement R. Christopher Chillingworth November 6, 2000 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, (F) the Executive's inability to competently perform his assigned duties, or (G) any other material breach by the Executive of this Agreement that remains uncured for thirty (30) 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 any Corporate Transaction or Change in Control, subsections (F) and (G) shall be deemed eliminated and without force or effect. 7.1.3. Upon written notice by the Chief Executive Officer to the Executive, if the Executive (as determined by the Chief Executive Officer in good faith) fails to regularly perform the material duties hereunder by reason of mental or 9 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 7.1.4. Upon written notice by the Executive to the Chief Executive Officer 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 any material breach of any provision of this Agreement by the Company, including but not limited to (i) any reduction in Executive's duties or responsibilities as Vice President of Finance and Chief Financial Officer (other than those duties which may no longer be required if the Company ceases to be a publicly traded company) or (ii) any demand that he relocate his principal residence beyond any of the counties immediately adjacent to San Francisco Bay, without his consent. 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 Chief Executive Officer without Cause. 10 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Chief Executive Officer 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 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, and prior to the Executive's sixty-fifth birthday, the Executive shall receive in full settlement of all amounts owed him, 11 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. Thirteen bi-weekly installments of severance pay each in an amount equal to one twenty-sixth of the then sum of his Base Salary and annual bonus, based on the amount paid for service during the prior six month period (or, in the event of a corporate austerity program applied to Executive together with other officers of the Company, then the amount that otherwise would have been paid in accordance with Section 3.3), pro rated if necessary, and subject to the offset of any amounts due, and 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 12 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 7.3.3. If the Employment Term ends early on account of Disability, Executive shall be entitled to receive only such amounts as he otherwise be entitled to under any disability policy sponsored by the Company in accordance with this Agreement. 7.4. 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 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. 7.4.1. All aforesaid amounts in this Section 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. 13 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 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 14 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Chief Executive Officer 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 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. 15 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 one (1) year 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, officer, employee, director, joint venturer, 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 goods, services or intangible property which is similar to any of those marketed or developed 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 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 16 Employment Agreement R. Christopher Chillingworth November 6, 2000 approval of the Chief Executive Officer, 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 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 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 17 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 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, Executive will 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 18 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 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). 19 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 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 20 Employment Agreement R. Christopher Chillingworth November 6, 2000 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. 16. Entire Agreement; Modification. This Agreement, and all documents incorporated herein, constitute 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. 21 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 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. 22 Employment Agreement R. Christopher Chillingworth November 6, 2000 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, 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 23 Employment Agreement R. Christopher Chillingworth November 6, 2000 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 Clara County, California. 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 Clara 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 24 Employment Agreement R. Christopher Chillingworth November 6, 2000 assist the arbitrators in performing their arbitral duties, to confirm their award and to enforce any such award as a judgement of said court. 24. Headings And Gender Neutrality. 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. The use of either masculine or feminine pronouns in this Agreement are merely a convenience of the draftsperson and shall be not be deemed determinative of any person's gender. 25. 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. 25 Employment Agreement R. Christopher Chillingworth November 6, 2000 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: /s/ William P. Crowell -------------------------- Name: William P. Crowell Title: CEO and President EXECUTIVE /s/ R. Christopher Chillingworth -------------------------------- R. Christopher Chillingworth 26 EX-10.7 12 p16085_10-7.txt EMPLOYMENT AGREEMENT - REILLY EMPLOYMENT AGREEMENT Agreement made as of the 30th day of April, 2001 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Patrick K. Reilly residing at 1191 Crescent Drive San Jose, CA 95125 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as Vice President Sales, 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 Effective Date, as its Vice President Sales, and in such other executive capacities assigned by the Chief Executive Officer 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 1 Employment Agreement Patrick K. Reilly April 30, 2001 in connection with the official business of the Company. Executive shall maintain his permanent residence within the surrounding community. If so requested by the Chief Executive Officer, 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 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 the "Effective Date" and terminating, unless otherwise terminated earlier as provided in this Agreement, on April 30, 2006 (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 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 2 Employment Agreement Patrick K. Reilly April 30, 2001 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 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 $185,000 ("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 Chief Executive Officer, but solely in his discretion and not as an implied obligation of this Agreement. Executive's Base Salary may also be decreased from time to time by the Chief Executive Officer in his sole discretion based on his 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 Employment Agreement Patrick K. Reilly April 30, 2001 3.3. In addition to the Base Salary, for each calendar year completed during the Employment Term, the Company shall pay to Executive an incentive bonus based on achievement of revenue goals which shall be determined by the Chief Executive Officer in consultation with the Executive. The incentive bonus for the balance of fiscal year 2001 is annexed to this Agreement. 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. 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 Employment Agreement Patrick K. Reilly April 30, 2001 5. Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee"), or its delegee, authorized granting to Executive on April 30, 2001, options to purchase 200,000 shares of Company common stock, 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, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a four (4) 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 five percent (25%) 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. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of all of the Executive's then unvested options (the "Accelerated Options") under all option agreements granted during the period of his employment, subject to the provisions of this Section 5. 5 Employment Agreement Patrick K. Reilly April 30, 2001 5.3. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 5.3.1. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, 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 common shareholders in the Corporate Transaction, and 5.3.2. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated 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. 5.4. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 Executive for Good Reason. For purposes of the 6 Employment Agreement Patrick K. Reilly April 30, 2001 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". 5.5. As a further stock incentive bonus, at the end of each fiscal quarter you will be eligible for an additional grant of options to purchase 10,000 shares of Company common stock, provided the Company achieves its minimum revenue objective established by the Company's Chief Executive Officer in consultation with the Chief Financial Officer no later than the commencement of each such quarter. These grants will be issued after the close of market on the second trading day following public announcement of Cylink's quarterly financial results, they will have an exercise price equal to the closing market price on the date they are issued, and they shall be exercised immediately. 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) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 7 Employment Agreement Patrick K. Reilly April 30, 2001 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 Chief Executive Officer 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 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 Chief Executive Officer 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 or is contrary to a specific provision of published Professional Standards applicable to Executive's duties, 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 8 Employment Agreement Patrick K. Reilly April 30, 2001 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, (F) the Executive's inability to competently perform his assigned duties, or (G) any other material breach by the Executive of this Agreement that remains uncured for thirty (30) 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 any Corporate Transaction or Change in Control, subsections (F) and (G) shall be deemed eliminated and without force or effect. 9 Employment Agreement Patrick K. Reilly April 30, 2001 7.1.3. Upon written notice by the Chief Executive Officer to the Executive, if the Executive (as determined by the Chief Executive Officer 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. 7.1.4. Upon written notice by the Executive to the Chief Executive Officer 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 any material breach of any provision of this Agreement by the Company, including but not limited to (i) any reduction in Executive's duties or responsibilities as Vice President of Sales (other than those duties which may no longer be required if the Company ceases to be a publicly traded company) or (ii) any demand that he relocate his principal residence beyond any of the counties immediately adjacent to San Francisco Bay, without his consent. Any notice for Good 10 Employment Agreement Patrick K. Reilly April 30, 2001 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 Chief Executive Officer 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 Chief Executive Officer 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 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. 11 Employment Agreement Patrick K. Reilly April 30, 2001 7.3. In addition, if the termination is by the Company without Cause, or by the Executive for Good Reason, as provided 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 Attachment C hereto, which shall survive) in such form as reasonably requested by the Company: 7.3.1. Six (6) 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 six month period (or, in the event of a corporate austerity program applied to Executive together with other officers of the Company, then the amount that otherwise would have been paid in accordance with Section 3.3), pro rated if necessary, and subject to the offset of any amounts due, and 7.3.2. payment by the Company of the premiums for Executive's and his 12 Employment Agreement Patrick K. Reilly April 30, 2001 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. 7.3.3. If the Employment Term ends early on account of Disability, Executive shall be entitled to receive only such amounts as he otherwise be entitled to under any disability policy sponsored by the Company in accordance with this Agreement. 7.3.4. Provided (i) Executive first provides the Company with a copy of all computer data related to the Company's business in Executive's possession, in a form acceptable to the Company, and (ii) Executive complies with all of his obligations concerning the Company's Confidential Information, Executive may also keep for his personal use the laptop computer used exclusively by Executive in the ordinary course of his 13 Employment Agreement Patrick K. Reilly April 30, 2001 employment, provided further that the specific laptop had been purchased by the Company at least four months prior to the notice of termination of his employment. 7.4. 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 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. 7.4.1. All aforesaid amounts in this Section 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. 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 14 Employment Agreement Patrick K. Reilly April 30, 2001 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. 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 15 Employment Agreement Patrick K. Reilly April 30, 2001 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 Chief Executive Officer 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 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. 16 Employment Agreement Patrick K. Reilly April 30, 2001 11.2. During the Employment Term and for one (1) year 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, officer, employee, director, joint venturer, 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 goods, services or intangible property which is similar to any of those marketed or developed 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 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 Chief Executive Officer, 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 to the contrary, subsequent to the termination of Executive's employment hereunder, Executive may, in 17 Employment Agreement Patrick K. Reilly April 30, 2001 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 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. 18 Employment Agreement Patrick K. Reilly April 30, 2001 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. 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, Executive will 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. 19 Employment Agreement Patrick K. Reilly April 30, 2001 12.3. all severance payments calculated on the basis of salary, bonus or both. 12.4. 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 accordance with the Indemnification Agreement annexed as Attachment C hereto, which the Company and Executive agree to promptly execute. In addition, the 20 Employment Agreement Patrick K. Reilly April 30, 2001 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. 21 Employment Agreement Patrick K. Reilly April 30, 2001 16. Entire Agreement; Modification. This Agreement, and all documents incorporated herein, constitute 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 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 Employment Agreement Patrick K. Reilly April 30, 2001 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 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 23 Employment Agreement Patrick K. Reilly April 30, 2001 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 Clara County, California. 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 24 Employment Agreement Patrick K. Reilly April 30, 2001 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 Clara 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. 24. 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. 25 Employment Agreement Patrick K. Reilly April 30, 2001 25. 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. 26 Employment Agreement Patrick K. Reilly April 30, 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: /s/ William P. Crowell --------------------------- Name: William P. Crowell Title: CEO and President EXECUTIVE /s/ Patrick K. Reilly -------------------------- Patrick K. Reilly 27 Employment Agreement Patrick K. Reilly April 30, 2001 ATTACHMENT B ------------ For purposes of this Agreement the following events are excluded from the definition of "Corporate Transaction": 1) Acquisition of more than 50% of the Company's outstanding securities by Topspin Partners LP or Topspin Associates LP, or both (collectively "Topspin") or by Topspin in combination with one or more entities affiliated with or under common management with Topspin. 2) A transaction approved by the Board of Directors that causes the Company's securities to cease trading on any and all publicly regulated exchanges and markets, without transferring corporate control to unaffiliated parties other than solely for purposes of financing the transaction (i.e. "taking the Company private"). 28 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment is made as of the 1st day of January, 2002 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Patrick K. Reilly, residing at 1191 Crescent Drive, San Jose, CA 95125 (the "Executive"). WHEREFORE, the Company and Executive executed an Employment Agreement (the "Agreement") having an Effective Date of April 30th, 2001; WHEREFORE, the Company has revised some of the standard terms of its executive Employment Agreements; NOW THERFORE, the parties agree as follows: 1. Article 6 of the Agreement is revised to state: Paid Time Off ("PTO"). During the Employment Term, Executive shall be entitled to PTO, including vacation, equal to the greater of: (i) fifteen days plus one additional day for each year of employment by the Company, or (ii) twenty days plus one additional day for each year of employment under this Agreement; but in no event more than 25 days, in each full calendar year (prorated for any partial year) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 2. All other terms and conditions of the Agreement shall remain in full force First Amendment Employment Agreement Patrick K. Reilly and effect as if restated in their entirety herein. 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: /s/ R. Fougner -------------------------- Name: R. Fougner Title: VP, Corporate Secretary EXECUTIVE By /s/ Patrick K. Reilly -------------------------- Patrick K. Reilly 30 EX-10.8 13 p16085_10-8.txt EMPLOYMENT AGREEMENT - DREW EMPLOYMENT AGREEMENT Agreement made as of the 1st day of December, 2000 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Pamela E. Drew, residing at 19369 Greenwood Avenue, Cupertino, CA (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive as Vice President of Human Resources and Workplace Environment, 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: 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 Effective Date, as its Vice President of Human Resources and Workplace Environment, and in such other executive capacities assigned by the Chief Executive Officer or the Vice President and General Counsel 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 Chief Executive Officer, 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 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 the "Effective Date" and terminating, unless otherwise terminated earlier as provided in this Agreement, on December 1, 2005 (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 thirty (30) days prior to the end of the Original Employment Term or any Additional Term, the Company or the Executive has 2 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 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 3. Compensation. 3.1. As compensation for his services under this Agreement, the Company shall pay Executive an annual salary of $150,000 ("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 Chief Executive Officer, but solely in his discretion and not as an implied obligation of this Agreement. Executive's Base Salary may also be decreased from time to time by the Chief Executive Officer in his sole discretion based on his 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 Employment Term, the Company shall pay to Executive an annual bonus of up to 25% of Base Salary based, in part, on achievement of performance goals which shall be determined by the Vice President and General Counsel or the Chief Executive Officer in consultation with the Executive. The actual bonus may vary in the sole discretion of the Vice President and General Counsel or the Chief Executive Officer based on their assessment of the Executive's performance (and subject to any Company austerity plans). 4 3.4. The Company shall reimburse Executive for all reasonable expenses incurred by his 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. 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. 5. Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee"), or its delegee, authorized granting to Executive on December 1, 2000, options to purchase 30,000 shares of Company common stock at an exercise price of $3.44 per share, 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 5 options, as more fully set forth in the option agreement annexed hereto as Attachment A, and specifically modified by this Section 5, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a four (4) year period on the last day of each month during such period, provided the Executive is employed by the Company on each vesting date. 5.2. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of a certain percentage of all of the Executive's then unvested options (the "Accelerated Options") under all option agreements granted during the period of his employment, subject to the provisions of this Section 5, with the percentage being determined as follows: 5.2.1. with respect to each grant of options issued to Executive, if the Corporate Transaction or Change in Control occurs on or after one year from the Effective Date, the Accelerated Options shall equal 100% of the Executive's then unvested options under each such grant. 5.2.2. with respect to each grant of options issued to Executive, if the Corporate Transaction or Change in Control occurs within less than one year from the Effective Date, the Accelerated Options shall equal 50% of the Executive's then unvested options under each such grant. 5.3. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 6 5.3.1. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, 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 common shareholders in the Corporate Transaction, and 5.3.2. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated Options on the earlier of: (i) the first anniversary of 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. 5.4. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 Executive for Good Reason. For purposes of the Agreement, 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 80% of the Company's outstanding securities by any entity or related group of entities. 6. Vacation. During the Employment Term, Executive shall be entitled to four (4) weeks paid 7 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 Chief Executive Officer. 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 Chief Executive Officer 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 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 Chief Executive Officer 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 or is contrary to a specific provision of published Professional Standards applicable to Executive's duties, 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 8 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, (F) the Executive's inability to competently perform his assigned duties to the satisfaction of the Chief Executive Officer or the General Counsel of the Company, or (G) any other material breach by the Executive of this Agreement that remains uncured for thirty (30) 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 any Corporate Transaction or Change in Control, subsections (F) and (G) shall be deemed eliminated and without force or effect. 7.1.3. Upon written notice by the Chief Executive Officer to the Executive, if the 9 Executive (as determined by the Chief Executive Officer 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. 7.1.4. Upon written notice by the Executive to the Chief Executive Officer 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 any material breach of any provision of this Agreement by the Company, including but not limited to (i) any reduction in Executive's duties or responsibilities as Vice President of Human Resources and Workplace Environment (other than those duties which may no longer be required if the Company ceases to be a publicly traded company) or (ii) any demand that he relocate his principal residence beyond any of the counties immediately adjacent to San Francisco Bay, without his consent. 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. 10 7.1.5. Immediately upon written notice to the Executive by the Chief Executive Officer 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 Chief Executive Officer 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 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, and prior to the Executive's sixty-fifth birthday, the Executive shall receive in full settlement of all amounts owed his, provided he signs a release running to the Company and its related entities and their respective 11 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 B hereto, which shall survive) in such form as reasonably requested by the Company: 7.3.1. Thirteen (13) biweekly installments of severance pay each in an amount equal to one-twenty-sixth of the then sum of his Base Salary and annual bonus, based on the amount paid for service during the prior six month period (or, in the event of a corporate austerity program applied to Executive together with other officers of the Company, then the amount that otherwise would have been paid in accordance with Section 3.3), pro rated if necessary, and subject to the offset of any amounts due, and 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 12 or solicit the Company's customers or employees. 7.3.3. If the Employment Term ends early on account of Disability, Executive shall be entitled to receive only such amounts as he otherwise be entitled to under any disability policy sponsored by the Company in accordance with this Agreement. 7.4. 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 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. 7.4.1. All aforesaid amounts in this Section 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. 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 13 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. 9. Inventions and Other Intellectual Property. The Company and Executive agree to promptly execute the Proprietary Information and Invention Agreement, annexed hereto as Attachment C, 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 his while employed by the Company pursuant to this 14 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 Chief Executive Officer 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 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 one (1) year thereafter, Executive shall not enter into Competition with the Company or its affiliates to the extent such 15 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, officer, employee, director, joint venturer, 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 goods, services or intangible property which is similar to any of those marketed or developed 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 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 Chief Executive Officer, 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 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 16 Section (other than by making such passive investments). 11.3. 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 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 17 period, scope and area permitted by law. 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, Executive will 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. 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 18 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 accordance with the Indemnification Agreement annexed as Attachment B 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) 19 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. 16. Entire Agreement; Modification. This Agreement, and all documents incorporated herein, constitute 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. 20 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 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 21 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 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 22 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 Clara County, California. 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 Clara 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 23 enforce any such award as a judgement of said court. 24. Headings And Gender Neutrality. 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. The use of either masculine or feminine pronouns in this Agreement are merely a convenience of the draftsperson and shall not be indicative of any party's gender. 25. 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. 24 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: /s/ William P. Crowell --------------------------- Name: William P. Crowell Title: CEO and President EXECUTIVE /s/ Pamela Drew -------------------------- Pamela Drew 25 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment is made as of the 1st day of January, 2002 (the "Effective Date"), by and between Cylink Corporation, a California corporation with its principal place of business at 3131 Jay Street, Santa Clara, California 95054 (the "Company"), and Pamela E. Drew, residing at 19369 Greenwood Avenue, Cupertino, CA (the "Executive"). WHEREFORE, the Company and Executive executed an Employment Agreement (the "Agreement") having an Effective Date of December 1, 2000; WHEREFORE, the Company has revised some of the standard terms of its executive Employment Agreements; NOW THERFORE, the parties agree as follows: 1. Article 5 of the Agreement is revised to state: Stock Options. 5.1. The Compensation Committee of the Board (the "Compensation Committee") authorized granting to Executive on December 1, 2000, options to purchase 30,000 shares of Company common stock at an exercise price of $3.44 per share, 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 First Amendment Employment Agreement Pamela Drew agreement annexed hereto as Attachment A, and specifically modified by this Section 5, shall provide that (i) they shall be for a maximum six (6) year term, and (ii) shall vest and become exercisable ratably over a four (4) 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 five percent (25%) 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. Furthermore, in the event of a "Corporate Transaction" or "Change In Control" during the Term of this Agreement, the Executive will be entitled to vesting of all of the Executive's then unvested options (the "Accelerated Options") under all option agreements granted during the period of her employment, subject to the provisions of this Section 5: 5.2.1. In the event of a "Corporate Transaction" the Accelerated Options shall fully vest immediately prior to closing unless the Company's successor in interest, or its parent, offers to: 5.2.2. either (i) assume the Executive's Accelerated Options in accordance with Section 11 of the Plan and allow them to continue vesting in accordance with their terms, or (ii) replace them with equivalent options, having the same vesting schedule as the original grant by the Company, to purchase publicly traded shares in the successor corporation or its 27 First Amendment Employment Agreement Pamela Drew Parent by exchanging them at the same rate of conversion offered to the Company's common shareholders in the Corporate Transaction, and 5.2.3. provided further that the successor in interest agrees to fully vest all such assumed or exchanged Accelerated 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. 5.3. In the event of a Change In Control, the Accelerated Options shall vest on the earlier of: (i) the first anniversary of 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 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 the Attachment to this First Amendment. 28 First Amendment Employment Agreement Pamela Drew 2. Article 6 is revised to state: Paid Time Off ("PTO"). During the Employment Term, Executive shall be entitled to PTO, including vacation, equal to the greater of: (i) fifteen days plus one additional day for each year of employment by the Company, or (ii) twenty days plus one additional day for each year of employment under this Agreement; but in no event more than 25 days, in each full calendar year (prorated for any partial year) to be taken at such times as mutually agreed by the Executive and the Chief Executive Officer. 3. All other terms and conditions of the Agreement shall remain in full force and effect as if restated in their entirety herein. 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: /s/ R. Fougner -------------------------- Name: R. Fougner Title: VP, Corporate Secretary 29 First Amendment Employment Agreement Pamela Drew EXECUTIVE By /s/ Pamela Drew -------------------------- Pamela Drew 30 EX-10.10 14 p16085_10-10.txt LEASE DATED MAY 10, 1999 LEASE DATED MAY 10, 1999 BY AND BETWEEN ORCHARD JAY INVESTORS, LLC and DAVID J. BROWN as Landlord and CYLINK CORPORATION as Tenant AFFECTING PREMISES COMMONLY KNOWN AS 3131 and 3151 Jay Street Santa Clara, California [12/15/95 MULTI TENANT NET INDUSTRIAL LEASE] LEASE - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE: ----- ARTICLE 1 - DEFINITIONS 1.1 General 1 1.2 Additional Rent 1 1.3 Address for Notices 1 1.4 Agents 1 1.5 Agreed Interest Rate 1 1.6 Base Monthly Rate 1 1.7 Building 1 1.8 Commencement Date 1 1.9 Common Area 1 1.10 Common Operating Expense 1 1.11 Consumer Price Index 1 1.12 Effective Date 1 1.13 Event of Tenant's Default 1 1.14 Hazardous Materials 1 1.15 Insured and Uninsured Peril 1 1.16 Law 1 1.17 Lease 1 1.18 Lease Term 1 1.19 Lender 1 1.20 Permitted Use 1 1.21 Premises 1 1.22 Project 2 1.23 Private Restrictions 2 1.24 Real Property Taxes 2 1.25 Scheduled Commencement Date 2 1.26 Security Instrument 2 1.27 Summary 2 1.28 Tenant's Alterations 2 1.29 Tenant's Share 2 1.30 Trade Fixtures 2 ARTICLE 2 - DEMISE, CONSTRUCTION, AND ACCEPTANCE 2 2.1 Demise of Premises 2 2.2 Commencement Date 2 2.3 Construction of Improvements 2 2.4 Delivery and Acceptance of Possession 2 2.5 Early Occupancy 3 ARTICLE 3 - RENT 3 3.1 Base Monthly Rent 3 3.2 Additional Rent 3 3.3 Payment of Rent 3 3.4 Late Charge and Interest on Rent in Default 3 3.5 Security Deposit 3 ARTICLE 4 - USE OF PREMISES 3 4.1 Limitation on Use 3 4.2 Compliance with Regulations 4 4.3 Outside Areas 4 4.4 Signs 4 4.5 Parking 4 4.6 Rules and Regulations 4 i LEASE - -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued) PAGE: ----- ARTICLE 5 - TRADE FIXTURES AND ALTERATIONS 4 5.1 Trade Fixtures 4 5.2 Tenant's Alterations 4 5.3 Alterations Required by Law 5 5.4 Amortization of Certain Capital Improvements 5 5.5 Mechanic's Liens 5 5.6 Taxes on Tenant's Property 6 ARTICLE 6 - REPAIR AND MAINTENANCE 6 6.1 Tenant's Obligation to Maintain 6 6.2 Landlord's Obligation to Maintain 6 6.3 Control of Common Area 6 ARTICLE 7 - WASTE DISPOSAL AND UTILITIES 7 7.1 Waste Disposal 7 7.2 Hazardous Materials 7 7.3 Utilities 8 7.4 Compliance with Governmental Regulations 8 ARTICLE 8 - COMMON OPERATING EXPENSES 8 8.1 Tenant's Obligation to Reimburse 8 8.2 Common Operating Expenses Defined 8 8.3 Real Property Taxes Defined 9 ARTICLE 9 - INSURANCE 9 9.1 Tenant's Insurance 9 9.2 Landlord's Insurance 10 9.3 Tenant's Obligation to Reimburse 10 9.4 Release and Waiver of Subrogation 10 ARTICLE 10 - LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 11 10.1 Limitation on Landlord's Liability 11 10.2 Limitation on Tenant's Recourse 11 10.3 Indemnification of Landlord 11 10.4 Indemnification of Tenant 11 ARTICLE 11 - DAMAGE TO PREMISES 11 11.1 Landlord's Duty to Restore 11 11.2 Landlord's Right to Terminate 11 11.3 Tenant's Right to Terminate 12 11.4 Abatement of Rent 12 ii LEASE - -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued) PAGE: ----- ARTICLE 12 - CONDEMNATION 12 12.1 Landlord's Termination Right 12 12.2 Tenant's Termination Right 12 12.3 Restoration and Abatement of Rent 13 12.4 Temporary Taking 13 12.5 Division of Condemnation Award 13 ARTICLE 13 - DEFAULT AND REMEDIES 13 13.1 Events of Tenant's Default 13 13.2 Landlord's Remedies 13 13.3 Waiver 14 13.4 Limitation on Exercise of Rights 14 13.5 Waiver by Tenant of Certain Remedies 15 13.6 Events of Landlord's Default 15 ARTICLE 14 - ASSIGNMENT AND SUBLETTING 15 14.1 Transfer by Tenant 15 14.2 Transfer by Landlord 17 ARTICLE 15 - GENERAL PROVISIONS 17 15.1 Landlord's Right to Enter 17 15.2 Surrender of the Premises 17 15.3 Holding Over 18 15.4 Subordination 18 15.5 Mortgagee Protection and Attornment 18 15.6 Estoppel Certificates and Financial Statements 18 15.7 Reasonable Consent 18 15.8 Notices 19 15.9 Attorney's Fees 19 15.10 Corporate Authority 19 15.11 Miscellaneous 19 15.12 Termination by Exercise of Right 19 15.13 Brokerage Commissions 19 15.14 Force Majeure 20 15.15 Entire Agreement 20 15.16 Quiet Possession 20 EXHIBITS Exhibit A - Site plan of the Project containing a description of the Premises Exhibit B - Improvement Agreement Exhibit C - Approved Specifications Exhibit D - Acceptance Agreement Exhibit E - Description of Private Restrictions Exhibit F - Sign Criteria Exhibit G - Form of Subordination Agreement Exhibit H - Hazardous Materials Questionnaire Exhibit I - Santa Clara File A.3429 iii SUMMARY OF BASIC LEASE TERMS SECTION (LEASE REFERENCE) TERMS A. Lease Reference Date: May 10, 1999 (Introduction) B. Landlord: Orchard Jay Investors, LLC (Introduction) a California limited liability company and David J. Brown C. Tenant: Cylink Corporation (Introduction) a California corporation D. Premises: That area consisting of 95,828 square (ss.1.21) feet of gross leasable area, the addresses of which are 3131 and 3151 Jay Street, Santa Clara, California within the Buildings as shown on Exhibit A. E. Project: The land and improvements shown on (ss.1.22) Exhibit A consisting of three (3) buildings, the aggregate gross leasable area of which is 142,552 square feet. F. Building: The buildings in which the Premises are (ss. 1.7) located known as 3131 Jay Street containing 49,104 square feet of gross leasable area and 3151 Jay Street containing 46,724 square feet of gross leasable area. G. Tenant's Share: 100% of Buildings B and C (ss.1.29) 67.22% of the Project H. Tenant's Allocated Parking Stalls: 362 stalls. (ss.4.5) I. Scheduled Commencement Date: September 1, 1999. (ss. 1.25) J. Lease Term: 120 calendar months (plus the partial (ss. 1.18) month following the Commencement Date if such date is not the first day of a month). K. (ss. 3.1) Base Monthly Rent: Months 1 - 12: $174,406.96 Months 13 - 24: $179,639.17 Months 25 - 36: $185,028.34 Months 37 - 48: $190,579.19 Months 49 - 60: $196,296.57 Months 61 - 72: $202,185.47 Months 73 - 84: $208,251.03 Months 85 - 96: $214,498.56 Months 97 - 108: $220,933.52 Months 109 - 120: $227.561.52 L. Prepaid Rent: $174,406.96 (ss. 3.3) M. Security Deposit: $827,561.52. (ss. 3.5) Refer to First Addendum to Lease Paragraph 3. N. Permitted Use: General office, marketing, research, (ss. 4.1) assembly, testing and other legal related uses. However, without Landlord's permission, which Landlord may withhold in its sole discretion, neither Tenant nor any successor, assignee, or subtenant of Tenant, shall use the facility in any way which is inconsistent with or in violation of the provisions of that certain hazardous materials condition for Orchard Properties' Project at 3131 and 3151 Jay Street, Santa Clara (File A.3429) dated March 13, 1998, a copy of which is attached hereto as Exhibit I and incorporated herein by reference. 0. Permitted Tenant's Alterations Limit: $10,000.00 (ss. 5.2) P. (ss. 9.1) Tenant's Liability Insurance Minimum: $2,000,000.00 Q. Landlord's Address: Orchard Jay Investors, LLC (ss. 1.3) and David J. Brown c/o Orchard Properties 2290 North First Street, Suite 300 San Jose, CA 95131 R. Tenant's Address: Prior to the Commencement Date: (ss. 1.3) Cylink Corporation Attn: Chief Financial Officer 910 Hermosa Court Sunnyvale, CA 94088-3759 Cylink Corporation Attn: General Counsel 910 Hermosa Court Sunnyvale, CA 94088-3759 After the Commencement Date: Cylink Corporation Attn: Chief Financial Officer 3151 Jay Street Santa Clara, CA 95054 Cylink Corporation Attn: General Counsel 3151 Jay Street Santa Clara, CA 95054 S. Retained Real Estate Brokers: CB Richard Ellis (ss. 15.13) T. Lease: This Lease includes the summary of the (ss. 1.17) Basic Lease Terms, the Lease, and the following exhibits and addenda: First Addendum to Lease; Exhibit A (Site plan of the Project containing description of the Premises), Exhibit B (Improvement Agreement), Exhibit C (Approved Specifications), Exhibit D (Acceptance Agreement), Exhibit E (Description of Private Restrictions), Exhibit F (Sign Criteria), Exhibit G (Form of Subordination Agreement), Exhibit H (Hazardous Materials Questionnaire), Exhibit I (Santa Clara File A.3429) The foregoing Summary is hereby incorporated into and made part of this Lease. Each reference in this Lease to any term of the Summary shall mean the respective information set forth above shall be construed to incorporate all of the terms provided under the particular paragraph pertaining to such information. In the event of any conflict between the Summary and the Lease, the Summary shall control. LANDLORD: TENANT: ORCHARD JAY INVESTORS LLC CYLINK CORPORATION a California limited liability company a California corporation By: /s/ David J. Brown By: /s/ [ILLEGIBLE] ----------------------- ----------------------- David J. Brown Managing Member Its: Chief Financial Officer ----------------------- Dated: May 11, 1999 -------------------- Dated: May 10, 1999 ----------------------- DAVID J. BROWN By: /s/ [ILLEGIBLE] By: /s/ David J. Brown ----------------------- ----------------------- Its: Corporate Secretary Dated: May 11, 1999 ----------------------- -------------------- Dated: May 10, 1999 ----------------------- 2 LEASE - -------------------------------------------------------------------------------- This Lease is dated as of the lease reference date specified in Section A of the Summary and is made by and between the party identified as Landlord in Section B of the Summary and the party identified as Tenant in Section C of the Summary. ARTICLE I DEFINITIONS 1.1 General: Any initially capitalized term that is given a special meaning by this Article 1, the Summary, or by any other provision of this Lease (including the exhibits attached hereto) shall have such meaning when used in this Lease or any addendum or amendment hereto unless otherwise clearly indicated by the context. 1.2 Additional Rent: The term "Additional Rent" is defined in P.13.2. 1.3 Address for Notices: The term "Address for Notices" shall mean the addresses set forth in Sections Q and R of the Summary; provided, however, that after the Commencement Date, Tenant's Address for Notices shall be the address of the Premises. 1.4 Agents: The term "Agents" shall mean the following: (i) with respect to Landlord or Tenant, the agents, employees, contractors, and invitees of such party; and (ii) in addition with respect to Tenant, Tenant's subtenants and their respective agents, employees, contractors, and invitees. 1.5 Agreed Interest Rate: The term "Agreed Interest Rate" shall mean that interest rate determined as of the time it is to be applied that is equal to the lesser of (i) 5% in excess of the discount rate established by the Federal Reserve Bank of San Francisco as it may be adjusted from time to time, or (ii) the maximum interest rate permitted by Law. 1.6 Base Monthly Rent: The term "Base Monthly Rent" shall mean the fixed monthly rent payable by Tenant pursuant to P.3.1 which is specified in Section K of the Summary. 1.7 Building: The term "Building" shall mean the building in which the Premises are located which Building is identified in Section F of the Seminary, the gross leasable area of which is referred to herein as the "Building Gross Leasable Area." 1.8 Commencement Date: The term "Commencement Date" is the date the Lease Term commences, which term is defined in P.2.2. 1.9 Common Area: The term "Common Area" shall mean all areas and facilities within the Project that are not designated by Landlord for the exclusive use of Tenant or any other lessee or other occupant of the Project, including the parking areas, access and perimeter roads, pedestrian sidewalks, landscaped areas, trash enclosures, recreation areas and the like. The Common Area does not include any portion of the interior of 3101 Jay Street. 1.10 Common Operating Expenses: The term "Common Operating Expenses" is defined in P.8.2. 1.11 Consumer Price Index: The term "Consumer Price Index" shall refer to the Consumer Price Index, All Urban Consumers, subgroup "All Items", for the San Francisco-Oakland-San Jose metropolitan area (base year 1982-84 equals 100), which is presently being published monthly by the United States Department of Labor, Bureau of Labor Statistics. However, if this Consumer Price Index is changed so that the base year is altered from that used as of the commencement of the initial term of this Lease, the Consumer Price Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics to obtain the same results that would have been obtained had the base year not been changed. If no conversion factor is available, or if the Consumer Price Index is otherwise changed, revised or discontinued for any reason, there shall be substituted in lieu thereof and the term "Consumer Price Index" shall thereafter refer to the most nearly comparable official price index of the United States government in order to obtain substantially the same result as would have been obtained had the original Consumer Price Index not been discontinued, revised or changed, which alternative index shall be selected by Landlord and shall be subject to Tenant's written approval. 1.12 Effective Date: The term "Effective Date" shall mean the date the last signatory to this Lease whose execution is required to make it binding on the parties hereto shall have executed this Lease 1.13 Event of Tenant's Default: The term "Event of Tenant's Default" is defined in P.13.1. 1.14 Hazardous Materials: The terms "Hazardous Materials" and "Hazardous Materials Laws" are defined in P.7.2E. 1.15 Insured and Uninsured Peril: The terms "Insured Peril" and "Uninsured Peril" are defined in P.11.2E. 1.16 Law: The term "Law" shall mean any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal or other government agency or authority having jurisdiction over the parties to this Lease or the Premises, or both, in effect either at the Effective Date or any time during the Lease Term. 1.17 Lease: The term "Lease" shall mean the Summary and all elements of this Lease identified in Section T of the Summary, all of which are attached hereto and incorporated herein by this reference. 1.18 Lease Term: The term "Lease Term" shall mean the term of this Lease which shall commence on the Commencement Date and continue for the period specified in Section J of the Summary. 1.19 Lender: The term "Lender" shall mean any beneficiary, mortgagee, secured party, lessor, or other holder of any Security Instrument. 1.20 Permitted Use: The term "Permitted Use" shall mean the use specified in Section N of the Summary. 1.21 Premises: The term "Premises" shall mean that building area described in Section D of the Summary that is within the Building. 1.22 Project: The term "Project" shall mean that real LEASE - -------------------------------------------------------------------------------- property and the improvements thereon which are specified in Section E of the Summary, the aggregate gross leasable area of which is referred to herein as the "Project Gross Leasable Area." 1.23 Private Restrictions: The term "Private Restrictions" shall mean all recorded covenants, conditions and restrictions, private agreements, reciprocal easement agreements, and any other recorded instruments affecting the use of the Premises which (i) exist as of the Effective Date, or (ii) are recorded after the Effective Date and are approved by Tenant in writing. 1.24 Real Property Taxes: The term "Real Property Taxes" is defined in P.8.3. 1.25 Scheduled Commencement Date: The term "Scheduled Commencement Date" shall mean the date specified in Section I of the Summary. 1.26 Security Instrument: The term "Security Instrument" shall mean any underlying lease, mortgage or deed of trust which now or hereafter affects the Project, and any renewal, modification, consolidation, replacement or extension thereof. 1.27 Summary: The term "Summary" shall mean the Summary of Basic Lease Terms executed by Landlord and Tenant that is part of this Lease. 1.28 Tenant's Alterations: The term "Tenant's Alterations" shall mean all improvements, additions, alterations, and fixtures installed in the Premises by Tenant at its expense which are not Trade Fixtures. 1.29 Tenant's Share: The term "Tenant's Share" shall mean the percentage obtained by dividing Tenant's Gross Leasable Area by the Building Gross Leasable Area, which as of the Effective Date is the percentage identified in Section G of the Summary. 1.30 Trade Fixtures: The term "Trade Fixtures" shall mean (i) Tenant's inventory, furniture, signs, and business equipment, and (ii) anything affixed to the Premises by Tenant at its expense for purposes of trade, manufacture, ornament or domestic use (except replacement of similar work or material originally installed by Landlord) which can be removed without material injury to the Premises unless such thing has, by the manner in which it is affixed, become an integral part of the Premises. ARTICLE 2 DEMISE, CONSTRUCTION AND ACCEPTANCE 2.1 Demise of Premises: Landlord hereby leases to Tenant, and Tenant leases from Landlord, for the Lease Term upon the terms and conditions of this Lease, the Premises for Tenant's own use in the conduct of Tenant's business together with (i) the non-exclusive right to use the number of Tenant's Allocated Parking Stalls within the Common Area (subject to the limitations set forth in P.4.5), and (ii) the non-exclusive right to use the Common Area for ingress to and egress from the Premises and for the purposes of performing Tenant's obligations hereunder. Landlord reserves the use of the exterior walls, the roof and the area beneath and above the Premises, together with the right to install, maintain, use, and replace ducts, wires, conduits and pipes leading through the Premises in locations which will not materially interfere with Tenant's use of the Premises. 2.2 Commencement Date: The Scheduled Commencement Date shall be only an estimate of the actual Commencement Date, and subject to the provisions of Exhibit B, the term of this Lease shall begin on the first to occur of the following, which shall be the "Commencement Date" (provided, that in no event shall the Commencement Date occur prior to September 1, 1999): (i) the date Landlord offers to deliver possession of the Premises to Tenant following Substantial Completion (as defined in Exhibit B hereto) of all improvements to be constructed by Landlord pursuant to P.2.3 except for punch list items which do not prevent Tenant from using the Premises for the Permitted Use and such work as Landlord is required to perform but cannot complete until Tenant performs necessary portions of construction work it has elected or is required to do; or (ii) the date Tenant enters into occupancy of the Premises (which shall not include any Early Occupancy Period). 2.3 Construction of Improvements: Prior to the Commencement Date, Landlord shall construct certain improvements that shall constitute or become part of the Premises if required by, and then in accordance with, the terms of Exhibit B and Exhibit C. 2.4 Delivery and Acceptance of Possession: If Landlord is unable to (deliver possession of the Premises to Tenant on or before the Scheduled Commencement Date for any reason whatsoever, this Lease shall not be void or void able, so long as the Premises are Substantially Complete (as defined in Exhibit B, the Interior Improvement Agreement) not later than December 31, 1999, plus one day for each day of delay in completion caused by Tenant as defined in Paragraph 7 of Exhibit B, the Interior Improvement Agreement, and one day for each day of delay caused by force majeure factors as defined in Paragraph 15.14 of this Lease and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom. However, no more than thirty (30) calendar days shall be added to the foregoing period on account of force majeure. Tenant shall accept possession and enter into good faith occupancy of the entire Premises and endeavor to commence the operation of its business therein within 30 days after the Commencement Date. Tenant acknowledges that it has had un opportunity to conduct, and has conducted, such inspections of the Premises as it deems necessary to evaluate its condition. Except as otherwise specifically provided herein, (including the warranties of Landlord set forth herein, which shall not be affected by Tenant's acceptance of possession) Tenant agrees to accept possession of the Premises in its then existing condition, "as-is", including all patent and latent defects. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance by Tenant of any work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for defects of which Tenant has given Landlord written notice prior to the time Tenant takes possession and except for items covered under the Landlord's warranties provided in this Lease. At the time Landlord delivers possession of the Premises to Tenant, Landlord and Tenant shall together execute an acceptance agreement in the form attached as Exhibit D appropriately completed. Landlord shall have no obligation to deliver possession, nor shall Tenant be entitled to take occupancy, of the Premises until such acceptance agreement has been executed, and Tenant's obligation to pay Base Monthly Rent and Additional Rent shall not be excused or delayed because of Tenant's failure to execute such acceptance 2 LEASE - -------------------------------------------------------------------------------- agreement. 2.5 Early Occupancy: If Tenant enters or permits its contractors to enter the Premises prior to the Commencement Date pursuant to Paragraph 4A of the First Addendum to Lease, it shall do so upon all of the terms of this Lease (including its obligations regarding indemnity and insurance) except those regarding the obligation to pay rent, which shall commence on the Commencement Date. ARTICLE 3 RENT 3.1 Base Monthly Rent: Commencing on the Commencement Date and continuing throughout the Lease Term, Tenant shall pay to Landlord the Base Monthly Rent set forth in Section K of the Summary. 3.2 Additional Rent: Commencing on the Commencement Date and continuing throughout the Lease Term, Tenant shall pay the following as additional rent (the "Additional Rent"): (i) any late charges or interest due Landlord pursuant to P.3.4; (ii) Tenant's Share of Common Operating Expenses as provided in P.8.1; (iii) Landlord's share of any Subrent received by Tenant upon certain assignments and sublettings as required by P.14.1; (iv) any legal fees and costs due Landlord pursuant to P.15.9; and (v) any other charges due Landlord pursuant to this Lease. 3.3 Payment of Rent: Concurrently with the execution of this Lease by both parties, Tenant shall pay to Landlord the amount set forth in Section L of the Summary as prepayment of rent for credit against the first installment(s) of Base Monthly Rent. All rent required to be paid in monthly installments shall be paid in advance on the first day of each calendar month during the Lease Term. If Section K of the Summary provides that the Base Monthly Rent is to be increased during the Lease Term and if the date of such increase does not fall on the first day of a calendar month, such increase shall become effective on the first day of the next calendar month. All rent shall be paid in lawful money of the United States, without any abatement, deduction or offset whatsoever (except as specifically provided in P.11.4 and P.12.3), and without any prior demand therefor. Rent shall be paid to Landlord at its address set forth in Section Q of the Summary, or at such other place as Landlord may designate from time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's Share of Common Operating Expenses shall be prorated at the commencement and expiration of the Lease Term. 3.4 Late Charge and Interest on Rent in Default: If any Base Monthly Rent or Additional Rent is not received by Landlord from Tenant within five (5) business days after Landlord has notified Tenant in writing that payment of such rent has not been received by Landlord, then Tenant shall immediately pay to Landlord a late charge equal to 5% of such delinquent rent as liquidated damages for Tenant's failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay any rent due under this Lease in a timely fashion, including any right to terminate this Lease pursuant to P.13.2C. If any rent remains delinquent for a period in excess of 30 days then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate following the date such amount became due until paid. 3.5 Security Deposit: On the Effective Date, Tenant shall deposit with Landlord the amount set forth in Section M of the Summary as security for the performance by Tenant of its obligations under this Lease, and not as prepayment of rent (the "Security Deposit"). Landlord may from time to time apply such portion of the Security Deposit as is reasonably necessary for the following purposes: (i) to remedy any default by Tenant in the payment of rent; (ii) to repair damage to the Premises caused by Tenant; (iii) to clean the Premises upon termination of the Lease; and (iv) to remedy any other default of Tenant to the extent permitted by Law and, in this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be put contained in California Civil Code Section 1950.7. In the event the Security Deposit or any portion thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an amount in cash sufficient to restore the Security Deposit to the full original amount. Landlord shall not be deemed a trustee of the Security Deposit, may use the Security Deposit in business, and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Premises during the Lease Term, Landlord may pay the Security Deposit to any transferee of Landlord's interest in conformity with the provisions of California Civil Code Section 1950.7 and/or any successor statute, in which event the transferring Landlord will be released from all liability for the return of the Security Deposit. ARTICLE 4 USE OF PREMISES 4.1 Limitation on Use: Tenant shall use the Premises solely for the Permitted Use specified in Section N of the Summary. Tenant shall not do anything in or about the Premises which will (i) cause structural injury to the Building, or (ii) cause damage to any part of the Building except to the extent reasonably necessary for the installation of Tenant's Trade Fixtures and Tenant's Alterations, and then only in a manner which has been first approved by Landlord in writing. Tenant shall not operate any equipment within the Premises which will (i) materially damage the Building or the Common Area, (ii) overload existing electrical systems or other mechanical equipment servicing the Building, (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning ("HVAC") equipment within or servicing the Building, or (iv) damage, overload or corrode the sanitary sewer system. Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Tenant's use of the Premises shall be contained and disposed so that they do not (i) create an unreasonable fire or health hazard, (ii) damage the Premises, or (iii) result in the violation of any Law. Except as approved by Landlord, Tenant shall not change the exterior of the Building or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building. Tenant shall not commit any waste in or about the Premises, and Tenant shall keep the Premises in an neat, 3 LEASE - -------------------------------------------------------------------------------- clean attractive and orderly condition, free of any nuisances. If Landlord designates a standard window covering for use throughout the Building, Tenant shall use this standard window covering to cover all windows in the Premises. Tenant shall not conduct on any portion of the Premises or the Project any sale of any kind, including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale. 4.2 Compliance with Regulations: Tenant shall not use the Premises in any manner which violates any Laws or Private Restrictions which affect the Premises. Tenant shall abide by and promptly observe and comply with all Laws and Private Restrictions. Tenant shall make any alteration, addition, or other capital improvement which is required by any Laws or Private Restrictions for Tenant's particular use of the Premises. Landlord shall make any alteration, additions, or other capital improvements which are required by any Laws or Private Restrictions for buildings in general and shall be reimbursed for such matters to the extent otherwise allowed by the Lease. Tenant shall not use the Premises in any manner which will cause a cancellation of any insurance policy covering Tenant's Alterations or any improvements installed by Landlord at its expense or which poses an unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or permit to be kept, used, or sold in or about the Premises any article which may be prohibited by the standard form of fire insurance policy. Tenant shall comply with all reasonable requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain the insurance coverage carried by either Landlord or Tenant pursuant to this Lease. 4.3 Outside Areas: No materials, supplies, tanks or containers, equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain outside of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Landlord for such use by Tenant. 4.4 Signs: Tenant shall not place on any portion of the Premises any sign, placard, lettering in or on windows, banner, displays or other advertising or communicative material which is visible from the exterior of the Building without the prior written approval of Landlord. All such approved signs shall strictly conform to all Laws, Private Restrictions, and Landlord's sign criteria Exhibit F, and expenses shall be allocated, as set forth in Exhibit F. Tenant shall maintain such signs in good condition and repair. 4.5 Parking: Tenant is allocated and shall have the non-exclusive right to use not more than the number of Tenant's Allocated Parking Stalls contained within the Project described in Section H of the Summary for its use and the use of Tenant's Agents, the location of which may be designated from time to time by Landlord. Tenant shall not at any time use more parking spaces than the number so allocated to Tenant or park its vehicles or the vehicles of others in any portion of the Project not designated by Landlord as a non-exclusive parking area. Tenant shall not have time exclusive right to use any specific parking space. If Landlord grants to any other tenant the exclusive right to use any particular parking space(s), Tenant shall not use such spaces. Landlord reserves the right, after having given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's Agents utilizing parking spaces in excess of the parking spaces allowed for Tenant's use to be towed away at Tenant's cost. All trucks and delivery vehicles shall be (i) parked at the rear of the Building, (ii) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (iii) permitted to remain on the Project only so long as is reasonably necessary to complete loading and unloading. In the event Landlord elects or is required by any Law to limit or control parking in the Project, whether by validation of parking tickets or any other method of assessment, Tenant agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Landlord. [See First Addendum to Lease, Paragraph 7.] 4.6 Rules and Regulations: Landlord may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable to all occupants of the Project for the care and orderly management of the Project and the safety of its tenants and invitees. Such rules and regulations shall be binding upon Tenant, and Tenant agrees to abide by such rules and regulations as long as: (i) the rules and regulations do not require tenant to pay additional Base Monthly Rent or Additional Rent; (ii) no rules and regulations or amendments or additions thereto are binding on Tenant until the tenth (10th) business day after Tenant receives written notice of the change, and no rules and regulations or amendments or additions thereto applies retroactively; and (iii) the rules and regulations or amendments or additions thereto, do not materially decrease Tenant's rights or materially increase Tenant's obligations under the terms and conditions under this Lease. If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible for the violation by any other tenant of the Project of any such rules and regulations. ARTICLE 5 TRADE FIXTURES AND ALTERATIONS 5.1 Trade Fixtures: Throughout the Lease Term, Tenant may provide and install, and shall maintain good condition, any Trade Fixtures required in the conduct of its business in the Premises. All Trade Fixtures shall remain Tenant's property. 5.2 Tenant's Alterations: Construction by Tenant of Tenant's Alterations shall be governed by the following: A. Tenant shall not construct any Tenant's Alterations or otherwise alter the Premises without Landlord's prior written approval. Tenant shall be entitled, without Landlord's prior approval, to make Tenant's Alterations (i) which do not affect the structural or exterior parts or water tight character of the Building, and (ii) the reasonably estimated cost of which, plus the original cost of any part of the Premises removed or materially altered in connection with such Tenant's Alterations, together do not exceed the Permitted Tenant Alterations Limit specified in Section O of the Summary per work of improvement. In the event Landlord's approval for any Tenant's Alterations is required, Tenant shall not construct the Leasehold Improvement until Landlord has approved in writing the plans and specifications therefor, and such Tenant's Alterations shall be constructed substantially in compliance with such 4 LEASE - -------------------------------------------------------------------------------- approved plans and specifications by a licensed contractor first approved by Landlord. All Tenant's Alterations constructed by Tenant shall be constructed by a licensed contractor in accordance with all Laws using new materials of good quality. B. Tenant shall not commence construction of any Tenant's Alterations until (i) all required governmental approvals and permits have been obtained (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant has given Landlord at least five days' prior written notice of its intention to commence such construction, and (iv) if reasonably requested by Landlord, Tenant has obtained contingent liability and broad form builders' risk insurance in an amount reasonably satisfactory to Landlord if there are any perils relating to the proposed construction not covered by insurance carried pursuant to Article 9. C. All Tenant's Alterations shall remain the property of Tenant during the Lease Term but shall not be altered or removed from the Premises. At the expiration or sooner termination of the Lease Term, all Tenant's Alterations shall be surrendered to Landlord as part of the realty and shall then become Landlord's property, and Landlord shall have no obligation to reimburse Tenant for all or any portion of the value or cost thereof; provided, however, that if Landlord requires Tenant to remove any Tenant's Alterations, Tenant shall so remove such Tenant's Alterations prior no the expiration or sooner termination of the Lease Term. Notwithstanding the foregoing, Tenant shall not be obligated to remove any Tenant's Alterations with respect to which the following is true: (i) Tenant was required, or elected, to obtain the approval of Landlord to the installation of the Leasehold Improvement in question; and (ii) at the time Landlord granted its approval, it did not inform Tenant in writing that it would require Tenant to remove such Leasehold Improvement at the expiration of the Lease Term. 5.3 Alterations Required by Law: Tenant shall make any alteration, addition or change of any sort to the Premises that is required by any Law because of (i) Tenant's particular use or change of use of the Premises; (ii) Tenant's application for any permit or governmental approval; or (iii) Tenant's construction or installation of any Tenant's Alterations or Trade Fixtures. Any other alteration, addition, or change required by Law which is not the responsibility of Tenant pursuant to the foregoing shall be made by Landlord (subject to Landlord's right to reimbursement from Tenant specified in P.5.4). 5.4 Amortization of Certain Capital Improvements: Tenant shall pay Additional Rent in the event Landlord reasonably elects or is required to make any of the following kinds of capital improvements to the Project and the cost thereof is not reimbursable as a Common Operating Expense: (i) capital improvements required to be constructed in order to comply with any Law (excluding any Hazardous Materials Law) not in effect or applicable to the Project as of the Effective Date; (ii) modification of existing or construction of additional capital improvements or building service equipment to the extent that the cost thereof would reduce the cost of consumption of utility services or the cost of Common Operating Expenses of the Project payable by Tenant; (iii) replacement of capital improvements or building service equipment existing as of the Effective Date when required because of normal wear and tear; and (iv) restoration of any part of the Project that has been damaged by any peril to the extent the cost thereof is not covered by insurance proceeds actually recovered by Landlord up to a maximum amount per occurrence of 2% of the then replacement cost of the Project. The amount of Additional Rent Tenant is to pay with respect to each such capital improvement shall be determined as follows: A. All costs paid by Landlord to construct such improvements (including financing costs) shall be amortized over the useful life of such improvement (as reasonably determined by Landlord in accordance with generally accepted accounting principles) with interest on the unamortized balance at the then prevailing market rate Landlord would pay if it borrowed funds no construct such improvements from an institutional lender, and Landlord shall inform Tenant of the monthly amortization payment required to so amortize such costs, and shall also provide Tenant with the information upon which such determination is made; provided, that Tenant shall not be responsible for amortized payments attributable to any portion of such useful life occurring after the Lease expires (as it may be extended) or if it is terminated earlier without breach by Tenant. B. As Additional Rent, Tenant shall pay at the same time the Base Monthly Rent is due an amount equal to Tenant's Share of that portion of such monthly amortization payment fairly allocable no the Building (as reasonably determined by Landlord) for each month after such improvements are completed until the first to occur of (i) the expiration of the Lease Term (as it may be extended), or (ii) the end of the term over which such costs were amortized. For the sole purpose of distinguishing between capital events for which Landlord is reimbursed under this Paragraph 5.4 and repair items which are Landlord's responsibility and which are to be reimbursed to Landlord as a part of common Operating Expenses, a "capital expense" shall be a single expense (i) which would be denominated a "capital expense" under generally accepted accounting principles as applied under industry practice in the commercial and industrial real estate industry; and (ii) which exceeds in the aggregate the sum of $50,000.00. Expenses of this nature which otherwise meet the definition of capital expense but which do not exceed $50,000.00 shall be deemed to be repairs and billed a pair of Common Operating Expenses. Notwithstanding the foregoing in this Paragraph, Tenant is not required to pay any Additional Rent related to repairs, replacement or improvements to the structural portions of the Property (defined as structural portions of roof, foundations, floor slab and steel frame). 5.5 Mechanic's Liens: Tenant shall keep the Project free from any liens and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant or Tenant's Agents relating to the Project. If any claim of lien is recorded (except those caused by Landlord or Landlord's Agents), Tenant shall bond against or discharge the same within 10 days after Tenant receives written notice that the same has been recorded against the Project. Should any lien be filed against the Project or any action be commenced affecting title to the Project, the party receiving notice of such lien or action shall immediately give the other party written notice thereof 5.6 Taxes on Tenant's Property: Tenant shall pay 5 LEASE - -------------------------------------------------------------------------------- before delinquency any and all taxes, assessments, license fees and public charges levied, assessed or imposed against Tenant or Tenant's estate in this Lease or the property of Tenant situated within the Premises which become due during the Lease Term. If any tax or other charge is assessed by any governmental agency because of the execution of this Lease, such tax shall be paid by Tenant. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. ARTICLE 6 REPAIR AND MAINTENANCE 6. 1 Tenant's Obligation to Maintain: Except as otherwise provided in P.6.2, P.11.1, and P.12.3, Tenant shall be responsible for the following during the Lease Term: A. Tenant shall clean and maintain in good order, condition, and repair and replace when necessary the Premises and every part thereof, through regular inspections and servicing, including, but not limited to: (i) all plumbing and sewage facilities (including all sinks, toilets, faucets and drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing system; (ii) all fixtures, interior walls, floors, carpets and ceilings; (iii) all windows, doors, entrances, plate glass, showcases and skylights (including cleaning both interior and exterior surfaces); (iv) all electrical facilities and all equipment (including all lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and systems); and (v) any automatic fire extinguisher equipment in the Premises. B. With respect to utility facilities serving the Premises (including electrical wiring and conduits, gas lines, water pipes, and plumbing and sewage fixtures and pipes), Tenant shall be responsible for the maintenance and repair of any such facilities which serve only the Premises, including all such facilities that are within the walls or floor, or on the roof of the Premises, and any part of such facility that is not within the Premises, but only up to the point where such facilities join a main or other junction (e.g., sewer main or electrical transformer) from which such utility services are distributed to other parts of the Project as well as to the Premises. Tenant shall replace any damaged or broken glass in the Premises (including all interior and exterior doors and windows) with glass of the same kind, size and quality. Tenant shall repair any damage to the Premises (including exterior doors and windows) caused by vandalism or any unauthorized entry. C. Tenant shall (i) maintain, repair and replace when necessary all HVAC equipment which services only the Premises, and shall keep the same in good condition through regular inspection and servicing, and (ii) maintain continuously throughout the Lease Term a service contract for the maintenance of all such HVAC equipment with a licensed HVAC repair and maintenance contractor approved by Landlord, which contract provides for the periodic inspection and servicing of the HVAC equipment at least once every 60 days during the Lease Term. Notwithstanding the foregoing, Landlord may elect at any time to assume responsibility for the maintenance, repair and replacement of such HVAC equipment which serves only the Premises. Tenant shall maintain continuously throughout the Lease Term a service contract for the washing of all windows (both interior and exterior surfaces) in time Premises with a contractor approved by Landlord, which contract provides for the periodic washing of all such windows at least once every 60 days during the Lease Term. Tenant shall furnish Landlord with copies of all such service contracts, which shall provide that they may not be cancelled or changed without at least 30 days' prior written notice to landlord. D. All repairs and replacements required of Tenant shall be promptly made with new materials of like kind and quality. If the work affects the structural parts of the Building or if the estimated cost of any item of repair or replacement is in excess of the Permitted Tenant's Alterations Limit, then Tenant shall first obtain Landlord's written approval of the scope of the work, plans therefor, materials to be used, and the contractor. E. Notwithstanding anything to the contrary in this Lease, Tenant shall not be required to repair any items which are covered by or under the provisions of any warranty given by Landlord hereunder. 6.2 Landlord's Obligation to Maintain: Landlord shall repair, maintain and operate the Common Area and repair and maintain the roofs, exterior and structural parts of the building(s) located on the Project so that the same are kept in good order and repair. If there is central HVAC or other building service equipment and/or utility facilities serving portions of the Common Area and/or both the Premises and other parts of the Building, Landlord shall maintain and operate (and replace when necessary) such equipment. Landlord shall not be responsible for repairs required by an accident, fire or other peril or for damage caused to any part of the Project by any act or omission of Tenant or Tenant's Agents except as otherwise required by Article 11. Landlord may engage contractors of its choice to perform the obligations required of it by this Article, and the necessity of any expenditure to perform such obligations shall be at the sole discretion of Landlord. 6.3 Control of Common Area: Landlord shall at all times have exclusive control of the Common Area. Landlord shall have the right, without the same constituting an actual or constructive eviction and without entitling Tenant to any abatement of rent, to: (i) close any part of the Common Area to whatever extent required in the opinion of Landlord's counsel to prevent a dedication thereof or the accrual of any prescriptive rights therein; (ii) temporarily close the Common Area to perform maintenance or for any other reason deemed sufficient by Landlord; (iii) change the shape, size, location and extent of the Common Area; (iv) eliminate from or add to the Project any land or improvement, including multi-deck parking structures; (v) make changes to the Common Area including, without limitation, changes in the location of driveways, entrances, exits, parking spaces, parking areas, sidewalks or the direction of the flow of traffic and the site of the Common Area; (vi) remove unauthorized persons from the Project; and/or (vii) change the name of the Building or Project or the address of the Building or Project if, and only if, the change is made as a result of a change made by a governmental authority. Tenant shall keep the Common Area clear of all obstructions created or permitted by Tenant. If in the opinion of Landlord unauthorized persons are using any of the Common Area by reason of the presence of Tenant in the Building, Tenant, upon demand of Landlord, shall restrain such unauthorized use by appropriate proceedings. In exercising any such rights regarding time Common Area, (i) Landlord shall make a reasonable 6 LEASE - -------------------------------------------------------------------------------- effort to minimize any disruption to Tenant's business, and (ii) Landlord shall not exercise its rights to control the Common Area in a manner that would materially interfere with Tenant's use of the Premises, or substantially reduce Tenant's Allocated Parking Stalls without first obtaining Tenant's consent Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project ARTICLE 7 WASTE DISPOSAL AND UTILITIES 7.1 Waste Disposal: Tenant shall store its waste either inside the Premises or within outside trash enclosures that are fully fenced and screened in compliance with all Private Restrictions, and designed for such purpose. All entrances to such outside trash enclosures shall be kept closed, and waste shall be stored in such manner as not to be visible from the exterior of such outside enclosures. Tenant shall cause all of its waste to be regularly removed from the Premises at Tenant's sole cost. Tenant shall keep all fire corridors and mechanical equipment rooms in the Premises free and clear of all obstructions at all times. 7.2 Hazardous Materials: Landlord and Tenant agree as follows with respect to the existence or use of Hazardous Materials on the Project: A. Any handling, transportation, storage, treatment, disposal or use of Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in or about time Project shall strictly comply with all applicable Hazardous Materials Laws. Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold harmless Landlord from and against any liabilities, losses, claims, damages, host profits, consequential damages, interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court costs, remediation costs, investigation costs, and other expenses which result from or arise in any manner whatsoever out of the use, storage, treatment, transportation, release, or disposal of Hazardous Materials on or about the Project by Tenant or Tenant's Agents after the Effective Date. B. If the presence of Hazardous Materials on the Project caused or knowingly permitted by Tenant or Tenant's Agents after the Effective Date results in contamination or deterioration of water or soil resulting in a level of contamination greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination, then Tenant shall promptly take any and all action necessary to investigate and remediate such contamination if required by Law or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of the Project or any part thereof. Tenant shall further be solely responsible for, and shall defend, indemnify and hold Landlord and its agents harmless from and against, all claims, costs and liabilities, including attorneys' fees and costs, arising out of or in connection with any investigation and remediation required hereunder to return the Project to its condition existing prior to the appearance of such Hazardous Materials. C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Project, and (ii) any contamination of the Project by Hazardous Materials which constitutes a violation of any Hazardous Materials Law. Tenant may use small quantities of household chemicals such as adhesives, lubricants, and cleaning fluids in order to conduct its business at the Premises and such other Hazardous Materials as are necessary for the operation of Tenant's business of which Landlord receives notice prior to such Hazardous Materials being brought onto the Premises and which Landlord consents in writing may be brought onto the Premises. At any time during the Lease Term, Tenant shall, within five business days after written request therefor received from Landlord, disclose in writing all Hazardous Materials that are being used by Tenant on the Project, the nature of such use, and the manner of storage and disposal. D. Landlord may cause testing wells to be installed on the Project, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. If Tenant so requests, Landlord shall supply Tenant with copies of such test results. The cost of such tests and of the installation, maintenance, repair and replacement of such wells shall be paid by Tenant if such tests disclose the existence of facts which give rise to liability of Tenant pursuant to its indemnity given in P.7.2A and/or P.7.2B. E. As used herein, the term "Hazardous Material," means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term "Hazardous Material," includes, without limitation, petroleum products, asbestos, PCB's, and any material or substance which is (i) listed under Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response; Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous Material Law" shall mean any statute, law, ordinance, or regulation of any governmental body or agency (including the U.S. Environmental Protection Agency, the California Regional Water Quality Control Board, and the California Department of Health Services) which regulates the use, storage, release or disposal of any Hazardous Material. F. To the actual knowledge of Michael J. Biggar, Landlord's executive handling this Project, as of the Effective Date, without having made any investigation (and without having been deemed to have investigated or discovered any unknown facts which such investigation would have disclosed), and subject to and qualified by all information and disclosures made to Tenant by Landlord (including but not limited to those disclosures made or described in Exhibit I and Paragraph 6 of the First Addendum to Lease, and reports referenced therein) (i) the soil, surface water, or groundwater on or under the 7 LEASE - -------------------------------------------------------------------------------- Premises and the Project does not contain Hazardous Materials in amounts which violate any Hazardous Materials Laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials; (ii) no asbestos-containing building materials are present in the Buildings; and (iii) no action, proceeding, or claim is pending or threatened regarding the Premises or the Project concerning any Hazardous Materials. G. Tenant shall not be liable to Landlord under any provisions of Article 7 of this Lease for any claims arising out of or in connection with any Hazardous Materials present on the Premises or the Project, or the soil, air, improvements, groundwater, or surface water thereof as of the Commencement Date and not resulting from Tenant's acts or omissions. H. The obligations of Landlord and Tenant under this P.7.2 shall survive the expiration or earlier termination of the Lease Term. The rights mind obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this P.7.2. In the event of any inconsistency between any other part of this Lease and this P.7.2, the terms of this P.7.2 shall control. 7.3 Utilities: Tenant shall promptly pay, as the same become due, all charges for water, gas, electricity, telephone, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Lease Term, including, without limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee (excluding any connection fees or hook-up fees which relate to making the existing electrical, gas, and water service available to the Premises as of the Commencement Date), and (ii) penalties for discontinued or interrupted service. If any utility service is not separately metered to the Premises, then Tenant shall pay its pro rata share of the cost of such utility service with all others served by the service not separately metered, However, if Landlord (determines that Tenant is using a disproportionate amount of any utility service not separately metered, then Landlord at its election may (i) periodically charge Tenant, as Additional Rent, a sum equal to Landlord's reasonable estimate of the cost of Tenant's excess use of such utility service, or (ii) install a separate meter (at Tenant's expense) to measure the utility service supplied to the Premises. 7.4 Compliance with Governmental Regulations: Landlord and Tenant shall comply with all rules, regulations and requirements promulgated by national, state or local governmental agencies or utility suppliers concerning the use of utility services, including any rationing, limitation or other control. Tenant shall not be entitled to terminate this Lease nor to any abatement in rent by reason of such compliance. ARTICLE 8 COMMON OPERATING EXPENSES 8. 1 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall pay Tenant's Share (specified in Section G of the Summary) of all Common Operating Expenses; provided, however, if the Project contains more than one building, then Tenant shall pay Tenant's Share of all Common Operating Expenses fairly allocable to the Building, including (i) all Common Operating Expenses paid with respect to the maintenance, repair, replacement and use of the Building, and (ii) a proportionate share (based on the Building Gross Leasable Area as a percentage of the Project Gross Leasable Area) of all Common Operating Expenses which relate to the Project in general are not fairly allocable to any one building that is part of the Project. Tenant shall pay such share of the actual Common Operating Expenses incurred or paid by Landlord but not theretofore billed to Tenant within 10 days after receipt of a written bill therefor from Landlord, on such periodic basis as Landlord shall designate, but in no event more frequently than once a month. Alternatively, Landlord may from time to time require that Tenant pay Tenant's Share of Common Operating Expenses in advance in estimated monthly installments, in accordance with the following: (i) Landlord shall deliver to Tenant Landlord's reasonable estimate of the Common Operating expenses it anticipates will be paid or incurred for the Landlord's fiscal year in question; (ii) during such Landlord's fiscal year Tenant shall pay such share of the estimated Common Operating Expenses in advance in monthly installments as required by Landlord due with the installments of Base Monthly Rent; and (iii) within 90 days after the end of each Landlord's fiscal year, Landlord shall furnish to Tenant a statement in reasonable detail of the actual Common Operating Expenses paid or incurred by Landlord during the just ended Landlord's fiscal year and thereupon there shall be an adjustment between Landlord and Tenant, with payment to Landlord or credit by Landlord against the next installment of Base Monthly Remit or reimbursement to Tenant if this Lease has terminated, as the case may require, within 10 days after delivery by Landlord to Tenant of said statement, so that Landlord shall receive the entire amount of Tenant's Share of all Common Operating Expenses for such Landlord's fiscal year and no more. Tenant shall have the right at its expense, exercisable upon reasonable prior written notice to Landlord, to audit at Landlord's office during nominal business hours Landlord's books and records as they relate to Common Operating Expenses. Such inspection must be within 90 days of Tenant's receipt of Landlord's annual statement for the same, and shall be limited to verification of the charges contained in such statement. Tenant may not withhold payment of such bill pending completion of such audit. If such audit reveals that Landlord has overcharged Tenant, the amount overcharged shall be credited to Tenant's account within thirty (30) days after the audit is concluded. In the event that an audit proves that Tenant has been overcharged by more than ten percent (10%), Landlord shall reimburse Tenant for the costs of such audit within thirty (30) days after receipt of a statement and supporting documents therefor; provided, however, that the following limitations shall apply; (i) Landlord shall not be responsible for reimbursing Tenant for audit costs in excess of $2,000.00 for the audit of a single year; (ii) Landlord shall not be obligated to reimburse for audit costs if the audit is conducted by an employee of Tenant; (iii) the auditor retained by Tenant shall be a certified public accountant and not be engaged on a "contingency fee" basis; and (iv) Landlord is not bound by the conclusions of Tenant's auditor. 8.2 Common Operating Expenses Defined: The term "Common Operating Expenses" shall mean time following: A. All costs and expenses paid or incurred by Landlord in doing the following (including payments to independent contractors providing services related to the 8 LEASE - -------------------------------------------------------------------------------- performance of the following): (i) maintaining, cleaning, repairing and resurfacing the roof (including repair of leaks) and the exterior surfaces (including painting) of all buildings located on the Project; (ii) maintenance of the liability, fire and property damage insurance covering the Project carried by Landlord pursuant to P. 9.2 (including the prepayment of premiums for coverage of up to one year); (iii) maintaining, repairing, operating and replacing when necessary HVAC equipment, utility facilities and other building service equipment; (iv) providing utilities to the Common Area (including lighting, trash removal and water for landscaping irrigation); (v) complying with all applicable Laws and Private Restrictions; (vi) operating, maintaining, repairing, cleaning, painting, restriping and resurfacing the Common Area; (vii) replacement or installation of lighting fixtures, directional or other signs and signals, irrigation systems, trees, shrubs, ground cover and other plant materials, and all landscaping in the Common Area; and (viii) providing security. B. The following costs: (i) Real Property Taxes as defined in P. 8.3; (ii) the amount of any "deductible" paid by Landlord with respect to damage caused by any Insured Peril; (iii) the cost to repair damage caused by an Uninsured Peril up to a maximum amount in any 12 month period equal to 2% of the replacement cost of the buildings or other improvements damaged; and (iv) that portion of all compensation (including benefits and premiums for workers' compensation and other insurance) paid to or on behalf of employees of Landlord but only to the extent they are substantially involved in the performance of the work described by P.8.2A that is fairly allocable to the Project; C. Fees for management services rendered by either Landlord or a third party manager engaged by Landlord (which may be a party affiliated with Landlord), except that the total amount charged for management services and included in Tenant's Share of Common Operating Expenses shall not exceed the monthly rate of 4% of the Base Monthly Rent. D. All additional costs and expenses incurred by Landlord with respect to the operation, protection, maintenance, repair and replacement of the Project which would be considered a current expense (and not a capital expenditure) pursuant to generally accepted accounting principles; provided, however, that Common Operating Expenses shall not include any of the following: (i) payments on any loans or ground leases affecting the Project; (ii) depreciation of any buildings or any major systems of building service equipment within the Project; (iii) leasing commissions; (iv) the cost of tenant improvements installed for the exclusive use of other tenants of the Project; (v) any cost incurred in complying with Hazardous Materials Laws, which subject is governed exclusively by P.7.2; and (vi) legal fees incurred in lease preparation; (vii) the cost of initial Interior Improvements of the Premises to the extent of the Tenant Improvement Allowance as defined in the First Addendum to Lease, Paragraph 5; (viii) costs actually reimbursed to Landlord by insurance or any third party; (ix) advertising and leasing costs; (x) costs of compliance with the warranties made by Landlord hereunder; (xi) depreciation, amortization, or other expense reserves; (xii) costs and expenses for which Tenant reimburses or pays Landlord directly; and (xiii) costs no comply with any Laws which were in effect and applicable to the Project as of the Commencement Date (which shall not include any matters where Landlord was not required to comply with particular Laws, as of the Commencement Date, but is later required to comply due to intervening events). 8.3 Real Property Taxes Defined: The term "Real Property Taxes" shall mean all taxes, assessments, levies, and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any existing or future general or special assessments for public improvements, services or benefits, and any increases resulting from reassessments resulting from a change in ownership, new construction, or any other cause), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of all or any portion of the Project (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein, the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located on the Project, the gross receipts, income, or rentals from the Project, or the use of parking areas, public utilities, or energy within the Project, or Landlord's business of leasing the Project. If at any time during time Lease Term the method of taxation or assessment of the Project prevailing as of the Effective Date shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Project or Landlord's interest therein, or (ii) on or measured by the gross receipts, income or rentals from the Project, on Landlord's business of leasing the Project, or computed in any manner with respect to the operation of the Project, then any such tax or charge, however designated shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Project, then only that part of such Real Property Tax that is fairly allocable to the Project shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, transfer, gift or franchise taxes of Landlord or time federal or state net income tax imposed on Landlord's income from all sources. Tenant shall have the right (but not the obligation), at its own expense and risk, to contest the amount of Real Property Taxes or the underlying appraisal, both for the entire Project, which is a single parcel. Tenant agrees to indemnify, defend, and hold harmless Landlord against any claims, damages, losses or costs incurred by Landlord on account of Tenant's activities. If Landlord is actively contesting the Real Property Taxes, the above right of Tenant shall be limited to a right to be included as a co-party, but under such circumstances, Landlord reserves all final decisions to itself. ARTICLE 9 INSURANCE 9.1 Tenant's Insurance: Tenant shall maintain insurance complying with all of the following: 9 LEASE - -------------------------------------------------------------------------------- A. Tenant shall procure, pay for and keep in full force and effect the following: (1). Commercial general liability insurance, including property damage, against liability for personal injury, bodily injury, death and damage to property occurring in or about, or resulting from an occurrence in or about, the Premises with combined single limit coverage of not less than the amount of Tenant's Liability Insurance Minimum specified in Section P of the Summary, which insurance shall contain a "contractual liability" endorsement insuring Tenant's performance of Tenant's obligation to indemnify Landlord contained in P.10.3; (2). Fire and property damage insurance in so-called "all risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations for the full actual replacement cost thereof; (3). Such other insurance that is either (i) reasonably required by any Lender, or (ii) reasonably required by Landlord and customarily carried by tenants of similar property in similar businesses. B. Where applicable and required by Landlord, each policy of insurance required to be carried by Tenant pursuant to this P.9.1: (i) the insurance under 9.1. (A)(I) shall name Landlord and such other parties in interest as Landlord reasonably designates as additional insured; (ii) shall be primary insurance which provides that the insurer shall be liable for the full amount of the loss up to and including the total amount of liability set forth in the declarations without the right of contribution from any other insurance coverage of Landlord; (iii) shall be in a form reasonably satisfactory to Landlord; (iv) shall be carried with companies reasonably acceptable to Landlord; (v) shall provide that such policy shall not be subject to cancellation, except after at least 30 days prior written notice to Landlord so long as such provision of 30 days notice is reasonably obtainable, but in any event not less than 10 days prior written notice; (vi) shall not have a "deductible" in excess of $ 10,000 unless approved in writing by Landlord; (vii) shall contain a cross liability endorsement; and (viii) shall contain a "severability" clause. If Tenant has in full force and effect a blanket policy of liability insurance with the same coverage for time Premises as described above, as well as other coverage of other premises and properties of Tenant, or in which Tenant has some interest, such blanket insurance shall satisfy the requirements of this P.9.1. C. A copy of each paid-up policy evidencing the insurance required to be carried by Tenant pursuant to this P.9.1 (appropriately authenticated by the insurer) or a certificate of the insurer, certifying that such policy has been issued, providing the coverage required by this P.9. 1, and containing the provisions specified herein, shall be delivered to Landlord prior to the time Tenant or any of its Agents enters the Premises and upon renewal of such policies, but not less than 5 days prior to the expiration of the term of such coverage. Landlord may, at any time, and from time to time, inspect and/or copy any and all insurance policies required to be procured by Tenant pursuant to this P.9.1. If any Lender reasonably determines at any time that the amount of coverage required for any policy of insurance Tenant is to obtain pursuant to this P.9.1 is not adequate, then Tenant shall increase such coverage for such insurance to such amount as such Lender reasonably deems adequate, not to exceed the level of coverage for such insurance commonly carried by comparable businesses similarly situated. 9.2 Landlord's Insurance: Landlord shall have the following obligations and options regarding insurance: A. Landlord shall maintain a policy or policies of fire and property damage insurance in so-called "all risk" form insuring Landlord (and such others as Landlord may designate) against loss of rents (both Base Monthly Rent and Additional Rent) for a period of not less than 12 months and from physical damage to due Project with coverage of not less than the full replacement cost thereof. Landlord may so insure the Project separately, or may insure the Project with other property owned by Landlord which Landlord elects to insure together under the same policy or policies. Such fire and property damage insurance (i) may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and to provide such additional coverage as Landlord reasonably requires, and (ii) shall contain reasonable "deductibles" which, in the case of earthquake and flood insurance, may be up to 15% of the replacement value of the property insured or such higher amount as is then commercially reasonable. Landlord shall not be required to cause such insurance to cover any Trade Fixtures or Tenant's Alterations of Tenant. B. Landlord may maintain a policy or policies of commercial general liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Project, with combined single limit coverage in such amount as Landlord from time to time determines is reasonably necessary for its protection. 9.3 Tenant's Obligation to Reimburse: If Landlord's insurance rates for the Building are increased at my time during the Lease Term as a result of the nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the full amount of such increase immediately upon receipt of a bill from Landlord therefor. 9.4 Release and Waiver of Subrogation: The parties hereto release each other, and their respective agents and employees, from any liability for injury to any person or damage to property that is caused by or results from any risk insured or required to be insured against under any valid and collectible insurance policy carried by either of the parties which contains a waiver of subrogation by the insurer and is in force at the time of such injury or damage; subject to the following limitations: (i) the foregoing provision shall not apply to the commercial general liability insurance described by subparagraphs P.9.1A and P.9.2B; (ii) such release shall apply to liability resulting from any risk insured against or covered by self-insurance maintained or provided by Tenant to satisfy the requirements of P.9.1 to the extent permitted by this Lease; and (iii) Tenant shall not be released from any such liability to the extent any damages resulting front such injury or damage are not covered by the recovery obtained by Landlord from such insurance, but only if the insurance in question permits such partial release in connection with obtaining a waiver of subrogation from the insurer this release shall be in effect only so long as the applicable insurance policy contains a clause to the effect that this release shall not affect the right of the insured to recover under such policy. Each party shall 10 LEASE - -------------------------------------------------------------------------------- use reasonable efforts to cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against the other party and its agents and employees in connection with any injury or damage covered by such policy. However, if any insurance policy cannot be obtained with such a waiver of subrogation, despite the party's exercise of such reasonable efforts, or if such waiver of subrogation is only available at additional cost and the party for whose benefit the waiver is to be obtained does not pay such additional cost, then the party obtaining such insurance shall notify the other party of that fact and thereupon shall be relieved of the obligation to obtain such waiver of subrogation rights from the insurer with respect to the particular insurance involved. ARTICLE 10 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 10.1 Limitation on Landlord's Liability: Landlord shall not be liable to Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement of rent (except as expressly provided otherwise in this Lease), for any injury to Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents, or loss to Tenant's business resulting from any cause, including without limitation any: (i) failure, interruption or installation of any HVAC or other utility system or service; (ii) failure to furnish or delay in furnishing any utilities or services when such failure or delay is caused by fire or other peril, the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of Landlord; (iii) limitation, curtailment, rationing or restriction on the use of water or electricity, gas or any other form of energy or any services or utility serving the Project; (iv) vandalism or forcible entry by unauthorized persons or the criminal act of any person; or (v) penetration of water into or onto any portion of the Premises or the Building through roof leaks or otherwise. Notwithstanding the foregoing but subject to P.9.4, Landlord shall be liable for any such injury, damage or loss which is proximately caused by Landlord's willful misconduct or active negligence. 10.2 Limitation on Tenant's Recourse: If Landlord is a corporation, trust, partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives of such business entity; and (ii) Tenant shall not have recourse to the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders, principals or representatives except to the extent of their interest in the Project. Tenant shall have recourse only to the interest of Landlord in the Project for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations. 10.3 Indemnification of Landlord: Tenant shall hold harmless, indemnify and defend Landlord, and its employees, agents and contractors, with competent counsel reasonably satisfactory to Landlord (and Landlord agrees to accept counsel that any insurer requires be used), from all liability, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgments arising by reason of any death, bodily injury, personal injury or property damage resulting from (i) any cause or causes whatsoever (other than the willful misconduct or active negligence of Landlord occuring in or about or resulting from an occurrence in or about the Premises during the Lease Term; (ii) the negligence or willful misconduct of Tenant or its agents, employees and contractors, wherever the same may occur; or (iii) an Event of Tenant's Default. The provisions of this P.10.3 shall survive the expiration or sooner termination of this Lease. 10.4. Indemnification of Tenant: Landlord shall hold harmless, indemnify and defend Tenant, and its employees, agents and contractors, with competent counsel reasonably satisfactory to Tenant (and Tenant agrees to accept counsel that any insurer requires be used), from all liability, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgments arising by reason of any death, bodily injury, personal injury or property damage resulting from the active negligence or willful misconduct of Landlord or Landlord's intentional violation of any Laws. ARTICLE 11 DAMAGE TO PREMISES 11.1 Landlord's Duty to Restore: If the Premises are damaged by any peril after the Effective Date, Landlord shall restore the Premises unless the Lease is terminated by Landlord pursuant to P.11.2 or by Tenant pursuant to P.11.3 All insurance proceeds available from the fire and property damage insurance carried by Landlord pursuant to P.9.2 shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either P.11.2 or P.11.3, then all insurance proceeds available from insurance carried by Tenant which covers loss to property that is Landlord's property or would become Landlord's property on termination of this Lease shall be paid to and become the property of Landlord. If this Lease is not so terminated, then upon receipt of the insurance proceeds (if the loss is covered by insurance) and the issuance of all unnecessary governmental permits, Landlord shall commence and diligently prosecute to completion the restoration of the Premises, to the extent then allowed by Law, to substantially the same condition in which the Premises were immediately prior to such damage. Landlord's obligation to restore shall be limited to the Premises and interior improvements constructed by Landlord as they existed as of the Commencement Date excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant in the Premises. Tenant shall forthwith replace or fully repair all Tenant's Alterations and Trade Fixtures installed by Tenant and existing at the time of such damage or destruction, and all insurance proceeds received by Tenant from the insurance carried by it pursuant to P.9.1A(2) shall be used for such purpose. 11.2 Landlord's Right to Terminate: Landlord shall have the right to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Tenant of a written notice of election to terminate within 30 days after the date of such damage: A. The Buildings are damaged by an Insured Peril to such an extent that the estimated cost to restore exceeds 50% of the then actual replacement cost thereof; 11 LEASE - -------------------------------------------------------------------------------- provided, however, that Landlord may not terminate this Lease under this Subparagraph if the insurance proceeds actually received equal or exceed the actual replacement cost of the damage, or if not, Tenant agrees in writing to pay the amount by which the cost to restore the damage exceeds the amount of insurance proceeds actually received and subsequently deposits such amount with Landlord within 30 days after Landlord has notified Tenant of its election to terminate this Lease; B. A Building is damaged by an Uninsured Peril to such an extent that the estimated cost to restore exceeds 4% of the then actual replacement cost thereof; provided, however, that Landlord may not terminate this Lease pursuant to this P.11.2B if one or more tenants of the Project agree in writing to pay the amount by which time cost to restore the damage exceeds such amount and subsequently deposit such amount with Landlord within 30 days after Landlord has notified Tenant of its election to terminate this Lease; C. The Premises are damaged by any peril within 12 months of the last day of the Lease Term to such an extent that the estimated cost to restore equals or exceeds an amount equal to six times the Base Monthly Rent then due; provided, however, that Landlord may not terminate this Lease pursuant to this P.1l.2C if Tenant, at the time of such damage, has a then valid express written option to extend the Lease Term and Tenant exercises such option to extend the Lease Term no later than 15 days following receipt of Landlord's written notice electing to terminate this Lease; or D. A Building is damaged by any peril and, because of the Laws then in force, (i) cannot be restored at reasonable cost to substantially the same condition in which it was prior to such damage; provided, however, that Landlord may not terminate this Lease under this Subparagraph if the insurance proceeds actually received equal or exceed the actual cost to restore to substantially the same condition, or if not, Tenant agrees in writing to pay the amount by which the cost to restore to substantially the same condition exceeds the amount of insurance proceeds actually received and subsequently deposits such amount with Landlord within 30 days after Landlord has notified Tenant of its election to terminate this Lease; or (ii) cannot be used for substantially the same use being made thereof before such damage if restored as required by this Article. E. As used herein, the following terms shall have the following meanings: (i) the term "Insured Peril" shall mean a peril actually insured against for which the insurance proceeds actually received by Landlord are sufficient (except for any "deductible" amount specified by such insurance) to restore the Project under then existing building codes to the condition existing immediately prior to the damage; and (ii) the term "Uninsured Peril" shall mean any peril which is not aim Insured Peril. Notwithstanding the foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of the replacement cost of the improvements insured, such peril shall be deemed an "Uninsured Peril". 11.3 Tenant's Right to Terminate: If the Premises are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to P.11.2, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord's architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the might to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Landlord of a written notice of election to terminate within 15 days after Tenant receives from Landlord the estimate of the time needed to complete such restoration. A. The Premises are damaged by any peril and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within 270 days after the date of such damage; or B. The Premises are damaged by any peril within 12 months of the last day of the Lease Term and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of time Premises cannot be substantially completed within 90 days after the date of such damage and such damage renders unusable more than 15% of the Premises. C. The Buildings are damaged by any peril and because of the Laws then in force, the Buildings cannot be used for the substantially the same use being made thereof before such damage occurred if restored as required by this Article. 11.4 Abatement of Rent: In the event of damage to the Premises which does not result in the termination of this Lease, the Base Monthly Rent and the Additional Rent shall be temporarily abated during the period of restoration in proportion to the degree to which Tenant's use of the Premises is impaired by such damage. Tenant shall not be entitled to any compensation or damages from Landlord for loss of Tenant's business or property or for any inconvenience or annoyance caused by such damage or restoration. Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and the provisions of any similar law hereinafter enacted. ARTICLE 12 CONDEMNATION 12.1 Landlord's Termination Right: Landlord shall have the right to terminate this Lease if, as a result of a taking by means of the exercise of the power of eminent domain (including a voluntary sale or transfer by Landlord to a condemnor under threat of condemnation), (i) all or any part of a Building is so taken, or (ii) more than 50% of the Common Area is so taken. Any such right to terminate by Landlord must be exercised within a reasonable period of time, to be effective as of the date possession is taken by the condemnor. Landlord's right to terminate shall be exercised only as to any Building which is wholly or partially taken by condemnation, and Landlord may not terminate the Lease as to any Building unaffected by the condemnation. 12.2 Tenant's Termination Right: Tenant shall have the right to terminate this Lease as to any Building if, as a result of any taking by means of the exercise of the power of eminent domain (including any voluntary sale or transfer by Landlord to any condemnor under threat of condemnation), (i) 10% or more the Building's leasable area is so taken and that part of the Premises that remains cannot be restored within a reasonable period of time and thereby made reasonably suitable for the continued operation of the Tenant's business, or (ii) there is a taking affecting the Common Area and, as a result of such 12 LEASE - -------------------------------------------------------------------------------- taking, Landlord cannot provide parking spaces within the Project equal in number to at least 80% of the number of spaces allocated to Tenant by P.2.1, by rearrangement of the remaining parking areas in the Common Area (including construction of multi-deck parking structures or restriping for compact ears where permitted by Law). Tenant must exercise such right within a reasonable period of time, to be effective on the date that possession of that portion of the Premises or Common Area that is condemned is taken by the condemnor. 12.3 Restoration and Abatement of Rent: If any part of the Premises or the Common Area is taken by condemnation and this Lease is not terminated, then Landlord shall restore the remaining portion of the Premises and Common Area and interior improvements constructed by Landlord as they existed as of the Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant. Thereafter, except in the case of a temporary taking, as of the date possession is taken the Base Monthly Rent and Additional Rent shall be reduced in the same proportion that the floor area of that part of the Premises so taken (less any addition thereto by reason of any reconstruction) bears to the original floor area of the Premises. 12.4 Temporary Taking: If any portion of the Premises is temporarily taken for one year or less, this Lease shall remain in effect. If any portion of the Premises is temporarily taken by condemnation for a period which exceeds one year or which extends beyond the natural expiration of the Lease Term, and such taking materially and adversely affects Tenant's ability to use the Premises for the Permitted Use, then Tenant shall have the right to terminate this Lease, effective on the date possession is taken by the condemnor. 12.5 Division of Condemnation Award: Any award made as a result of any condemnation of the Premises or the Common Area shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any condemnation award that is made directly to Tenant for the following so long as the award made to Landlord is not thereby reduced: (i) for the taking of personal property or Trade Fixtures belonging to Tenant; (ii) for the interruption of Tenant's business or its moving costs; (iii) for loss of Tenant's goodwill; or (iv) for any temporary taking where this Lease is not terminated as a result of such taking. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of California Code of Civil Procedure Section 1265.130 and the provisions of any similar law hereinafter enacted allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises. ARTICLE 13 DEFAULT AND REMEDIES 13.1 Events of Tenant's Default: Tenant shall be in default of its obligations under this Lease if any of the following events occurs (an "Event of Tenant's Default"): A. Tenant shall have failed to pay Base Monthly Rent or Additional Rent when due, and such failure is not cured within 3 days after delivery of written notice from Landlord specifying such failure to pay, provided, that before the deadline to pay expires, Tenant must have at least two (2) business days to pay; or B. Tenant shall have failed to perform any term, covenant, or condition of this Lease except those requiring the payment of Base Monthly Rent or Additional Rent, and Tenant shall have failed to cure such breach within 30 days after written notice from Landlord specifying the nature of such breach where such breach could reasonably be cured within said 30 day period, or if such breach could not be reasonably cured within said 30 day period, Tenant shall have failed to commence such cure within said 30 day period and thereafter continue with due diligence to prosecute such cure to completion within such time period as is reasonably needed or C. Tenant shall have sublet the Premises or assigned its interest in the Lease in violation of the provisions contained in Article 14; or D. Tenant shall have abandoned the Premises or left the Premises substantially vacant; or E. The occurrence of the following: (i) the making by Tenant of any general arrangements or assignments for the benefit of creditors; (ii) Tenant becomes a "debtor" as defined in 11 USC ss.101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this Section 13.1E is contrary to any applicable Law, such provision shall be of no force or effect; or F. Tenant shall have failed to deliver documents required of it pursuant to P.15.4 or P.15.6 within the time periods specified therein and Tenant further fails to satisfy such obligations within five (5) days after a further written notice of this breach from Landlord which states that "FAILURE TO RESPOND TO THIS NOTICE WITHIN FIVE (5) DAYS WILL MEAN THAT AN EVENT OF TENANT'S DEFAULT UNDER THE LEASE WILL EXIST". 13.2 Landlord's Remedies: If an Event of Tenant's Default occurs, Landlord shall have the following remedies, in addition to all other rights and remedies provided by any Law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative: A. Landlord may keep this Lease in effect and enforce by an action at law or in equity all of its rights and remedies under this Lease, including (i) the right to recover the remit and other sums as they become due by appropriate legal action; (ii) the right to make payments required of Tenant or perform Tenant's obligations and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant; and (iii) the remedies of injunctive relief mind specific performance to compel Tenant to perform its obligations under this Lease. Notwithstanding anything contained in 13 LEASE - -------------------------------------------------------------------------------- this Lease, in the event of a breach of an obligation by Tenant which results in a condition which poses an imminent danger to safety of persons or damage to property, an unsightly condition visible from the exterior of the Building, or a threat to insurance coverage, then if Tenant does not cure such breach within 3 days after delivery to it of written notice from Landlord identifying the breach, Landlord may cure the breach of Tenant and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant, B. Landlord may enter the Premises and release them to third parties for Tenant's account for any period, whether shorter or longer than the remaining Lease Term. Tenant shall be liable immediately to Landlord for all reasonable costs Landlord incurs in releasing the Premises, including brokers' commissions, expenses of altering and preparing the Premises required by the releasing. Tenant shall pay to Landlord the rent and other sums due under this Lease on the date the rent is due, less the rent and other sums Landlord received from any releasing. No act by Landlord allowed by this subparagraph shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease. Notwithstanding any releasing without termination, Landlord may later elect to terminate this Lease because of the default by Tenant. C. Landlord may terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice. Any termination under this P.13.2C shall not relieve Tenant from its obligation to pay sums then due Landlord or from any claim against Tenant for damages or rent previously accrued or then accruing. In no event shall any one or more of the following actions by Landlord, in the absence of a written election by Landlord to terminate this Lease, constitute a termination of this Lease: (i) appointment of a receiver or keeper in order to protect Landlord's interest hereunder; (ii) consent to any subletting of the Premises or assignment of this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or (iii) any other action by Landlord or Landlord's Agents intended to mitigate the adverse effects of any breach of this Lease by Tenant, including without limitation any action taken to maintain and preserve the Premises or any action taken to relet the Premises or any portions thereof to the extent such actions do not affect a termination of Tenant's right to possession of the Premises. D. In the event Tenant breaches this Lease and abandons the Premises, this Lease shall not terminate unless Landlord gives Tenant written notice of its election to so terminate this Lease. No act by or on behalf of Landlord intended to mitigate the adverse effect of such breach, including those described by P.13.C, shall constitute a termination of Tenant's right to possession unless Landlord gives Tenant written notice of termination. Should Landlord not terminate this Lease by giving Tenant written notice, Landlord may enforce all its rights and remedies under this Lease, including the right to recover the rent as it becomes due under the Lease as provided in California Civil Code Section 1951.4. E. In the event Landlord terminates this Lease, Landlord shall be entitled, at Landlord's election, to damages in an amount as set forth in California Civil Code Section 1951.2 as in effect on the Effective Date. For purposes of computing damages pursuant to California Civil Code Section 1951.2, (i) an interest rate equal to the Agreed Interest Rate shall be used where permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional Rent. Such damages shall include: (1). The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%); and (2). Any other amount necessary no compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom, including the following: (i) expenses for cleaning, repairing or restoring the Premises; (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting, including installation of leasehold improvements (whether such installation be funded by a reduction of rent, direct payment or allowance to a new tenant, or otherwise); (iii) broker's fees, advertising costs and other expenses of reletting the Premises; (iv) costs of carrying the Premises, such as taxes, insurance premiums, utilities and security precautions; (v) expenses in retaking possession of time Premises; and (vi) attorneys' fees and court costs incurred by Landlord in retaking possession of the Premises and in releasing the Premises or otherwise incurred as a result of Tenant's default. F. Nothing in this P.13.2 shall limit Landlord's right to indemnification from Tenant as provided in P.7.2 and P.10.3. Any notice given by Landlord in order to satisfy the requirements of P.13.1A or P.13.B above shall also satisfy the notice requirements of California Code of Civil Procedure Section 1161 regarding unlawful detainer proceedings. 13.3 Waiver: One party's consent to or approval of any act by the other party requiring the fist party's consent or approval shall not be deemed to waive or render unnecessary the first party's consent to or approval of any subsequent similar act by the other party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach unless such waiver is in writing and signed by Landlord. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either parry of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or of any other provisions herein contained 13.4 Limitation On Exercise of Rights: At any time that an Event of Tenant's Default has occurred and remains uncured, (i) it shall not be unreasonable for Landlord to deny or withhold any consent or approval requested of it by Tenant which Landlord would otherwise be obligated to give and (ii) Tenant may not exercise any option to extend, right to terminate this Lease, or other right granted to it by this Lease which would otherwise be available to it. 13.5 Waiver by Tenant of Certain Remedies: Tenant waives the provisions of Sections 1932(1), 1941 and 14 LEASE - -------------------------------------------------------------------------------- 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease. Tenant hereby waives any right of redemption or relief from forfeiture under the laws of the State of California, or under any other present or future law, including the provisions of Sections 1174 and 1179 of the California Code of Civil Procedure. 13.6 Events of Landlord's Default: Landlord shall be in default of its obligations under this Lease if Landlord shall have failed to perform any term, covenant, or condition of this Lease, and thereafter shall have failed to cure such breach within thirty (30) days after written notice has been given by Tenant to Landlord and any Lender whose name and address shall have been furnished to Tenant in writing specifying the nature of such breach, where such breach could reasonably be cured within said thirty (30) day period, or if such breach could not reasonably be cured in 30 days, Landlord shall have failed to commence such cure within said thirty (30) day period and thereafter continued with due diligence to prosecute such cure to completion within such time period as is reasonably needed. ARTICLE 14 ASSIGNMENT AND SUBLETTING 14.1 Transfer By Tenant: The following provisions shall apply to any assignment, subletting or other transfer by Tenant or any subtenant or assignee or other successor in interest of the original Tenant (collectively referred to in this P.14.1 as "Tenant"): A. Tenant shall not do any of the following (collectively referred to herein as a "Transfer"), whether voluntarily, involuntarily or by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed: (i) sublet all or any part of the Premises or allow it to be sublet, occupied or used by any person or entity other than Tenant; (ii) assign its interest in this Lease; (iii) mortgage or encumber the Lease (or otherwise use the Lease as a security device) in any manner; or (iv) materially amend or modify an assignment, sublease or other transfer that has been previously approved by Landlord. Tenant shall reimburse Landlord for all reasonable costs and attorneys' fees incurred by Landlord in connection with the evaluation, processing, and/or documentation of any requested Transfer (which, in the ease of attorneys' fees, shall not exceed $1,200.00 per request unless there is litigation between the parties arising therefrom), whether or not Landlord's consent is granted. Landlord's reasonable costs shall include the cost of any review or investigation performed by Landlord or consultant acting on Landlord's behalf of (i) Hazardous Materials (as defined in Section 7.2E of this Lease) used, stored, released, or disposed of by the potential Subtenant or Assignee, and/or (ii) violations of Hazardous Materials Law (as defined in Section 7.2E of this Lease) by the Tenant or the proposed Subtenant or Assignee. Any Transfer so approved by Landlord shall not be effective until Tenant has delivered to Landlord an executed counterpart of the document evidencing the Transfer which (i) is in a form reasonably approved by Landlord; (ii) contains the same terms and conditions as stated in Tenant's notice given to Landlord pursuant to P.14.1B; and (iii) in the case of an assignment of the Lease, contains the agreement of the proposed transferee to assume all obligations of Tenant under this Lease arising after the effective date of such Transfer and to remain jointly and severally liable therefor with Tenant. Any attempted Transfer without Landlord's consent shall constitute an Event of Tenant's Default and shall be voidable at Landlord's option. Landlord's consent to any one Transfer shall not constitute a waiver of the provisions of this P.14.1 as to any subsequent Transfer or a consent to any subsequent Transfer. No Transfer, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease nor to be a consent to any Transfer. B. At least 15 days before a proposed Transfer is to become effective, Tenant shall give Landlord written notice of the proposed terms of such Transfer and request Landlord's approval, which notice shall include the following: (i) the name and legal composition of the proposed transferee; (ii) a current financial statement of the transferee, financial statements of the transferee covering the preceding three years if the same exist, and (if available) an audited financial statement of the transferee for a period ending not more than one year prior to the proposed effective date of the Transfer, all of which statements are prepared in accordance with generally accepted accounting principles; (iii) the nature of the proposed transferee's business to be carried on in the Premises; (iv) all consideration to be given on account of the Transfer; (v) a current financial statement of Tenant; and (vi) an accurately filled out response to Landlord's standard Hazardous Materials Questionnaire. Tenant shall provide to Landlord such other information as may be reasonably requested by Landlord within three days after Landlord's receipt of such notice from Tenant. Landlord shall respond in writing to Tenant's request for Landlord's consent to a Transfer within the later of (i) 10 days of receipt of such request together with the required accompanying documentation, or (ii) seven days after Landlord's receipt of all information which Landlord reasonably requests within three days after it receives Tenant's first notice regarding the Transfer in question. If Landlord fails to respond in writing within said period, Landlord will be deemed to have withheld consent to such Transfer. Tenant shall immediately notify Landlord of any material modification to the proposed terms of such Transfer. However, if Landlord does not respond within the time specified above, then within five (5) business days after such period has expired without a response (and provided that no response has been received in the interim), then Tenant may give Landlord a second notice, specifically identifying the proposed Transfer and conspicuously stating that "FAILURE TO RESPOND TO THIS NOTICE WITH EITHER APPROVAL OR DISAPPROVAL OF THE ABOVE-IDENTIFIED PROPOSED TRANSFER WITHIN FIVE (5) BUSINESS DAYS WILL MEAN THAT THE ABOVE-IDENTIFIED PROPOSED TRANSFER WILL BE DEEMED APPROVED WITHOUT FURTHER ACTION ON YOUR PART". Said notice must be given to Landlord at its then-current notice address, and must also be given to John Marshall Collins, 111 W. St. John St., Suite 400, San Jose, CA 95113 (or such other address as Collins may specify from time to time by notice hereunder). If said notice is given to both notice recipients as required above and contains the information and statements required and set forth above, then upon the expiration of five (5) business days from the effective 15 LEASE - -------------------------------------------------------------------------------- date of said notice, if Landlord has not given its approval or disapproval of the proposed Transfer, Landlord's consent shall be deemed to have been given to the Proposed Transfer. In such event, Tenant and the proposed subtenant or assignee shall nevertheless be required to execute Landlord's Consent of Landlord form to the extent such would have been required if Landlord had expressly consented. C. In the event that Tenant to seeks assign its interest in this Lease (other than by means of a Permitted Transfer) or to sublease either Building for ninety percent (90%) or more of the then-remaining term of the Lease (other than by means of a Permitted Transfer), Landlord shall have the right to terminate this Lease or, in the case of a sublease relating to a single Building terminate this Lease as to that Building, by giving written notice to Tenant within the time during which Landlord may accept or reject the proposed Transfer, either (i) on the condition that the proposed transferee immediately enter into a direct lease of the Premises with Landlord (or, in the ease of a sublease relating to one Building, a lease for the Building ) on the same terms and conditions contained in Tenant's notice, or (ii) so that Landlord is thereafter free to lease the Premises (or, in the case of a sublease relating to one Building, the Building to whomever it pleases on whatever terms are acceptable to Landlord. In the event Landlord elects to so terminate this Lease, then (i) if such termination is conditioned upon the execution of a lease between Landlord and the proposed transferee, Tenant's obligations under this Lease shall not be terminated until such transferee executes a new lease with Landlord, enters into possession and commences the payment of rent, and (ii) if Landlord elects simply to terminate this Lease (or, in the case of a sublease relating to one Building, terminate this Lease as to the Building), the Lease shall so terminate in its entirety (or as to the applicable Building) fifteen (15) days after Landlord has notified Tenant in writing of such election. Upon such termination, Tenant shall be released from any further obligation under this Lease if it is terminated in its entirety, or shall be released from any further obligation under the Lease with respect to the applicable Building in the case of a proposed sublease relating to only one Building (but in each such case, Tenant shall not be released from any obligations which would survive the expiration or earlier termination of the Lease). In the ease of a partial termination of the Lease, the Base Monthly Rent, Tenant's share, and Tenant's Allocated Parking Spaces shall be reduced to an amount which bears the same relationship to the original amount thereof as the area of that part of the Premises which remains subject to the Lease bears to the original area of the Premises. Landlord and Tenant shall execute a cancellation and release with respect to the Lease or the applicable portion of the Lease in the ease of termination as to a single Building to effect such termination. D. If Landlord consents to a Transfer proposed by Tenant, Tenant may enter into such Transfer, and if Tenant does so, the following shall apply: (1) Tenant shall mint be released of its liability for the performance of all of its obligations under the lease. (2) If Tenant assigns its interest in this Lease, then Tenant shall pay to Landlord 50% of all Subrent (as defined in P.14.1D(5)) received by Tenant over and above (i) the assignee's agreement to assume the obligations of Tenant under this Lease, and (ii) all Permitted Transfer Costs related to such assignment. In the case of assignment, the amount of Subrent owed to Landlord shall be paid to Landlord on the same basis whether periodic or in lump sum, that such Subrent is paid to Tenant by the assignee. (3). If Tenant sublets any part of the Premises, then with respect to the space so subleased, Tenant shall pay to Landlord 50% of the positive difference, if any, between (i) all Subrent paid by the subtenant to Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable to the space sublet and all Permitted Transfer Costs related to such sublease. Such amount shall be paid to Landlord on the same basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating Landlord's share of any periodic payments, all Permitted Transfer Costs shall be first recovered by Tenant. (4). Tenant's obligations under this P.14.1D shall survive any Transfer, and Tenant's failure to perform its obligations hereunder shall be an Event of Tenant's Default. At the time Tenant makes any payment to Landlord required by this P.14.1D, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right at reasonable intervals to inspect Tenant's books and records relating to the payments due hereunder. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based. Landlord may condition its approval of any Transfer upon obtaining a certification from both Tenant and time proposed transferee of all Subrent and other amounts that are to be paid to Tenant in connection with such Transfer (5). As used in this P.14.1D, the term "Subrent" shall mean any consideration of any kind received, or to be received, by Tenant as a result of the Transfer, if such sums are related to Tenant's interest in this Lease or in the Premises, including payments from or on behalf of time transferee (in excess of the book value thereof) for Tenant's assets, fixtures, leasehold improvements, inventory, accounts, goodwill, equipment, furniture, and general intangibles. As used in this P. 14.1D, the term "Permitted Transfer Costs" shall mean (i) all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the Transfer in question; (ii) all reasonable attorneys' fees incurred by Tenant with respect to the Transfer in question; (iii) the cost of any reasonable improvements made to the Premises by Tenant specifically for any assignee or subtenant; and (iv) any moving costs or costs relating to the termination of the subtenant or assignee's former space which Tenant actually pays pursuant to the contractual obligation to do so pursuant to the sublease or assignment document. If a proposed Transfer involves payment of a portion of the Subrent to Landlord under Subparagraphs 14.1D(2) or (3) above, then upon submission of its request for approval of a Transfer, Tenant shall identify any Permitted Transfer Costs in writing. E. If Tenant is a corporation, the following shall be deemed a voluntary assignment of Tenant's interest in this Lease: (i) any dissolution, merger, consolidation, or other reorganization of or affecting Tenant, whether or non Tenant is the surviving corporation; and (ii) if the capital stock of Tenant is not publicly traded, the sale or transfer to one person or entity 16 LEASE - -------------------------------------------------------------------------------- (or no any group of related persons or entities) stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors. If Tenant is a partnership, any withdrawal or substitution (whether voluntary, involuntary or by operation of law, and whether occurring at one time or over a period of time) of any partner owning 25% or more (cumulatively) of any interest in the capital or profits of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant's interest in this Lease F. Notwithstanding anything contained, in P.14.1, so long as Tenant otherwise complies with the provisions of P.14.1 Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior written consent, and Landlord shall not be entitled to terminate the Lease pursuant to P.14.1C or to receive any part of any Subrent resulting therefrom that would otherwise be due it pursuant to P.14.1D: (1). Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of at least 50%; (2). Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation, so long as the surviving corporation is demonstrated by Tenant to have a net worth at time of such assignment than is equal to or greater than the net worth of Tenant immediately prior to such transaction; and (3). Tenant may assign this Lease to a corporation which purchases or otherwise acquires all or substantially all of the assets of Tenant, so long as such acquiring corporation is demonstrated by Tenant to be as creditworthy as Tenant immediately prior to such transaction, judged according to the standards used by reasonable landlords in the market area of the Premises in evaluating the creditworthiness of prospective tenants. 14.2 Transfer By Landlord: Landlord and its successors in interest shall have the right to transfer their interest in this Lease and the Project at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and, in the case of any subsequent transfer, the transferror) from the date of such transfer, shall be automatically relieved, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer. After the date of any such transfer, the term "Landlord" as used herein shall mean the transferee of such interest in the Premises. ARTICLE 15 GENERAL PROVISIONS 15.1 Landlord's Right to Enter: Landlord and its agents may enter the Premises an any reasonable tine after giving at least 24 hours' prior notice to Tenant (and immediately in the case of emergency) for the purpose of (i) inspecting time same; (ii) posting notices of non-responsibility; (iii) supplying any service no be provided by Landlord to Tenant; (iv) showing the Premises to prospective purchasers, mortgagees or tenants; (v) making necessary alterations, additions or repairs; (vi) performing Tenant's obligations when Tenant has failed to do so after written notice from Landlord; (vii) placing upon the Premises ordinary "for lease" signs or "for sale" signs; and (viii) responding to an emergency. Landlord shall have the right to use any and all means Landlord may deem necessary and proper to enter the Premises in an emergency. Any entry into the Premises obtained by Landlord in accordance with this P.15.1 shall not be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises. In connection with any entry by Landlord pursuant to this Paragraph 15.1, the business of Tenant and use of the Premises shall be interfered with to the least extent that is reasonably practical. 15.2 Surrender of the Premises: Upon the expiration or sooner termination of this Lease, Tenant shall vacate and surrender the Premises to Landlord in the same condition as existed at the Commencement Date, except for (i) reasonable wear and tear, (ii) damage caused by any peril or condemnation, and (iii) contamination by Hazardous Materials for which Tenant is not responsible pursuant to P.7.2A or P.7.2B. In this regard, normal wear and tear shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the best standards for maintenance, repair and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the expiration or the sooner termination of this Lease: (i) all interior walls shall be painted or cleaned so that they appear freshly painted; (ii) all tiled floors shall be cleaned and waxed; (iii) all carpets shall be cleaned and shampooed; (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced; (v) all windows shall be washed; (vi) the HVAC system shall be serviced by a reputable and licensed service firm and left in good operating condition and repair as so certified by such firm; and (vii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses). Notwithstanding the foregoing, Tenant shall not be required to take an action required by the HVAC service firm in order for said firm to certify the HVAC as meeting the standards of subparagraph (vi) above if, and to the extent that such action requires repair or replacement which is in the nature of a capital expense as defined in Paragraph 5.4, provided, however, that Tenant shall not be relieved from such duty by this sentence if time need for such repair or replacement results, wholly or in part, from Tenant's breach of its duties under this Lease relating to the HVAC system, including but not limited to the duties set forth in Paragraph 6.1C. If Landlord so requests, Tenant shall, prior to the expiration or sooner termination of this Lease, (i) remove any Tenant's Alterations which Tenant is required to remove pursuant to P.5.2 and repair all damage caused by such removal, and (ii) subject to Paragraph 5.2, return the Premises or any part thereof to its original configuration existing as of the time the Premises were delivered to Tenant. If the Premises are not so surrendered at the termination of this Lease, Tenant shall be liable to Landlord for all costs reasonably incurred by Landlord in returning the Premises to the required condition, plus interest on all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Premises, including, 17 LEASE - -------------------------------------------------------------------------------- without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 15.3 Holding Over: This Lease shall terminate without further notice at the expiration of the Lease Term. Any holding over by Tenant after expiration of the Lease Term shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after such expiration with the written consent of Landlord shall be construed to be a tenancy from month to month on the same terms and conditions herein specified insofar as applicable except that Base Monthly Rent shall, be increased to an amount equal to 150% of the Base Monthly Rent payable during the last full calendar month of the Lease Term. 15.4 Subordination: The following provisions shall govern the relationship of this Lease to any Security Instrument: A. The Lease is subject and subordinate to all Security Instruments existing as of the Effective Date. However, if any Lender so requires, this Lease shall become prior and superior to any such Security Instrument. B. At Landlord's election, this Lease shall become subject and subordinate to any Security Instrument created after the Effective Date. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default and performs all of its obligations under this Lease, unless this Lease is otherwise terminated pursuant to its terms. C. Tenant shall upon request execute any document or instrument reasonably required by any Lender to make this Lease either prior or subordinate to a Security Instrument, which may include such other matters as the Lender customarily and reasonably requires in connection with such agreements, including provisions that the Lender not be liable for (i) the return of any security deposit unless the Lender receives it from Landlord, and (ii) any defaults on the part of Landlord occurring prior to the time the Lender takes possession of the Project in connection with the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within 10 days after written demand therefor shall constitute an Event of Tenant's Default. Tenant approves as reasonable the form of subordination agreement attached to this Lease as Exhibit G. D. As a condition to Tenant's obligations under this Lease, not later than the Commencement Date, Landlord shall supply Tenant with a Subordination Agreement; Acknowledgment of Lease Assignment; Estoppel, Attornment, and Non-Disturbance Agreement in substantially the form of Exhibit G, which is a sample of such an agreement from Wells Fargo Bank, Landlord's construction Lender. Tenant approves Exhibit G and agrees that it will not unreasonably withhold, delay, or condition its approval of changes required by the Lender in such document. Landlord will use its best efforts to obtain such Agreement as soon as possible. E. Subordination of Tenant's Lease to any Security Instruments created after the Effective Date of this Lease and Tenant's duty to sign documents confirming such subordination shall be subject to the Landlord providing Tenant with a subordination agreement substantially in the form of Exhibit G if the Lender is Wells Fargo, or in any commercial Lender's standard form. Tenant agrees that it will not unreasonably withhold, delay or condition its approval of changes required by the Lender in such document. 15.5 Mortgagee Protection and Attornment: In the event of any default on the part of the Landlord, Tenant will use reasonable efforts to give notice by registered mail to any Lender whose name has been provided to Tenant and shall offer such Lender a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of smile or judicial foreclosure or other appropriate legal proceedings, if such should prove necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any Security Instrument encumbering the Premises, or to any grantee or transferee designated in any deed given in lieu of foreclosure, provided that the purchaser, grantee, or transferee is subject to the obligations of the Landlord hereunder. 15.6 Estoppel Certificates and Financial Statements: At all times during the Lease Term, each party agrees, following any request by the other party, promptly to execute and deliver to the requesting party within 15 days following delivery of such request an estoppel certificate: (i) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to the certifying party's knowledge, any uncured defaults on the part of any party hereunder or, if there are uncured defaults, specifying the nature of such defaults, and (iv) certifying such other information about the Lease as may be reasonably required by the requesting party. A failure to deliver an estoppel certificate within 15 days after delivery of a request therefor shall be a conclusive admission that, as of the date of the request for such statement: (i) this Lease is unmodified except as may be represented by the requesting party in said request and is in full force and effect, (ii) there are no uncured defaults in the requesting party's performance, and (iii) no rent has been paid more than 30 days in advance. At any time during the Lease Term Tenant shall, upon 15 days' prior written notice from Landlord, provide Tenant's most recent financial statement and financial statements covering the 24 month period prior to the date of such most recent financial statement to any existing Lender or to any potential Lender or buyer of time Premises. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. So long as Tenant is a publicly traded company (and if Tenant ceases to be a publicly traded company but has a direct or indirect parent which is publicly traded and whose public reports and financial statements separately state the financial strength and worth of Tenant), Tenant may satisfy the foregoing requirements by providing Tenant's most recently filed public report and the public reports filed by Tenant for the immediately preceding 24 months, or the same documents for the parent. If Tenant does not meet the conditions in the immediately preceding section, then Tenant shall supply financial data as set forth above, but in such case, Landlord agrees that is shall be kept in 18 LEASE - -------------------------------------------------------------------------------- confidence, to be disclosed in confidence only to Landlord's Lenders, potential lenders, potential purchasers, accountants, and attorneys, and under such circumstances, Tenant is only required to disclose reports prepared by Tenant in the ordinary course of its business and is not required to make up reports specifically to meet these requirements. 15.7 Reasonable Consent: Whenever any party's approval or consent is required by this Lease before an action may be taken by the other party, such approval or consent shall not be unreasonably withheld or delayed. 15.8 Notices: Any notice required or desired to be given regarding this Lease shall be in writing and may be given by personal delivery, by facsimile telecopy, by courier service, or by mail. A notice shall be deemed to have been given (i) when delivered or refused if such notice was deposited in the United States mail, certified or registered, postage prepaid, addressed to the party to be served at its Address for Notices specified in Section Q or Section R of the Summary (as applicable), (ii) when delivered if given by personal delivery, and (iii) in all other cases when actually received at the party's Address for Notices. Either party may change its address by giving notice of the same in accordance with this P.15.8, provided, however, that any address to which notices may be sent must be a California address. Notwithstanding any other provision hereof, notice that is personally delivered is not required to be personally delivered to more than one person, and is not required to be delivered to the particular persons or officers identified in the Summary of Basic Lease Terms, Section 9, and such personal delivery shall be deemed complete if personally delivered to Tenant. 15.9 Attorneys' Fees: In the event either Landlord or Tenant shall bring any action or legal proceeding for an alleged breach of any provision of this Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect or establish any term or covenant of this Lease, the prevailing party shall be entitled to recover as a part of such action or proceeding, or in a separate action brought for that purpose, reasonable attorneys' fees, court costs, and experts' fees as may be fixed by the court. 15.10 Corporate Authority: If Tenant is a corporation (or partnership), each individual executing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of such corporation in accordance with the by-laws of such corporation (or partnership in accordance with the partnership agreement of such partnership) and that this Lease is binding upon such corporation (or partnership) in accordance with its terms. Each of the persons executing this Lease on behalf of a corporation does hereby covenant and warrant that the party for whom it is executing this Lease is a duly authorized and existing corporation, that it is qualified to do business in California, and that the corporation has full right and authority to enter into this Lease. 15.11 Miscellaneous: Should any provision of this lease prove to be invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. The captions used in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. Any executed copy of this Lease shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. The terms "shall"," will" and "agree" are mandatory. The term "may" is permissive When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless a provision of this Lease expressly requires reimbursement. Landlord and Tenant agree that (i) the gross leasable area of the Premises includes any atriums, depressed loading docks, covered entrances or egresses, and covered loading areas, (ii) each has had an opportunity to determine to its satisfaction the actual area of the Project and the Premises, (iii) all measurements of area contained in this Lease are conclusively agreed to be correct and binding upon the parties, even if a subsequent measurement of any one of these areas determines that it is more or less than the amount of area reflected in this Lease, and (iv) any such subsequent determination that the area is more or less than shown in this Lease shall not result in a change in any of the computations of rent, improvement allowances, or other matters described in this Lease where area is a factor. Where a party hereto is obligated not to perform any act, such party is also obligated to restrain any others within its control from performing said act, including the Agents of such party. Landlord shall not become or be deemed a partner or a joint venturer with Tenant by reason of the provisions of this Lease. 15.12 Termination by Exercise of Right: If this Lease is terminated pursuant to its terms by the proper exercise of a right to terminate specifically granted to Landlord or Tenant by this Lease, then this lease shall terminate 30 days after the date the right to terminate is properly exercised (unless another date is specified in that part of the Lease creating the right, in which event the date so specified for termination shall prevail), the rent and all other charges dime hereunder shall be prorated as of the date of termination, and neither Landlord nor Tenant shall have any further rights or obligations under this Lease except for those that have accrued prior to the date of termination or those obligations which this Lease specifically provides are to survive termination. This P.15.12 does not apply to a termination of this Lease by Landlord as a result of an Event of Tenant's Default. 15.13 Brokerage Commissions: Each party hereto (i) represents and warrants to the other that it has not had any dealings with any real estate brokers, leasing agents or salesmen, or incurred any obligations for the payment of real estate brokerage commissions or finder's fees which would be earned or due and payable by reason of the execution of this Lease, other than to the Retained Real Estate Brokers described in Section 6 of the Summary, and (ii) agrees to indemnify, defend, and hold harmless the other party from any claim for any such 19 LEASE - -------------------------------------------------------------------------------- commission or fees which result from the actions of the indemnifying party. Landlord shall be responsible for the payment of any commission owed to the Retained Real Estate Brokers if there is a separate written commission agreement between Landlord and the Retained Real Estate Brokers for the payment of a commission as a result of the execution of this Lease. 15.14 Force Majeure: Any prevention, delay or stoppage due to strikes, lock-outs, inclement weather, labor disputes, inability to obtain labor, materials, fuels or reasonable substitutes therefor, governmental restrictions, regulations, controls, action or inaction, civil commotion, fire or other acts of God, and other causes beyond the reasonable control of the party obligated to perform (except financial inability) shall excuse the performance, for a period equal to the period of any said prevention, delay or stoppage, of any obligation hereunder except the obligation of Tenant to pay rent or any other sums due hereunder. 15.15 Entire Agreement: This Lease constitutes the entire agreement between the parties, and there are no binding agreements or representations between the parties except as expressed herein. Tenant acknowledges that neither Landlord nor Landlord's Agents has made any legally binding representation or warranty as to any matter except those expressly set forth herein, including any warranty as to (i) whether the Premises may be used for Tenant's intended use under existing Law, (ii) the suitability of the Premises or the Project for the conduct of Tenant's business, or (iii) the condition of any improvements. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supercedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. This instrument shall not be legally binding until it is executed by both Landlord and Tenant. No subsequent change or addition to this Lease shall be binding unless in writing and signed by Landlord and Tenant. 1516. Quiet Possession. Tenant shall peacefully have, hold and enjoy the Premises subject to the other terms of this Lease, provided Tenant pays the Base Monthly Rent and Additional Rent and performs all of Tenant's covenants and agreement contained in this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease within the intent to be legally bound thereby, to be effective as of the Effective Date. LANDLORD: Orchard Jay Investors, LLC a California limited liability company By: /s/ David J. Brown ----------------------- David J. Brown Managing Member Dated: May 11, 1999 -------------------- DAVID J. BROWN By: /s/ David J. Brown ----------------------- Dated: May 11, 1999 -------------------- TENANT: Cylink Corporation a California corporation By: /s/ [ILLEGIBLE] ----------------------- /s/ [ILLEGIBLE] - --------------------------- typed or printed name Title: Chief Financial Officer ----------------------- By: /s/ [ILLEGIBLE] ----------------------- /s/ [ILLEGIBLE] - --------------------------- typed or printed name Title: Corporate Secretary ----------------------- Dated: May 10, 1999 ----------------------- 20 FIRST ADDENDUM TO LEASE THIS FIRST ADDENDUM To Lease is dated for reference purposes as May 10, 1999, and is made a part of that Lease Agreement (the "Lease") dated May 10, 1999, by and between Orchard Jay Investors, LLC, a California limited liability company and David J. Brown, ("Landlord") and Cylink Corporation, a California corporation ("Tenant") affecting certain real property commonly known as 3131 and 3151 Jay Street, Santa Clara, California, with reference to the following facts: 1. Tenant's Right of First Offer for Additional Space A. Grant and Right of First Offer: Landlord hereby grants Tenant a right of first offer (the "RFO") to lease all or any part of the "First Offer Space", which consists of the Building located within the Project and commonly known as 3101 Jay Street, Santa Clara, California, on the terms contained in this Paragraph. B. Effective Period: The effective period for the RFO ("Effective Period") shall begin only after the period while Landlord is first leasing the First Offer Space, that is, the period from the Effective Date of this Lease to the time when all of the First Offer Space has been leased, or the period of one (1) year from the Effective Date of this Lease, whichever shall first end, and shall extend throughout the term of this Lease and any extended term pursuant to an exercise of an option. C. Notice: If Landlord proposes to lease all or part of the First Offer Space at any time during the Effective Period and before the expiration or earlier termination of this RFO, Landlord shall notify Tenant in writing (the "RFO Notice") of the following basic business terms upon which Landlord would be willing to lease all or any part of the First Offer Space: (a) the portion of the First Offer Space which Landlord proposes to lease (the "Offered Space"); (b) the rent for the Offered Space; and (c) any other material business terms Landlord elects to specify. The RFO shall not be deemed under any circumstances an offer to lease the Offered Space, but is simply a notice that Tenant has until the end of the Offer Period to make an offer to lease. D. Offer Period: Tenant shall have three (3) business days (the "Offer Period") from the RFO Notice within which to make a written offer to lease the Offered Space, whether on the terms set forth in Landlord's notice or otherwise. During the Offer Period, Landlord will not enter into any legally binding agreement to lease the Offered Space to any third party. E. Neither Party Bound: Neither Landlord nor Tenant shall be bound to agree to or accept any terms and conditions for such lease except those which each party, in its sole discretion, wishes to agree to, nor shall there be any legally enforceable standards for Landlord's acceptance or rejection of Tenant's offer made pursuant to the RFO, nor shall any agreement between Landlord and Tenant for the lease of Offered Space be binding unless and until a full and formal Lease, prepared and reviewed by Landlord's counsel, has been executed by both Landlord and Tenant. Landlord is not bound to agree to any or all of the terms set forth in the RFO Notice if it determines at any time that one or more of said terms is not in Landlord's best interests, notwithstanding that Tenant may have accepted such terms in writing, and no such acceptance creates a binding contract. F. Landlord's Rights and Obligations: Landlord will respond in writing to Tenant's offer within five (5) days of receipt. If Landlord does not accept Tenant's offer, then the parties revert to their ordinary rights in the marketplace, that is, Tenant is free to make any and all further offers or enter into any negotiations to which Landlord consents, and Landlord is free to deal or not to deal with Tenant as determined in its sole and unfettered discretion. Once Tenant has had the opportunity to make its offer, Landlord is not bound to enter into negotiations with Tenant, and is free to offer the Offered Space to any one or more third parties, on such terms and conditions as Landlord may elect, and Landlord shall not, thereafter, have any duty to further offer the Offered 1 Space to Tenant unless and until the Offered Space has been leased to a third party which has entered into possession and paid rent thereon, at which point, as to future availability of the Offered Space, the RFO shall once again apply. G. Non-Assignability; Termination: The right granted to Tenant in this Paragraph is personal to Tenant, and may not be assigned by Tenant to any third party, either alone or in conjunction with an assignment of this Lease or a sublease of all or any part of the Premises, and either voluntarily or by operation of law; provided, however, that it may be assigned in conjunction with an assignment or sublease which is a Permitted Transfer under Paragraph 14.1F hereof. The rights granted to Tenant under this paragraph shall terminate upon the earliest of the following to occur: (i) the expiration or earlier termination of the Lease; (ii) any assignment by Tenant of its interest in this Lease; (iii) any subletting by Tenant of substantially all of the Premises for substantially all of the remainder of the Lease Term; (iv) the termination of this right by default as set forth in Subparagraph H. below; or (v) as to any Offered Space, when Tenant has had the above granted right to make an offer and either failed to make an offer or Landlord did not accept the offer (until the Offered Space is leased to a third party which takes possession and pays rent, after which time the RFO is revived). H. Termination By Default: The rights of Tenant under this Paragraph shall not be effective at any time when Tenant is in default under this Lease beyond any applicable cure period provided in this Lease. If such a default exists, Landlord shall not be required to give the RFO Notice as to Offered Space, and Tenant shall permanently lose the RFO with regard to such space. If Tenant, with the agreement of Landlord, shall nevertheless cure such default, then the rights provided hereunder shall be reinstated on a prospective basis only, and any Offered Space first offered during the period when the condition of default existed shall not be subject to the RFO, which shall not be reinstated as to such space, until such Offered Space has been leased to a third party which takes possession and pays rent. I. No Right To Negotiate For Renewal Or Extension Space: The right granted to Tenant by this Paragraph shall not arise on account of or in connection with the renewal or extension of the term of any then existing lease affecting all or any portion of the First Offer Space, including both renewal or extension pursuant to the exercise, of an option or other contractual right by the tenant and renewal or extension by voluntary agreement between the existing tenant and Landlord. 2. Option to Extend Lease Term: Landlord hereby grants to Tenant the option to extend the Lease Term for one (1) five (5) year term commencing when the prior term expires, under the following terms and conditions: A. Exercise Dates: Tenant must give Landlord notice in writing of its exercise of the option no earlier than two hundred seventy (270) days before the date the Lease Term would end but for said exercise (the "Earliest Exercise Date") and no later than one hundred eighty (180) days before the date the Lease Term would end but for said exercise (the "Last Exercise Date"). B. Conditions to Exercise of Option: Tenant's right to extend is conditioned upon and subject to each of the following: (1) In order to exercise its option to extend, Tenant must give written notice of such election to Landlord and Landlord must receive same by the Last Exercise Date, but not prior to the Earliest Exercise Date. If proper notification of the exercise of the option is not given and/or received, such option shall automatically expire. Failure to exercise the option terminates that option. Tenant acknowledges that because of the importance of Landlord of knowing no later than the Last Exercise Date whether or not Tenant will exercise the option, the failure of Tenant to notify Landlord by the Last Exercise Date will conclusively be presumed an election by Tenant not to exercise the option. (2) Tenant shall have no right to exercise the option (i) if an Event of Tenant's Default has occurred and is continuing either on the date of exercise of 2 the option or on the date on which the Lease would terminate absent exercise of the option or (ii) in the event that Landlord has given to Tenant three (3) or more notices of separate Defaults during the 12 month period immediately preceding the exercise of the option, whether or not the Defaults are cured. The period of time within which the option may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise the option because of the provisions of this Paragraph. C. Creation of Extended Term: Upon the timely exercise of the option to extend and the commencement of the extended term, all references in the Lease to the Term shall be considered to mean the term as extended by the exercise of the option, which shall be referred to herein as the "Extended Term". D. Options Personal: The option is personal to the Tenant, and cannot be assigned to or exercised by anyone other than the Tenant or an assignee or sublessee pursuant to a permitted transfer. The option can only be exercised at a time when the Tenant and/or an assignee or sublessee pursuant to a permitted transfer is in full possession of the Premises. E. The Base Monthly Rent for the Option Period shall be the greater of (i) one hundred percent (100%) of the Base Monthly Rent due the last month of the previous Lease Term, or (ii) one hundred percent (100%) of the then fair market monthly rent determined as of the commencement of the option period in question based upon like buildings with like improvements in the area within the boundaries of the City of Santa Clara. Said Base Monthly Rent (and any scheduled increases thereto) shall apply to every month during the Option Period in question, and accordingly, Tenant shall not be entitled to any free rent or other rent concession during the Option Periods. Further, Tenant shall not be entitled to any Tenant Improvement Allowance nor reimbursement for improvements in connection with any Option Period, and shall accept the Premises, the Building, and the Project in there "as is" condition as of the first day of the Option Period in question. F. Upon exercise of an option, the parties shall conduct discussions in an attempt to reach agreement on the Base Monthly Rent (and any scheduled increases thereto) for the Option Period under the standards set forth in Subparagraph E above. If the parties are unable to agree upon the such Base Monthly Rent and increases for the Option Period at least one hundred twenty (120) days prior to the commencement of the option period, then the fair market monthly rent shall be determined by appraisal conducted pursuant to the following provisions of this Subparagraph F. In the event it becomes necessary to determine by appraisal the fair market rent of the Premises for the purpose of establishing the Base Monthly Rent during the Option Period, then such fair market monthly rent shall be determined by three (3) real estate appraisers, all of whom shall be members of the American Institute of Real Estate Appraisers with not less than five (5) years experience appraising real property (other than residential or agricultural property) located in Santa Clara County, California, in accordance with the following procedures: (1) The party demanding an appraisal (the "Notifying Party") shall notify the other party (the "Non-Notifying Party") thereof by delivering a written demand for appraisal, which demand, to be effective, must give the name, address, and qualifications of an appraiser selected by the Notifying Party. Within ten (10) days of receipt of said demand, the Non-Notifying Party shall select its appraiser and notify the Notifying Party, in writing, of the name, address, and qualifications of an appraiser selected by it. Failure by the Non-Notifying Party to select a qualified appraiser within said ten (10) day period shall be deemed a waiver of its right to select a second appraiser on its own behalf and the Notifying Party shall select a second appraiser on behalf of the Non-Notifying Party within five (5) days after the expiration of said ten (10) day period. Within ten (10) days from the date the second appraiser shall have been appointed, the two (2) appraisers so selected shall appoint a third appraiser. If the two appraisers fail to select a third qualified appraiser, the third appraiser shall be selected by the American Arbitrations Association or if it shall refuse to perform this function, then at the request of either Landlord or Tenant, such third appraiser shall be promptly appointed by the then 3 Presiding Judge of the Superior Court of the State of California for the County of Santa Clara. (2) The three (3) appraisers so selected shall meet in Santa Clara County, California, not later than twenty (20) days following the selection of the third appraiser. At said meeting the appraisers so selected shall attempt to determine the fair market monthly rent of the Premises for the option period in question (including the timing and amount of periodic increases). (3) If the appraisers so selected are unable to complete their determinations in one meeting, they may continue to consult at such times as they deem necessary for a fifteen (15) day period from the date of the first meeting, in an attempt to have at least two (2) of them agree. If, at the initial meeting or at any time during said fifteen (15) day period, two (2) or more of the appraisers so selected agree on the fair market rent of the Leased Premises, such agreement shall be determinative and binding on the parties hereto, and the agreeing appraisers shall, in simple letter form executed by the agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set by such agreement. (4) If two (2) or more appraisers do not so agree within said fifteen (15) day period, then each appraiser shall, within five (5) days after the expiration of said fifteen (15) day period, submit his independent appraisal in simple letter form to Landlord and Tenant stating his determination of the fair market rent of the Premises for the option period in question. The parties shall then determine the fair market rent for the Premises by determining the average of the fair market rent set by each of the appraisers. However, if the lowest appraisal is less than eighty-five percent (85%) of the middle appraisal then such lowest appraisal shall be disregarded and/or if the highest appraisal is greater than one hundred fifteen percent (115%) of the middle appraisal then such highest appraisal shall be disregarded. If the fair market rent set by any appraisal is so disregarded, then the average shall be determined by computing the average set by the other appraisals that have not been disregarded. (5) Nothing contained herein shall prevent Landlord and Tenant from jointly selecting a single appraiser to determine the fair market rent of the Premises, in which event the determination of such appraisal shall be conclusively deemed the fair market rent of the Premises. (6) Each party shall bear the fees and expenses of the appraiser selected by or for it, and the fees and expenses of the third appraiser (or the joint appraiser if one joint appraiser is used) shall be borne fifty percent (50%) by Landlord and fifty percent (50%) by Tenant. 3. Security Deposit: A. Tenant shall provide to Landlord a Security Deposit totaling $827,561.52, of which up to $600,000.00 can be, at Tenant's sole cost, an irrevocable letter of credit which (i) is for an initial term of at least twelve (12) months; (ii) is drawn upon a local commercial bank reasonably acceptable to Landlord; (iii) is in the amount of $600,000.00; (iv) is in a form satisfactory to Landlord; and (v) may be drawn on by Landlord solely upon submission of a written certification of Landlord that there exists an Event of Tenant's Default (as defined in Paragraph 13.1 of this Lease or in this Paragraph), that Tenant has not cured such Event of Default, and that the amount drawn on the letter of credit is the net amount due Landlord after first applying any cash Security Deposit then being held by Landlord. Tenant's failure to replenish any cash Security Deposit which is applied by Landlord, within ten (10) days after notice that it has been applied, shall be an immediate Event of Tenant's Default, without further notice or opportunity to cure, which shall entitle Landlord to resort to the letter of credit to replenish its cash Security Deposit. Except as provided in Subparagraph B herein, Tenant shall keep the letter of credit in effect during the entire Lease term plus a period of four (4) weeks thereafter, and Tenant's failure to renew a letter of credit at least thirty (30) days prior to its expiration for additional periods of at least twelve (12) months and to furnish written evidence thereof to Landlord (or to provide a cash deposit in lieu 4 thereof) shall be deemed an Event of Tenant's Default under this Lease upon the expiration of the thirtieth (30th) day prior to the date of expiration of the then-current letter of credit. If Tenant provides Landlord with a letter of credit meeting the foregoing requirements, any cash Security Deposit previously provided to Landlord in excess of $227,561.52 shall be returned to Tenant. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions of Paragraph 3.5 of the Lease. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of a cash Security Deposit so long as there exits no Event of Tenant's Default under the Lease. If Landlord transfers the Premises during the Lease Term, and if a letter of credit is still posted as part of the Security Deposit, Tenant agrees to take such actions as are necessary to have the letter of credit redrawn in favor of the new owner of the Premises, at Tenant's sole cost and expense. B. Notwithstanding the foregoing, the letter of credit and any cash Security Deposit held by Landlord in excess of $227,561.52 shall be released by Landlord upon the achievement by Tenant of the following financial goals: (1) Tenant shall have achieved four (4) consecutive quarters of positive Net Income, as disclosed in Tenant's audited financial statements, and (2) Tenant's Net Income over the four (4) consecutive quarters described in subsection 1 above, shall equal a minimum of $6,000,000.00 in the aggregate. 4. Early Occupancy: A. As consideration for Tenant's performance of all obligations to be performed by Tenant under the Lease, and upon receipt of (i) the first month's Base Monthly Rent and Security Deposit totaling $1,001,968.48, and (ii) a certificate of insurance as provided by Article 9.1C of the Lease, Landlord shall permit Tenant to enter and use the Premises commencing thirty (30) days prior to the Scheduled Commencement Date (the "Early Occupancy Period"). Such occupancy during the Early Occupancy Period shall be subject to all of the terms, covenants and conditions of the Lease provided, however, that the rent payable during the Early Occupancy Period shall be waived. B. In the event either party shall bring any action or legal proceeding for damages for alleged breach of any provision of this agreement, to recover rent, to terminate tenancy of the Premises, or to enforce, protect or establish any term or covenant of this agreement or the Lease or right of remedy of either party, the prevailing party shall be entitled to recover as a part of such action or proceeding, reasonable attorney's fees and court costs as may be fixed by the court or jury. C. Tenant agrees to cooperate with construction personnel completing the Interior Improvements (as defined in Exhibit B to the Lease) in the Premises and not cause any delay in the completion of these improvements. It is the intent of Landlord and Tenant that Tenant's obligation to pay the Base Monthly Rent and all Additional Rent not be delayed by any cause or other act of Tenant and, if it is so delayed, and provided that Landlord promptly notifies Tenant in writing of each separate delay and the estimated period of delay, then Tenant's obligation to pay the Base Monthly Rent and all Additional Rent shall commence as of the date it would have commenced absent said delay caused by Tenant. D. During the Early Occupancy Period, Tenant shall arrange to have all utility services, including but not limited to gas, electric, water and trash, billed directly to Tenant for payment. 5. Tenant Improvement Allowances: A. The term "Tenant Improvement Allowance" shall mean the maximum amount Landlord is required to spend toward the payment of Interior 5 Improvement Costs (as defined in Exhibit B to the Lease) for all Interior Improvements constructed in the Premises, which amount is Two Million, Three Hundred Ninety-Five Thousand, Seven Hundred and no/100 Dollars ($2,395,700.00) (i.e., $25.00 per square foot for Tenant's Gross Leasable Area within the entire Premises). B. No credit in the Base Monthly Rent shall be made if a portion of the Tenant Improvement Allowance is not spent. Additionally, Landlord shall not be obligated to provide future use of any Tenant Improvement Allowance not spent prior to the completion of all "punch list" items (as described in Exhibit B to the Lease). 6. Hazardous Materials Disclosure: Tenant acknowledges Landlord's disclosure that a neighboring property has suffered a Hazardous Material problem, and that as a result of a past common ownership of the Project and the business which operated on this neighboring property, an air stripper has been installed on the Project to service this neighboring property and is being operated by third parties who are responsible for such problem under government approval and supervision, all as more fully detailed in the Phase I Environmental Site Assessment and Phase II Groundwater Investigation of 3151 Jay Street, Santa Clara, California, dated November 10, 1997, and performed by PES Environmental, Inc.; the Semi-Annual Status Report on the 3080/3100 Alfred Street Site in Santa Clara, California dated as of January, 1999 and performed by Locus Technologies; and the report of Erler & Kalinowski, Inc., dated February 24, 1998, which Tenant has reviewed pursuant to a separate confidentiality agreement. 7. Parking: Notwithstanding anything to the contrary in Paragraph 4.5, a total of ten (10) of Tenant's Allocated Parking Stalls may, at Tenant's option, be designated for Tenant's non-exclusive use as "Visitor" spaces. If Tenant desires to mark and use such stalls, it shall be under the following terms and conditions: A. All expenses associated with the marking of such non-exclusive "Visitor" parking spaces shall be paid by Tenant. B. Tenant shall designate not more than five (5) non-exclusive "Visitor" parking spaces for each of its two Buildings. The "Visitor" parking spaces shall be located reasonably near to the entrance to each Building, with due regard for the rights of the tenant(s) of the other building which make up the Project. Their exact location, and the location and nature of any associated markings, shall be submitted to and approved in writing by Landlord before work is commenced. C. If Tenant elects to paint the parking lot with markings relating to the "Visitor" spaces, then on expiration or earlier termination of this Lease, Tenant shall remove markings and restore the parking lot to its condition prior to their placement, to Landlord's satisfaction, and at Tenant's expense. Tenant's marking of the designated "Visitor" parking spaces shall be limited to inscribing the word "Visitors" on the asphalt parking area. Tenant shall not apply any markings other than as stated above, and Tenant shall not erect any or maintain any signs relating to these spaces. D. Landlord shall not be responsible for enforcing the use of said spaces, provided, however, that Landlord will not grant to any other Tenant of the Project the right to exclusive use of such stalls or any other parking stalls without Tenant's consent. Landlord shall not be required, in any other lease of the property in the Project, to prohibit the tenant under such lease from any use of the "Visitor" spaces, or otherwise to make any rules relating thereto. Tenant shall not post or mark the "Visitor" spaces with any "tow away" or similar signs, and shall not have the right to any physical enforcement, by towing or otherwise, relating to said parking spaces. 8. Warranty for Building Shell and Grounds: Landlord warrants that the portion of the Buildings and surrounding parking, landscaping, and grounds area existing prior to the construction of the Interior Improvements under Exhibit B, the Interior Improvement Agreement (collectively the "Building Shell") was constructed in a good and workmanlike manner with materials and equipment which were new and otherwise of good quality, installed in accordance with manufacturer's and vendor's specifications. The foregoing warranty shall be subject to, and limited by, the following: 6 A. Once Landlord is notified in writing of any breach of the above-described warranty, Landlord shall promptly commence the cure of such breach and complete such cure with diligence at Landlord's sole cost and expense. B. Landlord's liability pursuant to such warranty shall be limited to the cost of correcting the defect or other matter in question. In no event shall Landlord be liable to Tenant for any loss, damage, claim, or liability incurred by Tenant as a result of such defect or other matter, including without limitation damages resulting from any loss of business by Tenant or other consequential damages. C. Notwithstanding anything contained in this Paragraph 8, Landlord shall not be liable pursuant to the warranty granted by this Paragraph 8 for any defect in design, construction, or equipment in the Building Shell which is discovered and of which Landlord receives written notice from Tenant after the first (1st) anniversary of the recordation of a notice of completion for the work of improvement affected by the defect or the Commencement Date, whichever is later. D. With respect to defects for which Landlord is not responsible pursuant to subparagraph C, Tenant shall have the benefit of any construction or equipment warranties existing in favor of Landlord that would assist Tenant in correcting such defect and in discharging its obligations regarding the repair and maintenance of the Premises. Upon request by Tenant, Landlord shall inform Tenant of all written construction and equipment warranties existing in favor of Landlord which affect the Building Shell. Landlord shall cooperate with Tenant in enforcing such warranties and in bringing any suit that may be necessary to enforce liability with regard to any defect for which Landlord is not responsible pursuant to this Paragraph or under the Lease so long as Tenant pays all costs reasonably incurred by Landlord in so acting. E. Landlord makes no other express or implied warranty with respect to the design, construction or operation of the Building Shell except as that set forth in this Paragraph. Notwithstanding anything to the contrary contained in the Lease or this Agreement, Tenant's acceptance of the Premises shall not be deemed a waiver of the foregoing warranty. THE FOREGOING DISCLAIMER INCLUDES A DISCLA]MER OF ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE MATTERS DESCRIBED HEREIN, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 9. To the actual knowledge of Michael J. Biggar, Landlord's executive handling this Project, as of the Effective Date, without having made any investigation (and without having been deemed to have investigated or discovered any unknown facts which such investigation would have disclosed), and subject to and qualified by all information and disclosures made to Tenant by Landlord, Landlord represents that Landlord does not know of any person who has, during Landlord's ownership of the Project, served in the function of Declarant under the Private Restrictions. 10. Building Signage: Landlord agrees that, provided the parties can reach mutual agreement on the size, quality, and appearance of the sign (and Landlord will not unreasonably withhold its agreement on such matters), that it will not object to Tenant's maintenance of a tasteful sign on the north side of one building facing toward Highway 101 which states solely Tenant's corporate name. 7 11. If the Lease is terminated pursuant to a right granted to Tenant under Paragraph 2.4 of the Lease, all monies deposited or paid by Tenant to Landlord as a Security Deposit or Prepaid Rent under the Summary of Basic Lease Terms, Paragraphs L and M and Paragraphs 3.3 and 3.5 of the Lease shall be returned to Tenant on demand, but Landlord shall have no duty to refund any other monies paid hereunder, including but not limited to monies paid or contributed for Interior Improvements and/Or under the Cost Reimbursement Agreement between the parties. LANDLORD: TENANT: ORCHARD JAY INVESTORS LLC CYLINK CORPORATION a California limited liability company a California corporation By: /s/ David J. Brown By: /s/ [ILLEGIBLE] -------------------------------- -------------------------------- David J. Brown Managing Member Its: Chief Financial Officer -------------------------------- Dated: May 11, 1999 ------------------------------- Dated: May 10, 1999 -------------------------------- DAVID J. BROWN By: /s/ [ILLEGIBLE] -------------------------------- By: /s/ David J. Brown -------------------------------- David J. Brown Its: Corporate Secretary -------------------------------- Dated: May 11, 1999 -------------------------------- Dated: May 10, 1999 -------------------------------- 8 LANDLORD: TENANT: ORCHARD JAY INVESTORS LLC CYLINK CORPORATION a California limited liability company a California corporation By: By: -------------------------------- -------------------------------- David J. Brown Managing Member Its: -------------------------------- Dated: ------------------------------- Dated: -------------------------------- DAVID J. BROWN By: -------------------------------- By: -------------------------------- David J. Brown Its: -------------------------------- Dated: -------------------------------- Dated: -------------------------------- 8 Exhibit A ORCHARD BUSINESS CENTRE SANTA CLARA (GRAPHIC OMITTED) JAY STREET COMMUNICATIONS AND FIBER OPTIC LOOP ______ Six 4" Conduits ------ Four 4" Conduits [ ] Junction Box. The information contained herein has been obtained from sources we deem reliable. We have no reason to doubt its accuracy, but we do not guarantee it. All information should be verified prior to lease. Site plan may not be to scale. EXHIBIT B INTERIOR IMPROVEMENT AGREEMENT THIS INTERIOR IMPROVEMENT AGREEMENT ("Agreement") is made part of that Lease dated May 10, 1999, (the "Lease") by and between Orchard Jay Investors, LLC, a California limited liability company and David J. Brown, ("Landlord"), and Cylink Corporation, a California corporation, ("Tenant"). Landlord and Tenant agree that the following terms are part of the Lease: 1. Purpose of Improvement Agreement: The purpose of this Improvement Agreement is to set forth the rights and obligations of Landlord and Tenant with respect to the construction of Interior Improvements within the Premises. 2. Definitions: As used in this Interior Improvement Agreement, the following terms shall have the following meanings, and terms which are not defined below, but which are defined in the Lease and which are used in this Interior Improvement Agreement, shall have the meanings ascribed to them by the Lease: A. Approved Specifications: The term "Approved Specifications" shall mean those specifications for the Interior Improvements to be constructed by Landlord which are described by Exhibit "C" to the Lease. B. Interior Improvements: The term "Interior Improvements" shall mean all interior improvements to be constructed by Landlord in accordance with the Approved Specifications (e.g., HVAC equipment and distribution, transformer and power distribution, partitions, floor, wall, and window covering, lighting fixtures). C. Interior Improvement Costs: The term "Interior Improvement Costs" shall mean the following: (i) the total amount due pursuant to the general construction contract entered into by Landlord to construct the Interior Improvements, including costs for any and all building code compliance; (ii) the cost of all governmental approvals required as a condition to the construction of the Interior Improvements (including all construction taxes imposed by the City of Santa Clara) in connection with the issuance of a building permit for the Interior Improvements; (iii) all utility connection or use fees; (iv) fees of architects or engineers for services rendered in connection with the design and construction of the Interior Improvements; (v) the cost of payment and performance bonds obtained by Landlord or Prime Contractor to assure completion of the Interior Improvement (but only if Tenant requests or approves such bonds); (vi) the cost of any fees or other exactions of any municipal or governmental entities which arise out of the construction of the Interior Improvements; (vii) costs associated with compliance with the Americans with Disabilities Act and/or such California laws and/or regulations which relate to facilities for the disabled; and (viii) costs to comply with Paragraph 12 of this Agreement. There shall not be included in the Interior Improvement Costs any expenses of Landlord for building the shell and the grounds of the Project, nor complying with legal requirements relating thereto and required by any Laws or Private Restrictions for building shells and exteriors in general. D. Substantial Completion and Substantially Complete: The terms "Substantial Completion" and "Substantially Complete" shall each mean the date when all of the following have occurred with respect to the Interior Improvements in question: (i) the construction of the Interior Improvements has been substantially completed in accordance with the requirements of this Lease; (ii) the architect responsible for preparing the plans shall have executed a certificate or statement representing that the Interior Improvements in question have been substantially completed in accordance with the plans and specifications therefor; (iii) the Building Department of the City of Santa Clara has completed its final inspection of such improvements and has "signed off the building inspection card approving such work as complete; (iv) if applicable, a Certificate of Occupancy has been issued and any other necessary governmental approvals for occupancy have been obtained; (v) all utilities are hooked up and EXHIBIT B available for use; and (vi) Tenant has received written notice that all above parts of Substantial Completion have taken place. 3. Schedule of Performance: Set forth in this paragraph is a schedule of certain critical dates relating to Landlord's and Tenant's respective obligations regarding the construction of the Interior Improvements (the "Schedule of Performance"). Landlord and Tenant shall each be obligated to use reasonable efforts to perform their respective obligations within the time periods set forth in the Schedule of Performance and elsewhere in this Interior Improvement Agreement. The Schedule of Performance is as follows: Action Responsible Items Due Date Party ----- -------- ----- A. Delivery to Completed. Tenant Landlord of Tenant's Interior Requirements B. Delivery to Completed. Landlord Tenant of Preliminary Interior Improvement Plans C. Approval by Within three (3) business days Tenant Tenant of after Tenant receives Preliminary Preliminary Interior Plans. Interior Plans D. Delivery to Within seventeen (17) business Landlord Tenant of days after approval of the Final Preliminary Interior Plans. Interior Plans E. Approval by Within five (5) business days Tenant Tenant of after Tenant receives Final Final Interior Plans. Interior Plans F. Approval by Within three (3) business days Tenant Tenant of after receipt of construction Construction costs. Costs G. Issuance of By June 21, 1999. Landlord Building Permits H. Commence- Within ten (10) business days Landlord ment of after issuance of all construction necessary governmental of Interior approvals and approval of Improvement construction costs by Tenant and Landlord. 2 EXHIBIT B Action Responsible Items Due Date Party ----- -------- ----- I. Substantial Within ten (10) weeks after Landlord Completion execution of construction contract of Interior for the Interior Improvements. Improvements Estimated August 30, 1999. J. Commence- Rent shall commence on Tenant ment of Rent the Commencement Date. Payments 4. Construction of Interior Improvements: Landlord shall construct the Interior Improvements in accordance with the following: A. Development and Approval of Preliminary Interior Plans: Tenant has delivered to Landlord a proposed floor plan identifying its requirements for the Interior Improvements that is consistent with the Approved Specifications ("Tenant's Interior Requiremens"). On or before the due date specified in the Schedule of Performance, Landlord shall and deliver to Tenant for its review and approval preliminary plans for the Interior Improvements which are consistent with and conform to Tenant's Interior Requirements and the Approved Specifications (the "Preliminary Interior Plans"). On or before the due date specified in the Schedule of Performance, Tenant shall either approve such plans or notify Landlord in writing of its specific objections to the Preliminary Interior Plans. If Tenant so objects, Landlord shall revise the Preliminary Interior Plans to address such objections in a manner consistent with the parameters for the Interior Improvements set forth in this Interior Improvement Agreement and the Approved Specifications and shall resubmit such revised Preliminary Interior Plans as soon as reasonably practicable to Tenant for its approval. When such revised Preliminary Interior Plans are resubmitted to Tenant, it shall either approve such plans or notify Landlord of any further objections in writing within two (2) business days after receipt thereof. If Tenant has further objections to the revised Preliminary Interior Plans, the parties shall meet and confer to develop Preliminary Interior Plans that are acceptable to both Landlord and Tenant within five (5) business days after Tenant has notified Landlord of its second set of objections. In the event Tenant and Landlord do not resolve all of Tenant's objections within such five (5) business day period, Landlord and Tenant shall immediately cause Landlord's architect to meet and confer with Tenant's architect or construction consultant, who shall apply the standards set forth in this Interior Improvement Agreement to resolve Tenant's objections and incorporate such resolution into the Preliminary Interior Plans, which process Landlord and Tenant shall cause to be completed within five (5) business days after the conclusion of the five (5) business day period referred to in the immediately preceding sentence. B. Development and Approval of Final Interior Plans: Once the Preliminary Interior Plans have been approved by Landlord and Tenant (including all changes made to resolve Tenant's objections approved by Landlord's architect and Tenant's architect or construction consultant pursuant to subparagraph 4A), Landlord shall complete and submit to Tenant for its approval final working drawings for the Interior Improvements by the due date specified in the Schedule of Performance. Tenant shall approve the final plans for the Interior Improvements or notify Landlord in writing of its specific objections by the due date specified in the Schedule of Performance. If Tenant so objects, the parties shall confer and reach agreement upon final working drawings for the Interior Improvements within five (5) business days after Tenant has notified Landlord of its objections. In the event Tenant and Landlord do not resolve all of Tenant's objections within such five (5) business day period, Landlord and Tenant shall immediately cause Landlord's architect to meet and confer with Tenant's architect or 3 EXHIBIT B construction consultant, who shall apply the standards set forth in this Interior Improvement Agreement to resolve Tenant's objections and incorporate such resolution into the Final Interior Plans, which process Landlord and Tenant shall cause to be completed within five (5) business days after the conclusion of the five (5) business day period referred to in the immediately preceding sentence. The final working drawings so approved by Landlord and Tenant (including all changes made to resolve Tenant's objections approved by Landlord's architect and Tenant's architect or construction consultant) are referred to herein as the "Final Interior Plans". C. Building Permit: Not later than immediately following the time that the Final Interior Plans have been approved by Landlord and Tenant, Landlord shall apply for a building permit for the Interior Improvements, and shall diligently prosecute to completion such approval process. D. Construction Contract: Landlord and Tenant shall cooperate to cause the Interior Improvements to be constructed by a general contractor who is engaged by Landlord in accordance with the procedures set forth in subparagraph 4D(1) hereof (1) The Interior Improvements will be constructed pursuant to a "fixed price" construction contract awarded to a general contractor selected by Landlord and approved by Tenant. Landlord has submitted to Tenant Landlord's recommendation of the general contractor--Hollander Smith Inc.-- which Tenant has approved. Landlord shall submit to Tenant the terms of the "fixed price" construction contract for the Interior Improvements for Tenant's approval, which shall be deemed given if objection is not made by Tenant within three (3) business days after receipt of such proposal from landlord. Subject to mutual agreement of Landlord and Tenant, the general construction contract will provide that major subcontractors for electrical, plumbing, mechanical and HVAC, and elevator work (as well as all other subcontractors as to which Landlord and Tenant agree) for the Interior Improvements shall be engaged on a "design-build" basis where Tenant shall have the right to reasonably approve such subcontractors. Tenant and Landlord acknowledge that the total Interior Improvement Costs are likely to exceed the amount stated in Paragraph 5 of the First Addendum to Lease. Tenant shall have the right to approve the total Interior Improvement Costs. After all such costs are known, in the event that Tenant does not approve the total Interior Improvement Costs, Tenant may request that changes be made to the Final Interior Plans (subject to Landlord's approval which shall not be unreasonably withheld or delayed) for the purpose of lowering the total Interior Improvement Costs. Other major subcontracts shall go through the bid process, wherein Tenant shall have the right to reasonably approve such subcontractors and to have major subcontracts rebid if Tenant does not approve the bid. Delays caused by any modifications to the Final Interior Plans and rebidding or re-pricing requested by Tenant shall be deemed delays caused by Tenant for purposes of Paragraph 7 hereof. (2) Landlord and Tenant shall use their best efforts to approve the general contractor and all subcontractors so that the construction contract may be executed as soon as possible. Tenant shall have no liability to the general contractor or to any subcontractor under the construction contract and/or any subcontractor otherwise with respect to the Interior Improvements. E. Commencement of Interior Improvements: On or before the due date specified in the Schedule of Performance, Landlord shall commence construction for the Interior Improvements and shall diligently prosecute such construction to completion, using all reasonable efforts to achieve Substantial Completion of the Interior Improvements by the due date specified in the Schedule of Performance. 4 EXHIBIT B 5. Payment of Interior Improvement Costs: Landlord and Tenant shall have the following obligations with respect to the payment of Interior Improvement Costs: A. Landlord shall be obligated to pay an amount equal to the Tenant Improvement Allowance as provided for in Paragraph 5 of the First Addendum To Lease for the Payment of Interior Improvement Costs. If the total of Interior Improvement Costs exceeds the amount of Landlord's required contribution, Tenant shall be obligated to pay the entire amount of such excess, including Landlord's construction management fee of Four Percent (4%) of the hard costs of construction in excess of the Tenant Improvement Allowance. In no event shall Landlord be obligated to pay for Interior Improvement Costs in excess of the allowance provided for in Paragraph 5 of the First Addendum to Lease. If Tenant becomes obligated to contribute toward paying Interior Improvement Costs pursuant to this subparagraph 5A, then Landlord shall determine the amount of such excess prior to commencing construction of the Interior Improvements and Tenant shall pay to Landlord the total amount of such estimated excess costs as follows: Within ten (10) days after receipt of Landlord's statement of such excess costs, Tenant shall pay to Landlord 20% of such excess cost; within ten (10) days after receipt of Landlord's certification that 50% of the Interior Improvement work has been completed, Tenant shall pay to Landlord a further 40% of such excess cost; within ten (10) days of receipt of Landlord's certification that 90% of the Interior Improvement work has been completed, Tenant shall pay to Landlord a further 30% of such excess cost. Landlord's certification of progress shall be accompanied by a contractor's written certification confirming the progress of construction, and on request, Landlord shall supply Tenant with other back-up documents reasonably requested by Tenant in regard to such progress determination. If changes are approved, Landlord may, at its discretion, provide Tenant with a new and updated statement of the amount of excess costs based on the additional costs of approved changes, and in such event (a) all further progress payments shall be based on the new statement of excess costs and (b) at the time of the next progress payment, Tenant shall pay an additional amount sufficient to bring all previous progress payments current based on the new statement of excess costs. Within thirty (30) days after the Building is Substantially Completed, the amount of all Interior Improvement Costs has been finally determined, and all "punch-list" items have been competed, Tenant shall pay Landlord any portion of the actual excess costs that remains due and unpaid. The excess costs remaining due and unpaid are comprised of the amount determined by Landlord as the excess costs prior to the work being performed, less all progress payments made as set forth above, plus any added costs resulting from approved changes to the plans and the work. Landlord shall not be obligated to commence construction of the Interior Improvements unless and until the first payment of these excess costs have been paid by Tenant to Landlord, and at Landlord's option, if Tenant does not pay such amount within the time specified above, Landlord may give Tenant a further five (5) day notice to pay such costs or commit an Event of Tenant's Default as defined in the Lease, and if Tenant does not, within such five (5) day period after such notice, pay such amount to Landlord, then Tenant shall be considered to have committed an Event of Tenant's Default without any further notice or cure periods, and Landlord shall be entitled, in addition to any other rights or remedies hereunder, to all of its rights and remedies prescribed in the Lease in the case of an Event of Tenant's Default. At the time the final accounting is rendered by Landlord pursuant to subparagraph 5C hereof, there shall be an adjustment between Landlord and Tenant such that each shall only be required to contribute to the payment of Interior Improvement Costs in accordance with the obligations set forth in this subparagraph 5A which adjustment shall be made within five (5) days after Landlord notifies Tenant of the required adjustment. If Tenant is required to make a payment to Landlord, Tenant shall make such payment even if Tenant elects to audit the statement submitted by Landlord pursuant to subparagraph 5C. In the event Tenant's audit discloses that an overpayment or underpayment was made by Tenant, there shall be an adjustment between Landlord and Tenant as soon as reasonably practicable such that each shall only be required to contribute to the payment of costs in accordance with the obligations set forth in this subparagraph 5A. B. If Tenant fails to pay any amount when due pursuant to this Paragraph 5, then (i) Landlord may (but without the obligation to do so) advance such 5 funds on Tenant's behalf, and Tenant shall be obligated to reimburse Landlord for the amount of funds so advanced on its behalf, and (ii) Tenant shall be liable for the payment of a late charge and interest in the same manner as if Tenant had failed to pay Base Monthly Rent when due as described in Paragraph 3.4 of the Lease. Any amounts paid to Landlord by Tenant pursuant to this subparagraph shall be held by Landlord as Tenant's agent, for disbursal to the general contractor in payment for work costing in excess of Landlord's required contribution. C. When the Interior Improvements are Substantially Completed, Landlord shall submit to Tenant a final and detailed accounting of all Interior Improvement Costs paid by Landlord, certified as true and correct by Landlord's financial officers. Tenant shall have the right to audit the books, records, and supporting documents of Landlord to the extent necessary to determine the accuracy of such accounting during normal business hours after giving Landlord at least two (2) days prior written notice. Tenant shall bear the cost of such audit, unless such audit discloses that Landlord has overstated the total of such costs by more than two percent (2%) of the actual amount of such costs, in which event Landlord shall pay the cost of Tenant's audit. Any such audit must be conducted, if it all, within ninety (90) days after Landlord delivers such accounting to Tenant. 6. Changes to Approved Plans: Subject to Paragraph 4.D.1, once the Final Interior Plans have been approved by Landlord and Tenant, neither shall have the right to order extra work or change orders with respect to the construction of the Interior Improvements without the prior written consent of the other (which, in the case of Tenant's approval, may be withheld in its sole discretion). All extra work or change orders requested by either Landlord or Tenant shall be made in writing, shall specify any added or reduced cost (including the construction manager's fees of Landlord for the management of the construction specified under such change order or extra work, as set forth in Paragraph 5A) and/or construction time resulting therefrom, and shall become effective and a part of the Final Interior Plans once approved in writing by both parties. If a change order requested by Tenant results in an increase in the cost of constructing the Interior Improvements, (including Landlord's construction management fee of Four Percent (4%) of the hard costs of construction), Tenant shall pay the amount of such increase caused by the change order requested by Tenant at the time the change order is approved by both Landlord and Tenant if and to the extent such change order causes the Interior Improvement Costs to exceed Landlord's required contribution thereto described in subparagraph 5A. If a change order requested by Tenant results in an increase in the amount of construction time needed by Landlord to complete the Interior Improvements, Paragraph 7 hereof may apply. 7. Delay in Completion Caused by Tenant: The parties hereto acknowledge that the date on which Tenant's obligation to pay the Base Monthly Rent and the Additional Rent would otherwise commence may be delayed because of: (i) Tenant's failure to submit necessary information to Landlord when required; (ii) Tenant's failure to promptly review and approve the plans for the Interior Improvements in accordance with the Schedule for Performance; (iii) any act by Tenant which interferes with or delays the completion of the plans for the Interior Improvements or Landlord's construction work; (iv) change orders requested by Tenant and approved by Landlord; (v) special materials or equipment ordered or specified by Tenant that cannot be obtained by Landlord at normal cost within a reasonable period of time because of limited availability; or (vi) any delay or default by Tenant in paying the estimated cost of construction of Interior Improvements in excess of the Landlord's required contribution. It is the intent of the parties hereto that the commencement of Tenant's obligation to pay the Base Monthly Rent and all Additional Rent not be delayed by any of such causes or by any other act of Tenant, and in the event it is so delayed, Tenant's obligation to pay the Base Monthly Rent and all Additional Rent shall commence as of the date it would otherwise have commenced absent delay caused by Tenant, provided that within a reasonable period of time after learning of the occurrence of the cause of any such delay, Landlord notifies Tenant in writing of the fact that such delay has occurred and the known or anticipated extent of any such delay, (but Landlord is not required to give any notice in regard to failure to pay estimated excess Interior Improvement Costs except the initial notice to pay 6 EXHIBIT B such costs required by Paragraph 5A above as of the Effective Date, there have not been any Tenant Delays). 8. Delivery of Possession, Punch List, and Acceptance Agreement: As soon as the Interior Improvements are Substantially Completed, Landlord and Tenant shall together walk through the Premises and inspect all Interior Improvements so completed, using reasonable efforts to discover all uncompleted or defective construction in the Interior Improvements. After such inspection has been completed, each party shall sign an acceptance agreement in the form attached to the Lease, as Exhibit "D", which shall (i) include a list of all "punch list" items which the parties agree are to be corrected by Landlord and (ii) shall state the Commencement Date and the initial Base Monthly Rent. As soon as such inspection has been completed and such Acceptance Agreement executed, Landlord shall deliver possession of the Premises to Tenant. Landlord shall use reasonable efforts to complete and/or repair such "punch list" items within thirty (30) days after executing the Acceptance Agreement. Landlord shall have no obligation to deliver possession of the Premises to Tenant until such procedures regarding the preparation of a punch list and the execution of the Acceptance Agreement have been completed. Subject to the provisions of Paragraph 9 of this Agreement, Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance by Tenant of Landlord's work of improvement in such part as complete and in accordance with the terms of the Lease except for the punch list items noted and latent defects that could not reasonable have been discovered by Tenant during its inspection of the Interior Improvements prior to completion of the acceptance agreement. Tenant's participation in and execution of a "punch list", execution of the Acceptance Agreement, and taking possession of the Premises shall not in any way affect Landlord's warranty obligations under this Agreement. Notwithstanding anything contained herein, Tenant's obligation to pay the Base Monthly Rent and Additional Rent shall commence as provided in the Lease, regardless of whether Tenant completes such inspection or executes such Acceptance Agreement. 9. Standard of Construction and Warranty: Landlord hereby warrants that the Interior Improvements shall be constructed substantially in accordance with the Final Interior Plans (as modified by change orders approved by Landlord and Tenant), all Private Restrictions and all Laws, in a good and workmanlike manner, and all materials and equipment furnished shall conform to such final, plans and shall be new and otherwise of good quality and were installed in accordance with all vendor's and manufacturer's specifications, instructions and requirements. All construction, product and equipment warranties and guarantees obtained by Landlord shall, to the extent obtainable, provide that such warranties and guarantees shall also run to the benefit of Tenant and its successors and assigns. The foregoing warranty shall be subject to, and limited by, the following: A. Once Landlord is notified in writing of any breach of the above-described warranty, Landlord shall promptly commence the cure of such breach and complete such cure with diligence at Landlord's sole cost and expense. B. Landlord's liability pursuant to such warranty shall be limited to the cost of correcting the defect or other matter in question. In no event shall Landlord be liable to Tenant' for any damages or liability incurred by Tenant as a result of such defect or other matter, including without limitation damages resulting from any loss of business by Tenant or other consequential damages. C. Except for Landlord's obligations under the Lease, notwithstanding anything contained in this Paragraph 9, Landlord shall not be liable for any defect in design, construction, or equipment furnished which is discovered and of which Landlord receives written notice from Tenant after eighteen (18) months have passed since the later of (i) the Commencement Date, and (ii) recordation of a notice of completion for the work of improvement affected by the defect. D. With respect to defects for which. Landlord is not responsible pursuant to subparagraph 9C, Tenant shall have the benefit of any construction or equipment warranties existing in favor of Landlord that would assist Tenant in correcting. 7 EXHIBIT B such defect and in discharging its obligations regarding the repair and maintenance of the Premises. Upon request by Tenant, Landlord shall inform Tenant of all written construction and equipment warranties existing in favor of Landlord which affect the Interior Improvements. Landlord shall cooperate with Tenant in enforcing such warranties and in bringing any suit that may be necessary to enforce liability with regard to any defect for which Landlord is not responsible pursuant to this paragraph so long as Tenant pays all costs reasonably incurred by Landlord in so acting. E. Landlord makes no other express or implied warranty with respect to the design, construction or operation of the Interior Improvements except as set that forth in this Paragraph. Notwithstanding anything to the contrary contained in the Lease or this Agreement, Tenant's acceptance of the Premises shall not be deemed a waiver of the foregoing warranty. THE FOREGOING DISCLAIMER INCLUDES A DISCLAIMER OF ALL WARRANTIES AI Th REPRESENTATIONS, EXPERESS OR IMPLIED, WITH RESPECT TO THE MATTERS DESCRIBED HEREIN, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 11. Effect of Agreement: In the event of any inconsistency between this Improvement Agreement and the Lease, the terms of this Improvement Agreement shall prevail. 12. Delivery of Documents: Landlord shall deliver to Tenant (i) within thirty (30) days after the same is obtained by Landlord, any temporary or permanent certificates of occupancy issued with regard to the Premises; (ii) within sixty (60) days after Tenant's request (if such request is made within one year of the Effective Date), a complete "as-built" set of Mylar reproducible building plans reflecting all approved changes to the work; and (iii) within thirty (30) days after Substantial Completion of the Premises, complete maintenance and operating manuals for all the equipment, fixtures, and systems that are part of the Building. 13. Miscellaneous: Paragraph 15.11 of the Lease is incorporated herein and its provisions, as applicable, shall be a part hereof. LANDLORD: TENANT: ORCHARD JAY INVESTORS LLC CYLINK CORPORATION a California limited liability company a California corporation By: /s/ David J. Brown By: /s/ [ILLEGIBLE] -------------------------------- -------------------------------- David J. Brown Managing Member Its: Chief Financial Officer -------------------------------- Dated: May 11, 1999 ------------------------------- Dated: May 10, 1999 -------------------------------- DAVID J. BROWN By: /s/ [ILLEGIBLE] -------------------------------- By: /s/ David J. Brown -------------------------------- David J. Brown Its: Corporate Secretary -------------------------------- Dated: May 11, 1999 -------------------------------- Dated: May 10, 1999 -------------------------------- 8 EXHIBIT C APPROVED SPECIFICATIONS (to be inserted) EXHIBIT D ACCEPTANCE AGREEMENT THIS ACCEPTANCE AGREEMENT is made as of _________________ 1999, by and between the parties hereto with regard to that Lease dated May 10, 1999, by and between ORCHARD JAY INVESTORS, LLC, a California limited liability company and David J. Brown ("Landlord"), and Cylink Corporation, a California corporation as Tenant ("Tenant"), affecting those Premises commonly known as 3131 and 3151 Jay Street, Santa Clara, California. The parties hereto agree as follows: 1. Possession of the Premises has been delivered to Tenant and Tenant has taken possession of the Premises (subject to any qualifications set forth in the Lease). 2. The Commencement Date of the Lease Term is __________________ and the Lease Term shall expire on _________________ unless sooner terminated according to the terms of the Lease or by mutual agreement. 3. The Base Monthly Rent initially due pursuant to the Lease is One Hundred Seventy-Four Thousand, Four Hundred Six and 96/100 Dollars ($174,406.96) per month, subject to any subsequent adjustments required by the Lease. 4. Landlord has received a Security Deposit in the amount of Eight Hundred Twenty-Seven Thousand, Five Hundred Sixty-One and 52/100 Dollars ($827,561.52) which shall be held by Landlord pursuant to Paragraph 3.5 of the Lease and Paragraph 3 of the First Addendum to Lease and all other applicable terms of the Lease. In addition, Tenant has prepaid rent in the amount of One Hundred Seventy-Four Thousand, Four Hundred Six and 96/100 Dollars ($174,406.96), which shall be applied to the first installment of Base Monthly Rent. 5. The Lease is in full force and effect, neither party is in default of its obligations under the Lease, and Tenant has no setoffs, claims, or defenses to the enforcement of the Lease. LANDLORD: TENANT: ORCHARD JAY INVESTORS LLC CYLINK CORPORATION a California limited liability company a California corporation By: By: -------------------------------- -------------------------------- David J. Brown Managing Member Its: -------------------------------- Dated: ------------------------------- Dated: -------------------------------- DAVID J. BROWN By: -------------------------------- By: -------------------------------- David J. Brown Its: -------------------------------- Dated: -------------------------------- Dated: -------------------------------- EXHIBIT E 3633460 BOOK 8565 539 INDEX TO DECLARATION Page No. -------- PREAMBLE I. DEFINITIONS 1 II. PROPERTY SUBJECT TO THE SAN TOMAS INDUSTRIAL PARK RESTRICTIONS 2 Section 2.1 General Declaration Creating San Tomas Industrial Park 2 Section 2.2 Addition of Other Real Property by Grantor 3 A. Grantor's Power 3 B. Notice of Addition of Land 3 III. REGULATION OF IMPROVEMENTS 3 Section 3.1 Approval of Plans 3 A. Approval Required 3 B. Basis for Approval 4 C. Result of Inaction 4 D. Proceeding With Work 4 E. Completion of Work 5 F. Estoppel Certificate 5 G. Liability ? H. Review Fee ? Section 3.2 Limitations on Improvements 6 A. Minimum Setback Lines 6 B. Exceptions to Setback Requirements 6 C. Landscaping 7 D. Signs 7 E. Parking Areas 7 F. Storage and Loading Areas 8 BOOK 8565 540 Page No. -------- IV. REGULATION OF OPERATIONS AND USES 8 Section 4.1 Permitted Uses 8 Section 4.2 Restrictions and Prohibited Uses 9 A. Prohibited Uses 9 B. Nuisances 9 C. Repair of Buildings 10 D. Right of Entry 10 Section 4.3 Other Operations and Uses 10 V. DURATION; MODIFICATION AND REPEAL 10 Section 5.1 Duration of Restrictions 10 Section 5.2 Termination and Modification 11 VI. ENFORCEMENT 11 Section 6.1 Abatement and Suit 11 Section 6.2 Deemed to Constitute a Nuisance 12 Section 6.3 Attorney's Fees 12 Section 6.4 Failure to Enforce Not a Waiver of Rights 12 VII. MISCELLANEOUS PROVISIONS 12 Section 7.1 Assignment of Rights and Duties 12 Section 7.2 Constructive Notice and Acceptance 13 Section 7.3 Waiver 13 Section 7.4 Mutuality, Reciprocity; Runs With Land 13 Section 7.5 Rights of Mortgages 13 Section 7.6 Paragraph Headings 14 Section 7.7 Effect of Invalidation 14 BOOK 8565 541 DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS FOR SAN TOMAS INDUSTRIAL PARK PREAMBLE THIS DECLARATION is made on June 5, 1969, by AETNA LIFE INSURANCE COMPANY, a Connecticut Corporation, as owner of the real property in the City of Santa Clara, County of Santa Clara, State of California, described in Exhibit "A" which is attached hereto and incorporated herein by this reference. The property described in Exhibit "A" is subject to this DECLARATION and will be known as SAN TOMAS INDUSTRIAL PARK. SAN TOMAS INDUSTRIAL PARK is being developed as a planned industrial complex which will provide employment opportunities for the residents of the City of Santa Clara and the surrounding area. These DECLARATIONS are designed to complement local government and municipal regulations and where conflicts occur, the most rigid requirements shall prevail. It is assumed that the users of industrial sites in the SAN TOMAS INDUSTRIAL PARK will be motivated to preserve these qualities through mutual cooperation and by enforcing not only the letter but the spirit of this DECLARATION. BOOK 8565 542 ARTICLE I DEFINITIONS Unless the context otherwise specifies or requires, the terms defined in this Article I shall, for all purposes of this DECLARATION, have the meanings herein specified. ARCHITECT The term "Architect" shall mean a person holding a certificate to practice architecture in the State of California under authority of Division 3, Chapter 3 of the Business and Professions Code of the State of California. BENEFICIARY The term "Beneficiary" shall mean a mortgagee under a mortgage, as well as beneficiary under a deed of trust. DECLARATION The term "Declaration" shall mean the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS. DEED OF TRUST The term "Deed of Trust" or "Trust Deed" shall mean a mortgage as well as a deed of trust. FILE The term "File" shall mean, with reference to any subdivision map, the filing of said map in the Office of the Recorder of the County of Santa Clara, State of California. GRANTOR The term "Grantor" shall mean the AETNA LIFE INSURANCE COMPANY and, to the extent provided in Section 7.1 below, its successors and assigns. IMPROVEMENTS The term "Improvements" shall include buildings, outbuildings, roads, driveways, parking areas, fences, screening walls and barriers, retaining walls, stairs, decks, hedges, windbreaks, plantings, planted trees and shrubs, poles, signs, loading areas and all other structures or landscaping improvements of every type and kind. MORTGAGEE The term "Mortgagee" shall mean a beneficiary under, or a holder of a deed of trust as well as a mortgagee. RECORD; RECORDED The term "Record" shall mean, with respect to any document, the recordation of said document in the Office of the County Recorder of the County of Santa Clara, State of California. SITE The term "Site" shall mean all contiguous land under one ownership. -1- BOOK 8565 543 VISIBLE FROM NEIGHBORING PROPERTY The term "Visible From Neighboring Property" shall mean, with respect to any given object, that such object is or would be visible to a person six feet tall, standing on any part of such neighboring property at an elevation no greater than the elevation of the base of the object being viewed. SAN TOMAS INDUSTRIAL PARK The term "SAN TOMAS INDUSTRIAL PARK" shall mean all of the real property now or hereafter made subject to this DECLARATION. SAN TOMAS INDUSTRIAL PARK RESTRICTIONS The term "SAN TOMAS INDUSTRIAL PARK RESTRICTIONS" shall mean the covenants, conditions, and restrictions set forth in this DECLARATION, as it may from time to time be amended or supplemented. ARTICLE II PROPERTY SUBJECT TO THE SAN TOMAS INDUSTRIAL PARK RESTRICTIONS SECTION 2.1 GENERAL DECLARATION CREATING SAN TOMAS INDUSTRIAL PARK GRANTOR hereby declares that all of the real property located in the County of Santa Clara, State of California, described in Exhibit A, which is attached hereto and incorporated herein by this reference, is and shall be, conveyed, hypothecated, encumbered, leased, occupied, built upon or otherwise used, improved or transferred in whole or in part subject to the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS, meaning the covenants, conditions and restrictions set forth in this DECLARATION. All of said restrictions are declared and agreed to be in furtherance of a general plan for the subdivision, improvement and sale of said real property and are established for the purpose of enhancing and perfecting the value, desirability and attractiveness of said property and every part thereof. All of the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS shall run with all of said real property for all purposes and shall be binding upon and inure to the benefit of GRANTOR and all owners, lessees, licensees, occupants and their successors in interest as set forth in this DECLARATION. -2- BOOK 8565 544 SECTION 2.2 ADDITION OF OTHER REAL PROPERTY BY GRANTOR A. GRANTOR'S POWER Grantor may at any time during the pendency of this DECLARATION add all or a portion of any land now or hereafter owned by GRANTOR to the property which is covered by this DECLARATION, and upon recording of a notice of addition of real property containing at least the provisions set forth in Section 2.2B of this Article II, the provisions of this DECLARATION specified in said notice shall apply to such added land in the same manner as if it were originally covered by this DECLARATION. Thereafter, to the extent this DECLARATION is made applicable thereto, the rights, powers and responsibilities of GRANTOR and the owners, lessees, licensees and occupants of parcels within such added land shall be the same as in the case of the land described in Exhibit "A". B. NOTICE OF ADDITION OF LAND The notice of addition of real property referred to in Section 2.2A above shall contain at least the following provisions: 1. A reference to this DECLARATION stating the date of recording hereof and the book or books of the records of Santa Clara County, California, and the page numbers where this DECLARATION is recorded; 2. A statement that the provisions of this DECLARATION, or some specified part thereof, shall apply to such added real property; 3. An exact description of such added real property; and 4. Such other or different covenants, conditions and restrictions as GRANTOR shall, in its discretion, specify to regulate and control the use, occupancy and improvement of such added real property. ARTICLE III REGULATION OF IMPROVEMENTS SECTION 3.1 APPROVAL OF PLANS A. APPROVAL REQUIRED No improvement shall be erected, placed, altered, maintained or permitted to remain on any land subject to this DECLARATION until final plans -3- BOOK 8565 545 and specifications showing the plot layout, all exterior elevations with materials and colors therefor, signs and landscaping shall have been submitted to and approved in writing by GRANTOR. Such final plans and specifications shall be submitted in writing in duplicate over the authorized signature of the owner, lessee, licensee or other occupant of the site or his authorized agent. Under no circumstances shall the GRANTOR approve metal-clad buildings of any type or design other than "curtain wall", or approve buildings covering more the 55% of the lot area. Changes in approved plans which materially affect building size, placement or external appearance must be similarly submitted to and approved by GRANTOR. B. BASIS FOR APPROVAL Approval shall be based, among other things, on adequacy of site dimensions (a minimum lot size of 20,000 square feet will be required), conformity and harmony of external design with neighboring structures, effect of location and use of proposed improvements on neighboring sites, the nature of improvements on neighboring sites and the types of operations and uses thereof, relation of topography, grade and finish ground elevation of the site being improved to that of neighboring sites, proper facing of main elevation with respect to nearby streets, adequacy of screening of mechanical air conditioning or other roof top installations, and conformity of the plans and specifications to the purpose and general plan and intent of this DECLARATION. No plans will be approved which do not provide for the underground installation of power lines from the lot line to buildings. GRANTOR shall not arbitrarily or unreasonably withhold its approval of such plans and specifications. C. RESULT OF INACTION If GRANTOR fails either to approve or disapprove such plans and specifications within thirty (30) days after the same have been submitted to it, it shall be conclusively presumed that GRANTOR has approved said plans and specifications; provided, however, that if within said thirty (30) day period, GRANTOR gives written notice of the fact that a reasonable additional period is required for the approval of such plans and specifications, there shall be no presumption that the same are approved until the expiration of the extended period set forth in said notice. D. PROCEEDING WITH WORK Upon receipt of approval from GRANTOR pursuant to this section the owner or lessee to whom the same is given shall as soon as practicable, satisfy all conditions thereof and diligently proceed with the commencement and completion of all approved construction, refinishing, alterations and excavations. In all cases work shall be commenced within one year from the date of such approval. If there is a failure to comply -4- BOOK 8565 546 with this paragraph, then the approval given pursuant to this section shall be deemed revoked unless GRANTOR upon request made prior to the expiration of said one year period extends the time for commencing work. E. COMPLETION OF WORK In any event reconstruction, refinishing or alteration of any such improvement shall be completed within two years after the commencement thereof except for so long as such completion is rendered impossible or would result in great hardship due to strikes, fires, national emergencies, natural calamities or other supervening forces beyond the control of the owner, lessee, licensee or occupant or his agents. Failure to comply with this paragraph shall constitute a breach of the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS and subject the defaulting party or parties to all enforcement procedures set forth in this DECLARATION and any other remedies provided by law or in equity. F. ESTOPPEL CERTIFICATE Within thirty (30) days after written demand is delivered to the GRANTOR and upon payment of a reasonable fee (not to exceed $25.00) established by GRANTOR, there shall be recorded an estoppel certificate executed by GRANTOR and certifying that as of the date thereof either (a) all improvements made or other work done on or within a site complies with the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS or (b) such improvements or work do not so comply in which event the certificate shall identify the non-complying improvements or work and set forth with particularity the cause or causes for such non-compliance. Any lessee, purchaser or encumbrancer in good faith for value shall be entitled to rely on said certificate with respect to the matters set forth therein, such matters being conclusive as between the GRANTOR and all such subsequent parties in interest. G. LIABILITY GRANTOR shall not be liable for any damage, loss or prejudice suffered or claimed on account of (a) the approval or disapproval of any plans, drawings and specifications whether or not defective; (b) the construction or performance of any work whether or not pursuant to approved plans, drawings and specifications; (c) the development of any property within the SAN TOMAS INDUSTRIAL PARK; or (d) the execution and filing of an estoppel certificate pursuant to the preceding paragraph whether or not the facts therein are correct, provided that GRANTOR has acted in good faith. -5- BOOK 8565 547 H. REVIEW FEE An architectural review fee shall be paid to GRANTOR at such time as plans and specifications are submitted for approval based on the following schedule: (a) When the plans submitted are prepared by an architect, the architectural review fee shall be $100.00; (b) In all other cases the architectural review fee shall be $250.00 SECTION 3.2 LIMITATIONS ON IMPROVEMENTS A. MINIMUM SETBACK LINES No structures of any kind, and no part thereof, shall be placed closer then permitted by GRANTOR to an interior property line, or closer than thirty (30) feet to a street property line other than Scott Boulevard, or closer than twenty-six (26) feet to the property line of Scott Boulevard. B. EXCEPTIONS TO SETBACK REQUIREMENTS The following structures and improvements are specifically excluded from the foregoing setback requirements: 1. Roof overhang subject to the specific approval of GRANTOR in writing, provided it does not extend more than six (6) feet into the setback area. 2. Steps and walks, provided the same do not extend more than six (6) feet in the setback area. 3. Paving and associated curbing, except that vehicle parking area shall not be permitted within thirty (30) feet of the street property line on which the building fronts or within ten (10) feet of any other street property line. 4. Fences, except that no fence shall be placed within the street setback area unless specific approval is given by GRANTOR in writing. 5. Landscaping. 6. Planters, not to exceed three feet in height. 7. Gas and service stations including all pertinent uses, subject to the specific approval of GRANTOR in writing 8. Displays identifying the owner, lessee or occupant, subject to the specific approval of GRANTOR in writing. -6- BOOK 8565 548 C. LANDSCAPING Every site on which a building shall have been placed shall be landscaped in accordance with plans and specifications submitted to and approved by GRANTOR pursuant to Section 3.1 above. Landscaping as approved by GRANTOR shall be installed within ninety days of occupancy or completion of the building, whichever occurs first, unless GRANTOR approves in writing another completion date. After completion such landscaping shall be maintained in a sightly and well-kept condition. In general GRANTOR will not approve landscaping plans which do not call for landscaping the area between curb and property line (excluding driveways), which do not call for at least twelve (12) feet of landscaped area between street property line and parking area, which does not provide for an automatic sprinkler system or which does not call for at least fifteen (15) feet of landscaped areas between buildings or parking area and an adjoining expressway or freeway. D. SIGNS 1. No billboard or advertising sign shall be permitted other than those identifying by name, business and products of the person or firm occupying the premises and those offering the premises for sale or for lease. The size and style of sale or lease signs must be approved by GRANTOR in writing. 2. The location of signs shall be governed by the setback requirements set forth in ARTICLE III Section 3.2 unless GRANTOR gives permissions for a non-conforming location. 3. Signs and identifying markings on buildings or building sites shall only be of such size, design and color as is specifically approved by GRANTOR in writing. E. PARKING AREAS 1. Adequate off-street parking shall be provided to accommodate all parking needs for employee, visitor and company vehicles on the site. The intent of this provision is to eliminate the needs for any on-street parking. If parking requirements increase as a result of a change in use or number of employees, additional off-street parking shall be provided to satisfy the intent of this section. 2. Parking shall not be permitted between public street pavement and a property line or closer than twelve (12) feet to a street property line. -7- BOOK 8565 549 3. Any parking area between a property line and the front of the building must be depressed or screened. 4. The parking requirements may be modified by GRANTOR as to any particular site. F. STORAGE AND LOADING AREAS 1. Unless specifically approved by GRANTOR in writing, no materials, supplies or equipment, including company-owned or operated trucks, shall be stored in any area on a site except inside a closed building, or behind a visual barrier screening such areas so that they are not visible from the neighboring properties or public streets. 2. Loading areas shall not encroach into setback areas unless specifically approved by GRANTOR in writing. 3. Loading docks shall be set back and screened to minimize the effect of their appearance from the street and from neighboring property. Docks shall not be closer than sixty-five (65) feet to the property line, unless specifically approved by GRANTOR in writing. 4. No railroad tracks shall be constructed between any street property line and the building. ARTICLE IV REGULATION OF OPERATIONS AND USES SECTION 4.1 PREMITTED USES Unless otherwise specifically prohibited herein, any industrial operation and use will be permitted if it is performed or carried out entirely within a building that is so designed and constructed that the enclosed operations and uses do not cause or produce a nuisance to adjacent sites such as but not limited to vibration, sound, electro-mechanical disturbances and radiation, electro-magnetic disturbances, radiation, air or water pollution, dust, emission or odorous, toxic and non-toxic matter. All lighting is to be shielded from adjacent sites. -8- BOOK 8565 550 SECTION 4.2 RESTRICTIONS AND PROHIBITED USES A. PROHIBITED USES The following operations and uses shall not be permitted on any property subject to these restrictions: 1. Residential 2. Trailer Courts 3. Labor Camps 4. Junk Yards 5. Drilling for and/or the removal of oil, gas or other hydrocarbon substances (except that this provision shall not be deemed to prohibit the entry of subject property below a depth of 500 feet for such purposes). 6. Commercial excavation of building or construction materials. 7. Distillation of bones. 8. Dumping, disposal, incineration or reduction of garbage, sewage, offal, dead animals or refuse. 9. Fat Rendering. 10. Stockyard or Slaughter of Animals. 11. Refining of Petroleum or of its Products. 12. Smelting of Iron, Tin, Zinc or other Ores. 13. Cemeteries. 14. Jail or Honor Farms. B. NUISANCES No rubbish or debris of any kind shall be placed or permitted to accumulate upon or adjacent to any site, and no odors shall be permitted to arise therefrom [ILLEGIBLE] as to render any site or portion thereof unsanitary, unsightly, offensive or detrimental to any of the property in the vicinity thereof or to the occupants thereof. No nuisance shall be permitted to exist or operate upon any site so as to be offensive or detrimental to any property [ILLEGIBLE] the vicinity thereof or to its occupants. -9- BOOK 8565 551 C. REPAIR OF BUILDINGS No building or structure upon any site shall be permitted to fall into disrepair, and each such building and structure shall at all times be kept in good condition and repair and adequately painted or otherwise finished. D. RIGHT OF ENTRY During reasonable hours, and subject to reasonable security requirements, GRANTOR, or its authorized representatives, shall have the right to enter upon and inspect any building, site or parcel and the improvements thereon embraced for the purpose of ascertaining whether or not the provisions of the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS have been or are being complied with and shall not be deemed guilty to trespass by reason of such entry. SECTION 4.3 OTHER OPERATIONS AND USES Operations and uses which are neither specifically prohibited nor specifically authorized by these restrictions may be permitted in a specific case if operational plans and specifications are submitted to and approved in writing by GRANTOR. Approval or disapproval of such operational plans and specifications shall be based upon the effect of such operations or uses on other property subject to these restrictions or upon the occupants thereof, but shall be the sole discretion of GRANTOR. ARTICLE V DURATION, MODIFICATION AND REPEAL SECTION 5.1 DURATION OF RESTRICTIONS The SAN TOMAS INDUSTRIAL PARK RESTRICTIONS shall continue and remain in full force and effect at all times with respect to all property, and each part thereof, now or hereafter made subject thereto (subject, however, to the right to amend and repeal as provided for herein) until January 1, 1990. However, unless within one year prior to January 1, 1990, there shall be recorded an instrument directing the termination of the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS signed by owners of not less than two-thirds of the property then subject to these RESTRICTIONS, based on the number of square feet subject to these RESTRICTIONS, the SAN TOMAS INDUSTRIAL PARK RESTRICTIONS, as in effect immediately prior to the expiration date shall be continued automatically without any further notice for an additional period of ten years -10- BOOK 8565 552 and thereafter for successive periods of ten years unless within one year prior to the expiration of any such period the SAN TOMAS INDUSTRIAL PARKS RESTRICTIONS are terminated as set forth above in this paragraph. SECTION 5.2 TERMINATION AND MODIFICATION This DECLARATION, or any provisions thereof, or any covenant, condition or restriction contained herein, may be terminated, extended, modified or amended, as to the whole of said property or any portion thereof, with the written consent of the owners of seventy-five (75%) percent of the property subject to these restrictions, based on the number of square feet owned as compared to the total number of square feet subject to these RESTRICTIONS, provided, however, that so long as GRANTOR owns at least twenty-five (25%) percent of the property subject to these RESTRICTIONS, or for a period of fifteen (15) years from the effective date hereof, whichever period is longer, no such termination, extension, modification or amendment shall be effective without the written approval of GRANTOR thereto. No such termination, extension, modification or amendment shall be effective until a proper instrument in writing has been executed and acknowledged and recorded in the County where the land affected thereby is situated. ARTICLE VI ENFORCEMENT SECTION 6.1 ABATEMENT AND SUIT Violation or breach of any restriction herein contained shall give to GRANTOR the right to enter upon the property upon or at to which said violation or breach exists and to summarily abate and remove at the expense of the owner, lessee or occupant thereof, any structure, thing or condition that may be or exist thereon contrary to the intent and meaning of the provisions hereof, or to prosecute a proceeding at law or in equity against the person or persons who have violated or are attempting to violate any of these restrictions to enjoin or prevent them from doing so, to cause said violation to be remedied or to recover damages for said violation. In addition, every owner of property subject to these restrictions shall have the right in the event of violation or breach of any restriction herein contained to prosecure a proceeding ?????? or in equity against the person or persons who have violated or are attempting -11- BOOK 8565 553 to violate any of these restrictions to enjoin or prevent them from doing so, to cause said violation to be remedied or to recover damages for said violation. SECTION 6.2 DEEMED TO CONSTITUTE A NUISANCE The result of every action or omission whereby and restriction herein contained is violated in whole or in part is hereby declared to be and to constitute a nuisance, and every remedy allowed by law or equity against an owner, either public or private, shall be applicable against every such result and may be exercised by GRANTOR or by any owner or lessee of property subject to these RESTRICTIONS. SECTION 6.3 ATTORNEY'S FEES In any legal or equitable proceeding for the enforcement or to restrain the violation of this DECLARATION or any provision hereof, the losing party or parties shall pay the attorneys' fees of the prevailing party or parties, in such amount as may be fixed by the Court in such proceedings. All remedies provided herein or at law or in equity shall be cumulative and not exclusive. SECTION 6.4 FAILURE TO ENFORCE NOT A WAIVER OR RIGHTS The failure of GRANTOR or any property owner to enforce any restriction herein contained shall in no event be deemed to be a waiver of the right to do so thereafter nor or the right to enforce any other restriction. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1 ASSIGNMENT OF RIGHTS AND DUTIES Any and all of the rights, powers and reservations of GRANTOR herein contained may be assigned to any person, corporation or association which will assume the duties of GRANTOR pertaining to the particular rights, powers and reservations assigned, and upon any such person, corporation or association's evidencing its consent in writing to accept such assignment and assume such duties, he or it shall, to the extent of such assignment, have the same rights and powers and be subject to the same obligations and duties as are given to and assumed by GRANTOR herein. The term GRANTOR as used herein includes all such assignees and their heirs, successors and assigns. If at any time GRANTOR ceases to exist and has not made such an assignment, a successor GRANTOR may be appointed in the same manner as there RESTRICTIONS -12- BOOK 8565 554 may be terminated, extended, modified or amended under Section 5.2 of Article V. Any assignment or appointment made under this section shall be in recordable form and shall be recorded in the County where the land affected is situated. SECTION 7.2 CONSTRUCTION NOTICE AND ACCEPTANCE Every person or other entity who now or hereafter owns or acquires any right, title or interest in or to any portion of the property made subject to these RESTRICTIONS is and shall be conclusively deemed to have consented and agreed to every covenant, condition and restriction contained herein, whether or not any reference to this DECLARATION is contained in the instrument by which such person or entity acquired an interest in said property. SECTION 7.3 WAIVER Neither GRANTOR nor its successors or assigns shall be liable to any owner, lessee, licensee, or occupant of land subject to this DECLARATION by reason of any mistake in judgment, negligence, nonfeasance, action or inaction or for the enforcement or failure to enforce any provision of this DECLARATION. Every owner, lessee, licensee or occupant of any of said property by acquiring his interest therein agrees that he will not bring any action or suit against GRANTOR to recover any such damages or to seek equitable relief. SECTION 7.4 MUTUALITY, RECIPROCITY; RUNS WITH LAND All covenants, conditions, restrictions and agreements contained herein are made for the direct, mutual and reciprocal benefit of each and every part and parcel of the property now or hereafter made subject to this DECLARATION; shall create mutual, equitable servitudes upon each parcel in favor of every other parcels; shall create reciprocal rights and obligations between the respective owners of all parcels and privity of contract and estate between all grantees of said parcels, their heir, successors and assigns; and shall, as to the owner of each parcel, his heirs, successors and assigns, operate as covenants running with the land, for the benefit of all other parcels. SECTION 7.5 RIGHTS OF MORTGAGEES No breach of the restrictions and other provisions contained herein shall defeat or render invalid the lien of any mortgage or deed of trust now or hereafter executed upon land -13- BOOK 8565 555 subject to these restrictions; provided, however, that if any portion of said property is sold under a foreclosure of any mortgage or under the provisions of any deed of trust, any Purchaser at such sale and his successors and assigns shall hold any and all property so purchased subject to all of the restrictions and other provisions of this DECLARATION. SECTION 7.6 PARAGRAPH HEADINGS Paragraph headings, where used herein, are inserted for convenience only and are not intended to be a part of this DECLARATION or in any way to define, limit or describe the scope and intent of the particular paragraphs to which they refer. SECTION 7.6 EFFECT OF INVALIDATION If any provision of this DECLARATION is held to be invalid by any court, the invalidity of such provision shall not affect the validity of the remaining provisions hereof. IN WITNESS WHEREOF, GRANTOR has executed this DECLARATION the day and year first above written. AETNA LIFE INSURANCE COMPANY By: /s/ R. D. SWINEHART ------------------------------- VICE PRESIDENT By: /s/ F. E. HEALY ------------------------------- ASSISTANT SECRETARY GRANTOR STATE OF CONNECTICUT ) ) SS. COUNTY OF HARTFORD ) On June 5, 1969 before me, the undersigned, a Notary Public in and for said State, personally appeared R. D. SWINEHART, known to me to be the VICE President, and F. E. HEALY, known to me to be ASSISTANT Secretary of the corporation that executed the within instrument, known to me to be the persons who executed the within instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors. WITNESS my hand and official seal. Frank A. Kelly Jr., Notary Public Within and for the State of Connecticut My Commission Expires March 31, 1970. Signature /s/ Frank A. Kelly Jr. ---------------------------- - -------------------------------------- Name (Typed or Printed) -14- BOOK 8565 556 EXHIBIT "A" LEGAL DESCRIPTION All that certain real property situate in the City of Santa Clara, County of Santa Clara, State of California described as follows: all of lots 1 to 29 inclusive as shown upon that certain map entitled "Tract No. 2971" which map was filed for record in the Office of the Recorder of the City of Santa Clara, State of California on May 16, 1969 in Book 253 of Maps at Pages 28 and 29. 3633460 BOOK 8565 539 ------------------------------------ RECORDED AT THE REQUEST OF Title Insurance and Trust Company JUN 12 1969 8:01 AM GEORGE E. FOWLES, Rcorder SANTA CLARA COUNTY, OFFICIAL RECORDS ------------------------------------ EXHIBIT F SIGN CRITERIA These criteria have been established for the purpose of assuring an outstanding business complex and for the mutual benefits of all tenants. Conformance will be strictly enforced and any installed non-conforming or unapproved signs must be brought into conformance at the expense of the Tenant. A. General Requirements: 1. The Tenant shall submit a sketch of his proposed sign to be Landlord for his approval. 2. The Project Monument Sign and Building Tenant Sign base and frame shall be constructed by Landlord's agent at Landlord's expense. The sign base shall be installed by Landlord's agent at Landlord's expense. All tenant lettering shall be done by Landlord's agent at Tenant's expense. 3. Tenant shall be responsible for the fulfillment of all requirements of these criteria. B. General Specifications: 1. No electrical or audible signs will be permitted. 2. The sign's dimensions will be in accordance with the established sign program for the Project and Building. 3. Sign copy will be restricted to company name only. 4. The style, color and size of the individual company's name may vary. 5. Placement of the sign and method of attachment to the Project Monument Sign and Building Tenant Sign will be directed by the Landlord. 6. Upon the removal of any sign, any damage to the Project Monument Sign or Building Tenant Sign must be repaired by the Tenant. 7. Those tenants who do not wish an exterior sign may place gold leaf lettering on the interior window area, not to exceed more than 144 square inches (gross area). The letters are not to exceed 3 inches in height. 8. Except as provided herein, no advertising placards, banners, pennants, names, insignia, trademarks or other descriptive material shall be affixed or maintained upon the glass panes or exterior walls of the Building. [GRAPHIC OMITTED] ORCHARD PROJECT 845 EXHIBIT G RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: WELLS FARGO BANK, NATIONAL ASSOCIATION Real Estate Group (AU #AU NUMBER) 400 Capitol Mall, Suite 700 Sacramento, CA 95814 Attn: LOAN ADMINISTRATOR'S NAME HERE Loan No. LOAN NUMBER ================================================================================ SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL, ATTORNMENT AND NON-DISTURBANCE AGREEMENT (Lease To Deed of Trust) NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST (DEFINED BELOW). THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL, ATTORNMENT AND NON-DISTURBANCE AGREEMENT ("Agreement") is made DATE OF DOCUMENTS by and between BORROWER NAME, a California general partnership ("Owner"), NAME OF LESSEE HERE ("Lessee") and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"). RECITALS 1. Pursuant to the terms and provisions of a lease dated DATE OF LEASE HERE ("Lease"), Owner, as "Lessor," granted to Lessee a leasehold estate in and to a portion of the poperty described on Exhibit A attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the "Property"). 2. Said Lease contains provisions and terms granting Lessee an option to purchase the Property (the "Option To Purchase"). 3. Owner has executed, or proposes to execute, a deed of trust with absolute assignment of leases and rents, security agreement and fixture filing ("Deed of Trust") securing, among other things, a promissory note ("Note") in the principal sum of LOAN AMOUNT AND NO/100THS DOLLARS ($LOAN AMOUNT IN NUMBERS), dated DATE OF DOCUMENTS, in favor of Lender, which Note is payable with interest and upon the terms and conditions described therein ("Loan"). The Deed of Trust is to be recorded concurrently herewith. 4. As a condition to making the Loan secured by the Deed of Trust, Lender requires that the Deed of Trust be unconditionally and at all times remain a lien on the Property, prior and superior to all the rights of Lessee under the Lease and the Option To Purchase and that the Lessee specifically and unconditionally subordinate the Lease and the Option To Purchase to the lien of the Deed of Trust. Page 1 of 9 Loan No. LOAN NUMBER 5. Owner and Lessee have agreed to the subordination, attornment and other agreements herein in favor of Lender. NOW THEREFORE, for valuable consideration and to Induce Lender to make the Loan, Owner and Lessee hereby agree for the benefit of Lender as follows: 6. SUBORDINATION. Owner and Lessee hereby agree that: 6.1 Prior Lien. The Deed of Trust securing the Note in favor of Lender, and any modifications, renewals or extensions thereof, shall unconditionally be and at all times remain a lien on the Property prior and superior to the Lease and the Option To Purchase; 6.2 Subordination. Lender would not make the Loan without this agreement to subordinate; and 6.3 Whole Agreement. This Agreement shall be the whole agreement and only agreement with regard to the subordination of the Lease and the Option To Purchase to the lien of the Deed of Trust and shall supersede and cancel, but only insofar as would affect the priority between the Deed of Trust and the Lease and the Option To Purchase, any prior agreements as to such subordination, including, without limitation, those provisions, if any, contained in the Lease which prodvide for the subordination of the Lease and the Option To Purchase to a deed or deeds of trust or to a mortgage or mortgages. AND FURTHER, Lessee individually declares, agrees and acknowledges for the benefit of Lender, that: 6.4 Use of Proceeds. Lender, in making disbursements pursuant to the Note, the Deed of Trust or any loan agreements with respect to the Property, is under no obligation or duty to, nor has Lander represented that it will, see to the application of such proceeds by the person or persons to whom Lender disburses such proceeds, and any application or use of such proceeds for purposes other than those provided for in such agreement or agreements shall not defeat this agreement to subordinate in whole or in part; 6.5 Waiver, Relinquishment and Subordination. Lessee intentionally and unconditionally waives, relinquishes and surobrinates all of Lessee's right, title and interest in and to the Property to the lien of the Deed of Trust and undestands that in reliance upon, and in consideration of, this waiver, relinquishment and subordination, specific loans and advances are being and will be made by Lender and, as part and parcel thereof, specific monetary and other oblitagions are being and will be entered into which would not be made or entered into but for said reliance upon this waiver, relinquishment and subordination. 7. ASSIGNMENT. Lessee acknowledges and consents to the assignment of the Lease by Lessor in favor of Lender. 8. ESTOPPEL. Lessee acknowledges and represents that: 8.1 Lease Effective. The Lease has been duly executed and delivered by Lessee and, subject to the terms and conditions thereof, the Lease is in full force and effect, the obligations of Lessee thereunder are valid and binding and there have been no modifications or additions to the Lease, written or oral; 8.2 No Default. To the best of Lessee's knowledge, as of the date hereof: (i) there exists no breach, default, or event or condition which, with the giving of notice or the passage of time or both, would constitute a breach or default under the Lease; and (ii) there are no existing claims, defenses or offsets against rental due or to become due under the Lease; Page 2 of 9 Loan No. LOAN NUMBER 8.3 Entire Agreement. The Lease constitutes the entire agreement between Lessor and Lessee with respect to the Property and Lessee claims no rights with respect to the Property other than as set forth in the Lease; and 8.4 No Prepaid Rent. No deposits or prepayments of rent have been made in connection with the Lease, except as follows: (if none, state "None") _________________________________________________________. 9. ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such times as Lender is the Beneficiary under the Deed of Trust: 9.1 Modification, Termination and Cancellation. Lessee will not consent to any modification, amendment, termination or cancellation of the Lease (in whole or in part) without Lender's prior written consent and will not make any payment to Lessor in consideration of any modification, termination or cancellation of the Lease (in whole or in part) without Lender's prior written consent; 9.2 Notice of Default. Lessee will notify Lender in writing concurrently with any notice given to Lessor of any default by Lessor under the Lease, and Lessee agrees that Lender has the right (but not the obligation) to cure any breach or default specified in such notice within the time periods set forth below and Lessee will not declare a default of the Lease, as to Lender, if Lender cures such default within fifteen (15) days from and after the expiration of the time period provided in the Lease for the cure thereof by Lessor; provided, however, that if such default cannot with diligence be cured by Lender within such fifteen (15) day period, the commencement of action by Lender within such fifteen (15) day period to remedy the same shall be deemed sufficient so long as Lender pursues such cure with diligence; 9.3 No Advance Rents. Lessee will make no payments or prepayments of rent more than one (1) month in advance of the time when the same become due under the Lease; and 9.4 Assignment of Rents. Upon receipt by Lessee of written notice from Lender that Lender has elected to terminate the license granted to Lessor to collect rents, as provided in the Deed of Trust, and directing the payment of rents by Lessee to Lender, Lessee shall comply with such direction to pay and shall not be required to determine whether Lessor is in default under the Loan and/or the Deed of Trust. 10. ATTORNMENT. Lessee agrees for the benefit of Lender (including for this purpose any transferee of Lender or any transferee of Lessor's title in and to the Property by Lender's exercise of the remedy of sale by foreclosure under the Deed of Trust) as follows: 10.1 Payment of Rent. Lessee shall pay to Lender all rental payments required to be made by Lessee pursuant to the terms of the Lease for the duration of the term of the Lease; 10.2 Continuation of Performance. Lessee shall be bound to Lender in accordance with all of the provisions of the Lease for the balance of the term thereof, and Lessee hereby attorns to Lender as its landlord, such attornment to be effective and self-operative without the execution of any further instrument immediately upon Lender succeeding to Lessor's interest in the Lease and giving written notice thereof to Lessee; 10.3 No Offset. Lender shall not be liable for, nor subject to, any offsets or defenses which Lessee may have by reason of any act or omission of Lessor under the Lease, nor for the return of any sums which Lessee may have paid to Lessor under the Lease as and for security deposits, advance rentals or otherwise, except to the extent that such sums are actually delivered by Lessor to Lender; and Page 3 of 9 Loan No. LOAN NUMBER 10.4 Subsequent Transfer. If Lender, by succeeding to the interesst of Lessor under the Lease, should become obligated to perform the covenants of Lessor thereunder, then, upon any further transfer of Lessor's interest by Lender, all of such obligations shall terminate as to Lender. 11. NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust, so long as there shall then exist no breach, default, or event of default on the part of Lessee under the Lease, Lender agrees for itself and its successors and assigns that the leasehold interest of Lessee under the Lease shall not be extinguished or terminated by reason of such foreclosure, but rather the Lease shall continue in full force and effect and Lender shall recognize and accept Lessee as tenant under the Lease subject to the terms and provisions of the Lease except as modified by this Agreement; provided, however, that Lessee and Lender agree that the following provisions of the Lease (if any) shall not be binding on Lender: any option to purchase with respect to the Property; any right of first refusal with respect to the Property; any provision regarding the use of insurance proceeds or condemnation proceeds with respect to the Property which is inconsistent with the terms of the Deed of Trust. 12. MISCELLANEOUS. 12.1 Heirs, Successors, Assigns and Transferees. The covenants herein shall be binding upon, and inure to the benefit of, the heirs, successors and assigns of the parties hereto; and 12.2 Notices. All notices or other communications required or permitted to be given pursuant to the provisions hereof shall be deemed served upon delivery or, if mailed, upon the first to occur of receipt or the expiration of three (3) days after deposit in United States Postal Service, certified mall, postage prepaid and addressed to the address of Lessee or Lender appearing below:
"OWNER" "LENDER" BORROWER NAME, a California general partnership WELLS FARGO BANK, NATIONAL ASSOCIATION BORROWER STREET ADDRESS Real Estate Group (AU #AU NUMBER) CITY, STATE ZIP 400 Capitol Mall, Suite 700 Sacramento, CA 95814 Attn: LOAN ADMINISTRATOR'S NAME HERE Loan No. LOAN NUMBER
"LESSEE" NAME OF LESSEE HERE LESSEE'S ADDRESS (STACKED) HERE provided, however, any party shall have the right to change its address for notice hereunder by the giving of written notice thereof to the other party in the manner set forth in this Agreement; and 12.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute and be construed as one and the same instrument; and 12.4 Remedies Cumulative. All rights of Lender herein to collect rents on behalf of Lessor under the Lease are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Lessor or others; and Page 4 of 9 Loan No. LOAN NUMBER 12.5 Paragraph Headings. Paragraph headings in this Agreement are for convenience only and are not to be construed as part of this Agreement or in any way limiting or applying the provisions hereof. INCORPORATION. Exhibit A and Lease Guarantor's Consent are attached hereto and incorporated herein by this reference. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE OWNER TO OBTAIN A LOAN, THE PROCEEDS OF WHICH MAY BE EXPENDED FOR PURPOSES OTHER THAN THE IMPROVEMENT OF THE PROPERTY. IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE PARTIES CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO. "OWNER" BORROWER NAME, a California general partnership By: ------------------------------------- General Partner By: ------------------------------------- General Partner "LENDER" WELLS FARGO BANK, NATIONAL ASSOCIATION By: ---------------------------------- SIGNEE'S NAME Its: SIGNEE'S TITLE Page 5 of 9 Loan No. LOAN NUMBER "LESSEE" NAME OF LESSEE HERE LESSEE SIGNATURE BLOCK HERE (ALL SIGNATURES MUST BE ACKNOWLEDGED) Page 6 of 9 Loan No. LOAN NUMBER LEASE GUARANTOR'S CONSENT The undersigned ("Lease Guarantor") consents to the foregoing Subordination Agreement; Acknowledgment of Lease Assignment, Estoppel, Attornment and Non-Disturbance Agreement and the transactions contemplated thereby and reaffirms its obligations under the lease guaranty ("Lease Guaranty") dated DATE OF LEASE GUARANTY HERE. Lease Guarantor further reaffirms that its obligations under the Lease Guaranty are separate and distinct from Lessee's obligations. AGREED: Dated as of: DATE OF DOCUMENTS "LEASE GUARANTOR" LEASE GUARANTOR SIGNATURE BLOCK HERE Page 7 of 9 EXHIBIT A Loan No. LOAN NUMBER DESCRIPTION OF PROPERTY EXHIBIT A to Subordination Agreement; Acknowledgment of Lease Assignment, Estoppel, Attornment and Non-Disturbance Agreement dated as of DATE OF DOCCUMENTS, executed by BORROWER NAME, a California general partnership as "Owner," NAME OF LESSEE HERE, as "Lessee," and WELLS FARGO BANK, NATIONAL ASSOCIATION, as "Lender." All that certain real property located in the County of PROPERTY COUNTY, State of California, described as follows: APN Page 8 of 9 STATE OF CALIFORNIA COUNTY OF _______________________ss. On this _________ day of _________________, 19__, before me, __________________ a Notary Public in and for the State of California, personally appeared _______________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature _____________________________________ My commission expires _________________________ Page 9 of 9 - -------------------------------------------------------------------------------- Orchard Plaza 2290 North Street, Suite 300 [Graphic] Orchard San Jose, California 95131 Properties (408) 922-0400 FAX (408) 922-0157 TO: PROSPECTIVE TENANT FROM: ORCHARD PROPERTIES SUBJECT: HAZARDOUS MATERIALS QUESTIONNAIRE AS IT RELATES CALIFORNIA HEALTH AND SAFETY CODE SECTIONS 25503.5 AND 25503.6 California Health and Safety Code Section 25503.5 requires any business which handles Hazardous Materials in excess of certain limits to establish a business plans for emergency response to a release or threatened release of Hazardous Materials. Health and Safety Code Section 25503.6 specifies that any business which is required under Section 25503.5 to establish and implement a business plan and is located on leased property is required to notify the owner in writing that the business is subject to Section 25503.5 and to provide a copy of the business plan to the owner within five working days after receiving a request from the owner or owner's agent for a copy. The purpose of this letter is to request that you either verify that you are not subject to Health and Safety Code Sections 25503.5 and 25503.6 or that you provide the information required to be provided by those Sections by: 1. Completing the attached acknowledgment; 2. Completing the attached questionnaire; 3. If you are a reporting company, attaching a copy of your hazardous materials management plan. If you have questions as to your own specific requirements, Please contact the local fire department to assess your use. Very truly yours, ORCHARD PROPERTIES, AMO(R) /s/ Joe Lewis Joe Lewis President JL:jlb EXHIBIT H - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACKNOWLEDGEMENT THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One): _____ Does not use any hazardous materials other than minor amounts or reproduction and janitorial chemicals consistent with routine office uses. (No need to fill out the Hazardous Materials Questionnaire.) __X__ Does not use hazardous materials in a manner or in a quantity requiring the preparation of a hazardous material management plan or any other documents under California Health and Safety Code Section 25503.5. (Please fill out the attached Hazardous Material Questionnaire.) ______ Uses only those chemicals identified in the attached questionnaire in accordance with the provisions of the attached hazardous materials management plan, which has been approved by the Fire Department of the City of _______________and is in full force and effect. (Please fill out the attached Hazardous Materials Questionnaire and attach copy of your Hazardous Materials Management Plan.) THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS TO THE PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL OF HAZARDOUS MATERIALS ONLY BY (1) DISCHARGE TO APPROPERIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2) DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT. IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned company has executed this acknowledgment as of the date written below. Cylink Corporation - ------------------------ (Company Name) a California Corporation - ------------------------ By: /s/ Robert B. Fougner - ------------------------ Robert B. Fougner, Corporate Secretary (Print Name and Title) --------------------------------------- |For OP Use Only:________PM | |______Project No.______Audit (Y/N) | |______Unit No. ______Database Entry| --------------------------------------- ORCHARD PROPERTY HAZADOUS MATERIALS QUESTIONNAIRE General Instructions: Please provide all requested information, based on review of the Company's records and interviews with Company personnel likely to possess the information requested. If there is insufficient space to response to a question, please attach a separate page referring to the question number. Use "N/A" if the question is not applicable to your facility, or write "Unknown" if the information is not available in the Company's files and is not known by the person completing this questionnaire. As used herein, the "Government Agency" shall mean any local, state, or federal governmental or quasi-governmental agency, authority, entity, subdivision or court. The term "Hazardous Material" shall mean any chemical, substance, vapor, smoke, radiation, or material which is listed as "hazardous" or "toxic" under Law or which is otherwise regulated or prohibited under any Law, including petroleum hydrocarbon and substances regulated under Proposition 65. The term "Law" shall mean any local, state, or federal regulation, statute, law, order, or ordinance. Tenant/Company Name: Cylink ------------------------------------------------------------ Main Address of Facility/Leased Premises: ______________________________________ ________________________________________________________________________________ (This questionnaire should address all activities conducted at the Leased Premises. Please copy and separate questionnaire for operations conducted in multiple buildings leased by Tenant within the same Property.) Years at Current Location: ____________ Facility SIC Code: ____________ Facility EPA ID Number: _____________ Description of products manufactured and/or activities conducted on the Property: ________________________________________________________________________________ ________________________________________________________________________________ The undersigned acknowledges that the information contained within this Hazardous Materials Questionnaire is true and correct to the best of his/her knowledge and belief. The undersigned further acknowledges that the Company has complied in all respects to the provisions of local, state and federal law and the Hazardous Materials Management Plan attached (if applicable) in connection with its storage, use, and disposal of hazardous materials discharged only by (1) discharge of appropriately treated waste in accordance with a valid and enforceable waste discharge permit and (2) delivery of hazardous wastes to a properly licensed waste disposal agent. By: /s/ Bill Bush Bill Bush, Sr. Manufacturing Engineer ------------------------------- ------------------------------------- Signature of individual completing Print Name & Title Questionnaire Date: 5/31/99 Phone Number: 408-543-5602 ---------------------------- ---------------------- Address (if different from above):______________________________________________ Page 1
Type of Business Activity(ies): Hazardous Material Activities - ------------------------------- ----------------------------- (check all that apply) (check all that apply) __________ machine shop __________ degreasing __________ light assembly __________ chemical etching __________ research and development __________ wastewater treatment __________ product service or repair __________ painting __________ photographic processing __________ stripping __________ vehicle maintenance or repair __________ metal treatment or finishing __________ auto/body __________ printing: __________ engine/drive train __________ type: ____X_____ manufacturing: product: Electronic/Software __________ analytical wet chemistry lab __________ integrated circuit: __________ plating __________ manufacturing __________ chemical mixing/synthesis __________ assembly __________ lathe/mill machining __________ chemical/pharmaceutical products __________ printed circuit: __________ manufacturing __________ manufacturing __________ distribution __________ assembly __________ other: __________________ __________ other: _________________
2. HAZARDOUS MATERIALS USAGE/STORAGE What chemicals, if any, are involved in your operations (please list the types of products, the maximum quantity stored on-site, and the annual quantity used) - -------------------------------------------------------------------------------- MATERIAL MAX.QUANITY ON-SITE ANNUAL QTY. USED - -------------------------------------------------------------------------------- Isopropyl Alcohol 7 gal 20 gal - -------------------------------------------------------------------------------- Chemtronics FLUX-OFF II 4 gal 10 gal - -------------------------------------------------------------------------------- 135 Rosin Soldering Flux Type R 1 gal 1 gal - -------------------------------------------------------------------------------- 951 Low Residue Soldering Flux 1 gal 1 gal - -------------------------------------------------------------------------------- Polyurethane touch-up paint 1 gal 1 gal - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If this table provides insufficient space, please use additional pages necessary. Page 2 3. HAZARDOUS WASTE GENERATION Does your facility generate and/or store waste on-site? ______ Yes ____X____No If yes, how is it being handled? __________ on-site treatment or recovery ___________________________________________ discharge to sewer ___________________________________________ hauled off-site ___________________________________________ incineration List waste streams that constitute more than 5% of total annual waste stream or routine wastes: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Name(s) of hazardous waste hauler used:_________________________________________ ________________________________________________________________________________ How often is hazardous waste hauled off-site? __________________________________ 4. INDUSTRIAL WASTEWATER TREATMENT/DISCHARGE Does your facility discharge industrial wastewater to: ________________________ sewer? ________________________ storm drain? ________________________ surface water? ___________X____________ no industrial discharge 5. UNDERGROUND STORAGE OF HAZARDOUS MATERIALS/WASTES Are underground tanks or sumps being used for any of the following: _____________________NO______________________hazardous waste storage _____________________NO______________________chemical storage _____________________NO______________________gasoline/diesel fuel storage _____________________NO______________________waste treatment _____________________NO______________________wastewater neutralization _____________________NO______________________industrial wastewater treatment _____________________________________________Other:_____________________________ Page 3 6. HAZARDOUS SUBSTANCE SPILLS To the best of your knowledge, have hazardous substances ever spilled: ________________________ into the sewer? ________________________ into the storm drain? ________________________ onto the property? ________________________ onto the property from adjacent propert(ies)? ___________X____________ no spills have occurred 7. ENVIRONMENTAL PERMITS AND COMPLIANCE PROGRAMS Please attach copies of environmental regulatory permits and agency reports that are held for this facility (check those enclosed). ___________ City/County Hazardous Materials Inventory Statement, HMIS ___________ City/County Hazardous Materials Management/Business Plan, HMMP/HMBP ___________ Department of Toxic Substances Control (DTSC) Hazardous Waste Generator Treatment Storage or Disposal Permit ___________ County Health Department hazardous waste generator storage permit ___________ State/Local Fire Department Above or Underground Storage Tank Registration(s) ___________ Industrial Wastewater Discharge Permit ___________ Air Pollution Control District Air Emissions/Discharge Permit ___________ California Air Resources Control Board (CARB) Air Toxics Emissions Inventory (AB2588) ___________ National Pollution Discharge Elimination System (NPDES) Permit ___________ Other _____________________________________________________________ ___________ Other _____________________________________________________________ ___________ Other _____________________________________________________________ Page 4 EXHIBIT I Hazardous materials condition for Orchard Properties project at 3151 Jay Street, Santa Clara (file A.3429) March 13, 1998 In approving the use of the adjacent property located at 3003 Scott Boulevard as a private religious school, pre-school, day care center and Islamic Mosque (the "MCA Project"), the City Council imposed certain mitigation measures which resulted in an unmitigated risk of exposing students (the "sensitive receptors") engaging in activities outside the building at 3003 Scott Boulevard (the "MCA Building") to hazardous materials releases, as discussed in the MCA Project Environmental Impact Report (the "EIR"). The purpose of this condition of approval is to mitigate the aforementioned risk to sensitive receptors to a level of insignificance (as discussed and evaluated in the MCA Project EIR). This condition proposes to mitigate this risk by (i) limiting the types or quantities of hazardous chemicals with the potential for adverse health consequences to sensitive receptors outside the MCA Building, or by (ii) insuring that adequate measures are in place to protect sensitive receptors outside of the MCA Building from exposure to such chemicals. At the same time, the objective of this condition of approval is to provide the owner of the property the widest flexibility and latitude for allowable uses and chemicals. 1. All occupancies other than the F and H occupancies as defined in the 1994 Uniform Building Code ("UBC") are permitted, subject to meeting the requirements of the UBC, Uniform Fire Code ("UFC") and the City of Santa Clara Zoning Ordinance. 2. All F occupancies as defined in the 1994 UBC are permitted, subject to meeting the requirements of the UBC, Uniform Fire Code and the City of Santa Clara Zoning Ordinance, and subject to Fire Department approval of chemicals, and quantities of such chemicals, with the potential for adverse health consequences to sensitive receptors present outside the MCA Building, such as toxic gases, liquids which can form toxic gases, certain heavy metals and flammable materials. Examples of common toxic gases which would be of concern are listed in the attached matrix. The potential for such adverse off-site consequences shall be determined by chemical's toxic or hazardous properties, in light of the quantities of such chemical which will be used or stored at the site, containment methods which will be employed, the location of the chemical on site and by proposed mitigation measures. The owner or potential occupant of this property may submit to the Hazardous Materials Division of the Fire Department, a list of chemicals and quantities proposed to be used. Quantities identified should take into account likely business expansion that would increase the amounts on-site in the future. Fire Department approval shall be based on a finding that the proposed chemical(s), quantities and uses would not have the potential to significantly impact the sensitive receptor population present outside the MCA Building. It is anticipated that the Fire Department review would be completed within a few days to one week at the latest. Based on workload at the time and complexity of the evaluation required. The applicant will have the right to address any issues or questions arising out of the Fire Department's review, either in person or by telephone, prior to the Fire Department taking action. If the Fire Department approves, a letter of approval similar to the attached example would be issued by the Fire Department. However, if the Fire Department finds that the chemical usage, based on the above review and criteria, does have the potential to significantly impact the sensitive receptor population outside the MCA Building, then the property owner or prospective tenant shall make application to the City's Planning Division. Planning shall consult with the Fire Department to determine whether additional environmental analysis, such as a mitigated negative declaration or an EIR, would be required and what should be the appropriate approval process. 3. All H occupancies as defined in the 1994 UBC prohibited except as follows: If the property owner or prospective tenant desires to create an H occupancy at the subject property, the owner or tenant shall make application to the City's Planning Division. Planning shall consult with the Fire Department to determine whether additional environmental analysis, such as mitigated negative declaration or EIR, would be required and what should be the appropriate approval process. The City's evaluation and approval shall be based upon the same criteria as for an F occupancy as stated in paragraph 2 above, and shall specifically evaluate the potential for significant adverse health consequences to sensitive receptors present outside the MCA Building. In the event that the owner or prospective tenant believes that the type and quantity of chemicals used will not pose a significant risk to sensitive receptors as defined in paragraph 2 above, prior to submitting the application to the City's Planning Division, the owner or tenant may obtain an initial evaluation from the Fire Department in accordance with the process described in paragraph 2 above. If the Fire Department concurs and issues its letter of approval as described in paragraph 2 above, then no further environmental review shall be required. 4. If the use permit for a school on the adjacent property at 3003 Scott Boulevard lapsed due to abandonment for one year, due to an agreement between the property owner and the City of Santa Clara or for any other reason, this condition shall become null and void and the property at 3161 Jay Street shall be subject to the same regulations as other ML (Light Industrial) zoned property.
COMMON TOXIC GASES AS DEFINED BY THE TOXIC GAS ORDINANCE AND CFC For Use by All Jurisdictions, Cities and County, Within the Limits of Santa Clara County - ------------------------------------------------------------------------------------------------------------------------------------ CAS No./ UBC/CFC TGO MAX GAS & FORMULA UN No. CLASS(1) CLASS IDLH(2) LC(50)(3) LOC TQ PEL(4) - ------------------------------------------------------------------------------------------------------------------------------------ Ammonia-NH(3) 7664-41-7 Corrosive(5,6) II 300 ppm 4,000 ppm 30 ppm 7,500 lbs 50 ppm (Old Dot Posin A) UN1005 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Arsine-AsH(3) 7784-42-1 Highly Toxic I 3 ppm 20 ppm 0.3 ppm N/A 0.05 ppm UN2188 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Boron Tribromide-BBr(3) 10294-33-4 Toxic II 50 ppm 380 ppm 5 ppm 15,600 lbs 1 ppm(c) UN2692 WR-2 - ------------------------------------------------------------------------------------------------------------------------------------ Boron Trichloride-BCI(3) 10294-34-5 Corrosive(5) II 25 ppm(7) 2,541 ppm 2.5 ppm 635 lbs 5 ppm UN1741 - ------------------------------------------------------------------------------------------------------------------------------------ Boron Trifluoride-BF(3) 7637-07-2 Toxic II 25 ppm 806 ppm 2.5 ppm 625 lbs 1 ppm(c) UN1008 WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Bromine-BR(2) 7726-95-6 Highly Toxic I 3 ppm 113 ppm 0.3 ppm N/A 0.1 ppm UN1744 Corrosive Oxidizer - ------------------------------------------------------------------------------------------------------------------------------------ Carbon Monoxide-CO 630-08-0 Flammable(5) III 1,200 ppm 3,614 ppm 120 ppm 30,000 lbs 50 ppm UN1016 - ------------------------------------------------------------------------------------------------------------------------------------ Chlorine-CI(2) 7782-50-5 Toxic I 10 ppm 293 ppm 1 ppm N/A 1 ppm(c) UN1017 - ------------------------------------------------------------------------------------------------------------------------------------ Cholorine Dioxide-CIO(2) 10049-04-4 Toxic UR-3 I 5 ppm 250 ppm 0.5 ppm N/A 0.1 ppm NA9191 Oxidizer WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Chlorine Trifluoride 7790-91-2 Toxic I 20 ppm 299 ppm 2 ppm N/A 0.1 ppm(c) CIF(3) UN1749 Oxidizer WR-3 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: 1. Class as defined in CFC: 1.) Health Hazards per Article 2; Highly Toxic = <200 LC(50) Toxic = 200 - 2,000 LC (50) 2.) Physical Hazards per UFC Standard 79-3. 2. IDLH values published in 1994 by the National Institute for Occupational Safety and Health (NIOSH). 3. LC(50) data: Lowest reported value, 1 hour adjusted, taken from nationally reognized standards. 4. PEL values published by OSHA (29 CFR, part 1910.1000, Table Z-1) dated 7/1/95. OSHA values used if available, otherwise TLV from ACGIH or Cal OSHA values used. (C) = Ceiling Limit. 5. Moderately toxic as adopted by the cities of San Jose, Santa Clara, and Milpitas: LC(50) = 2,000 - 3,000. 6. When used as a refrigerant, UBC Class does not apply. See TGO consensus guidelines for additional information regarding ammonia refrigeration systems. 7. IDLH determined by 0.01 of LC(50). 8. Cal OSHA PEL, Title 8, Section 5155, 9/1/95. 9. Threshold Limit Values (TLV) from the American Conference of Governmental Industrial Hygienists (1994-1995). UN-015 Page 1 of 4 Rev. 04/30/98
Common Toxic Gases As Defined By Toxic Gas Ordinance and CFC - Page 2 of 4 Rev. 04/30/98 - ------------------------------------------------------------------------------------------------------------------------------------ CAS No./ UBC/CFC TGO MAX GAS & FORMULA UN No. CLASS(1) CLASS IDLH(2) LC(50)(3) LOC TQ PEL(4) - ------------------------------------------------------------------------------------------------------------------------------------ Diborane-B(2)H(6) 19278-45-7 Higly Toxic I 15 ppm 80 ppm 1.5 ppm N/A 0.1 ppm UN1911 Flammable WR-2 - ------------------------------------------------------------------------------------------------------------------------------------ Dichlorosilane-SIH(2) 4109-96-0 Toxic II 50 ppm 314 ppm 5 ppm 1,250 lbs 5 ppm(c) CI(2)(HCI) UN2189 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Ethylene Oxide-C(2)H(4)0 75-21-8 Flammable WR-1 II 800 ppm 4,350 ppm 80 ppm 20,000 lbs 1 ppm UN1040 Toxic UR-3 - ------------------------------------------------------------------------------------------------------------------------------------ Fluorine-F(2) 7782-41-4 Highly Toxic II 25 ppm 185 ppm 2.5 ppm 625 lbs 0.1 ppm UN1045 Oxidizer - ------------------------------------------------------------------------------------------------------------------------------------ Germane-Gell(4) 7782-65-2 UR-3 Toxic I 6 ppm(7) 622 ppm 0.6 ppm N/A 0.2 ppm(8) (Old DOT Poison A) UN2192 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Bromide-HBr 10035-10-6 Corrosive(5) II 30 ppm 2,858 ppm 3 ppm 750 lbs 3 ppm UN1048 - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Cloride-HCI 7647-01-0 Corrosive(5) II 30 ppm 2,810 ppm 5 ppm 1,250 lbs 5 ppm(c) UN1050 - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Cyanide-HCN 74-90-8 Highly Toxic I 50 ppm 140 ppm 5 ppm N/A 10 ppm UN1051 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Floride-HF 7664-39-3 Toxic II 30 ppm 1,276 ppm 3 ppm 750 lbs 3 ppm UN1052 - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Selenide-H(2)Se 7783-07-5 Highly Toxic I 1 ppm 2 ppm 0.1 ppm N/A 0.05 ppm (Old Dot Poison A) UN1749 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Hydrogen Sulfide-H(2)S 7783-06-4 Toxic II 100 ppm 444 ppm 10 ppm 2,500 lbs 20 ppm UN1053 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Notes: 1. Class as defined in CFC: 1.) Health Hazards per Article 2; Highly Toxic = <200 LC(50) Toxic = 200 - 2,000 LC (50) 2.) Physical Hazards per UFC Standard 79-3. 2. IDLH values published in 1994 by the National Institute for Occupational Safety and Health (NIOSH). 3. LC(50) data: Lowest reported value, 1 hour adjusted, taken from nationally reognized standards. 4. PEL values published by OSHA (29 CFR, part 1910.1000, Table Z-1) dated 7/1/95. OSHA values used if available, otherwise TLV from ACGIH or Cal OSHA values used. (C) = Ceiling Limit. 5. Moderately toxic as adopted by the cities of San Jose, Santa Clara, and Milpitas: LC(50) = 2,000 - 3,000. 6. When used as a refrigerant, UBC Class does not apply. See TGO consensus guidelines for additional information regarding ammonia refrigeration systems. 7. IDLH determined by 0.01 of LC(50). 8. Cal OSHA PEL, Title 8, Section 5155, 9/1/95. 9. Threshold Limit Values (TLV) from the American Conference of Governmental Industrial Hygienists (1994-1995).
Common Toxic Gases As Defined By Toxic Gas Ordinance and CFC - Page 3 of 4 Rev. 04/30/98 - ------------------------------------------------------------------------------------------------------------------------------------ CAS No./ UBC/CFC TGO MAX GAS & FORMULA UN No. CLASS(1) CLASS IDLH(2) LC(50)(3) LOC TQ PEL(4) - ------------------------------------------------------------------------------------------------------------------------------------ Methyl Bromide-CH(3)Br 74-83-9 Toxic II 250 ppm 854 ppm 25 ppm 625 lbs 20 ppm(c) UN1062 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Methylisocyanate-CH(3) 624-83-9 Highly Toxic I 3 ppm 15 ppm 0.3 ppm N/A 0.02 ppm NCO UN2480 Flammable WR-2 - ------------------------------------------------------------------------------------------------------------------------------------ Methyl Mercaptan-CH(3)SH 74-93-1 Toxic II 150 ppm 675 ppm 15 ppm 3,750 lbs 10 ppm(c) UN1064 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Methylamine-CH(3)NH(2) 74-89-5 Flammable(5) II 100 ppm 7,010 ppm 10 ppm 2,500 lbs 10 ppm UN1061 Corrosive - ------------------------------------------------------------------------------------------------------------------------------------ Nickel Carbonyl-Ni(C0)(4) 13463-39-3 Highly Toxic I 2 ppm 18 ppm 0.2 ppm N/A 0.001 ppm UN1259 Flammable WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Nitric Oxide-NO 10102-43-9 Highly Toxic I 100 ppm 115 ppm 10 ppm N/A 25 ppm (Old DOT Poison A) UN1660 Oxidizer - ------------------------------------------------------------------------------------------------------------------------------------ Nitrogen Dioxide-NO(2) 10102-44-0 Highly Toxic I 20 ppm 115 ppm 2 ppm N/A 5 ppm(c) (Old DOT Poison A) UN1067 Oxidizer WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Nitrogen Trifluoride-NF(3) 7483-54-2 Oxidizer(5) II 1,000 ppm 6,700 ppm 100 ppm 25,000 lbs 10 ppm UN2451 - ------------------------------------------------------------------------------------------------------------------------------------ Phosgene-COCI(2) 75-44-5 Highly Toxic I 2 ppm 5 ppm 0.2 ppm N/A 0.1 ppm (Old DOT Poison A) UN1076 WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Phosphine-PH(3) 7803-51-2 Highly Toxic I 50 ppm 22 ppm 5 ppm N/A 0.3 ppm (Old DOT Poison A) UN2199 Pyrophoric - ------------------------------------------------------------------------------------------------------------------------------------ Phosphorus Oxychloride 10025-87-3 Highly Toxic I 0.96 ppm(7) 96 ppm 0.096 ppm 2,280 lbs 0.1 ppm(7,8) POCI(3) UN1810 WR-2 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: 1. Class as defined in CFC: 1.) Health Hazards per Article 2; Highly Toxic = <200 LC(50) Toxic = 200 - 2,000 LC (50) 2.) Physical Hazards per UFC Standard 79-3. 2. IDLH values published in 1994 by the National Institute for Occupational Safety and Health (NIOSH). 3. LC(50) data: Lowest reported value, 1 hour adjusted, taken from nationally reognized standards. 4. PEL values published by OSHA (29 CFR, part 1910.1000, Table Z-1) dated 7/1/95. OSHA values used if available, otherwise TLV from ACGIH or Cal OSHA values used. (C) = Ceiling Limit. 5. Moderately toxic as adopted by the cities of San Jose, Santa Clara, and Milpitas: LC(50) = 2,000 - 3,000. 6. When used as a refrigerant, UBC Class does not apply. See TGO consensus guidelines for additional information regarding ammonia refrigeration systems. 7. IDLH determined by 0.01 of LC(50). 8. Cal OSHA PEL, Title 8, Section 5155, 9/1/95. 9. Threshold Limit Values (TLV) from the American Conference of Governmental Industrial Hygienists (1994-1995).
Common Toxic Gases As Defined By Toxic Gas Ordinance and CFC - Page 4 of 4 Rev. 04/30/98 - ------------------------------------------------------------------------------------------------------------------------------------ CAS No./ UBC/CFC TGO MAX GAS & FORMULA UN No. CLASS(1) CLASS IDLH(2) LC(50)(3) LOC TQ PEL(4) - ------------------------------------------------------------------------------------------------------------------------------------ Phosphorus Pentafluoride 7647-19-0 Toxic I 2.6 ppm(7) 260 ppm 0.26 ppm N/A 3 ppm PF(5) UN2198 Oxdizer WR-1 - ------------------------------------------------------------------------------------------------------------------------------------ Phosphorus Trichoride 7719-12-2 Toxic UR2 II 25 ppm 208 ppm 2.5 ppm 3,518 lbs 0.5 ppm PCI(3) UN1809 WR-2 Oxidizer - ------------------------------------------------------------------------------------------------------------------------------------ Selenium Hexafluoride 7783-79-1 Highly Toxic I 2 ppm 50 ppm 0.2 ppm N/A 0.05 ppm SeF(6) UN2194 (as Se) - ------------------------------------------------------------------------------------------------------------------------------------ Silicon Tetachloride 10026-04-7 Corrosive II 50 ppm 16,000 ppm 5 ppm 4,835 lbs 5 ppm(c) SiCI(4)(HCI) UN1818 - ------------------------------------------------------------------------------------------------------------------------------------ Silicon Tetrafluoride 7783-61-1 Toxic II 30 ppm 450 ppm 3 ppm 750 lbs 0.1 ppm SiF(4)(HF) UN1859 WR-2 - ------------------------------------------------------------------------------------------------------------------------------------ Stibine-SbH(3) 7803-52-3 Highly Toxic II 5 ppm 20 ppm 0.5 ppm N/A 0.1 ppm UN2676 Flammable - ------------------------------------------------------------------------------------------------------------------------------------ Sulfur Dioxide-SO(2) 7446-09-5 Corrosive(5) II 100 ppm 2,520 ppm 10 ppm 2,500 lbs 5 ppm UN1079 - ------------------------------------------------------------------------------------------------------------------------------------ Sulfur Pentafluroide 5714-22-7 Highly Toxic I 1 ppm 79 ppm 0.1 ppm N/A 0.025 ppm SF(10) Oxidizer - ------------------------------------------------------------------------------------------------------------------------------------ Sulfuryl Fluoride 2699-79-8 Corrosive(5) III 200 ppm 3,020 ppm 20 ppm 50,000 lbs 5 ppm SO(2)F(2) UN2191 - ------------------------------------------------------------------------------------------------------------------------------------ Tellurium Hexafluoride 7783-80-4 Highly Toxic I 1 ppm 25 ppm 0.1 ppm N/A 0.02 ppm TeF(6) UN2195 (aste) - ------------------------------------------------------------------------------------------------------------------------------------ Titanium Tetrachloride 7550-45-0 Highly Toxic II 1.3 ppm 66 ppm 0.13 ppm 2,470 lbs TiCI(4) UN1838 Water Reactive - - ------------------------------------------------------------------------------------------------------------------------------------ Tungsten Hexafluoride 7783-82-6 Toxic II 30 ppm 217 ppm 3 ppm 750 lbs 0.1 ppm WF(6)(HF) UN2196 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: 1. Class as defined in CFC: 1.) Health Hazards per Article 2; Highly Toxic = <200 LC(50) Toxic = 200 - 2,000 LC (50) 2.) Physical Hazards per UFC Standard 79-3. 2. IDLH values published in 1994 by the National Institute for Occupational Safety and Health (NIOSH). 3. LC(50) data: Lowest reported value, 1 hour adjusted, taken from nationally reognized standards. 4. PEL values published by OSHA (29 CFR, part 1910.1000, Table Z-1) dated 7/1/95. OSHA values used if available, otherwise TLV from ACGIH or Cal OSHA values used. (C) = Ceiling Limit. 5. Moderately toxic as adopted by the cities of San Jose, Santa Clara, and Milpitas: LC(50) = 2,000 - 3,000. 6. When used as a refrigerant, UBC Class does not apply. See TGO consensus guidelines for additional information regarding ammonia refrigeration systems. 7. IDLH determined by 0.01 of LC(50). 8. Cal OSHA PEL, Title 8, Section 5155, 9/1/95. 9. Threshold Limit Values (TLV) from the American Conference of Governmental Industrial Hygienists (1994-1995).
DRAFT LETTER OF APPROVAL-HAZARDOUS MATERIALS DIVISION CITY OF SANTA CLARA FIRE DEPARTMENT We have reviewed the attached (insert chemical inventory, HMMP or appropriate document title) dated _____ and submitted by (insert landlord prospective tenant) in accordance with the terms of the Condition of Approval for the Orchard Properties Jay Street project. Based on our review of the documents submitted, we approve this proposed use at the premises at _______ Jay Street, based on our finding that the proposed chemicals, quantities and uses do not have the potential to significantly impact the sensitive receptors outside the MCA building. (signed) HAZARDOUS MATERIALS DIVISION CITY OF SANTA CLARA FIRE DEPARTMENT EX-10.11 15 p16085_10-11.txt CYLINK/ARL 1997 STOCK OPTION PLAN CYLINK CORPORATION CYLINK/ARL 1997 STOCK OPTION PLAN 1. Establishment, Purpose, and Definitions. a. There is hereby adopted the Cylink/ARL 1997 Stock Option Plan (the "Plan") of Cylink Corporation (the "Company"). b. The purpose of the Plan is to provide a means whereby eligible individuals (as defined in paragraph 4, below) can acquire shares of the Company's Common Stock, $.01 par value per share (the "Stock"). The Plan provides employees, independent contractors, and consultants of Algorithmic Research Ltd., a company organized and existing under the laws of the State of Israel ("ARL"), and of its subsidiaries, whether currently existing or which become such after adoption of the Plan, but excluding any such person who is also an executive officer of the Company or member of the Board of Directors of the Company, an opportunity to purchase shares of Stock pursuant to options which are not described in Section 422 or 423 of the Internal Revenue Code of 1986, as amended (the "Code") (referred to as "nonqualified stock options"). c. The term "Affiliates" as used in the Plan means parent and subsidiary corporations of the Company, as defined in Sections 424(e) and (f) of the Code (but substituting the "Company" for "employer corporation"), including parents or subsidiaries which become such after adoption of the Plan. 2. Administration of the Plan. a. The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board may delegate the responsibility for administering the Plan to a committee, under such terms and conditions as the Board shall determine (the "Committee"). Members of the Committee shall serve at the pleasure of the Board. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. If the Board does not delegate administration of the Plan to the Committee, then each reference in this Plan to "the Committee" shall be construed to refer to the Board. b. Subject to Section 1(b) above, the Committee shall determine which eligible individuals (as defined in paragraph 4, below) shall be granted options under the Plan, the timing of such grants, the terms thereof (including any restrictions on the Stock), and the number of shares of Stock subject to such options. c. The Committee may amend the terms of any outstanding option granted under this Plan, but any amendment which would adversely affect an optionee's rights under an outstanding option shall not be made without the optionee's written consent. The Committee may, with the optionee's written consent, cancel any outstanding stock option or accept any outstanding stock option in exchange for a new option. d. The Committee shall have the sole authority, in its absolute discretion, to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan, to construe and interpret the Plan, the rules and the regulations and the instruments evidencing options granted under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be binding on all participants. 3. Stock Subject to the Plan. a. An aggregate of 410,000 shares of Stock shall be available for the grant of stock options and the issuance of Stock under the Plan. If an option is surrendered (except surrender for shares of Stock) or for any other reason ceases to be exercisable in whole or in part, the shares which were subject to such option but as to which the option had not been exercised shall continue to be available under the Plan. Any Stock which is retained by the Company upon exercise of an option in order to satisfy the exercise price for such option or any withholding taxes due with respect to such option exercise shall be treated as issued to the optionee and will thereafter not be available under the Plan. b. If there is any change in the Stock subject to either the Plan or an option agreement pursuant to the Plan, through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend, or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Committee in order to preserve but not to increase the benefits to the individual, including adjustments to the aggregate number, kind of shares, and price per share subject to either the Plan or an option agreement. 4. Eligible Individuals. Individuals who shall be eligible to have granted to them the options provided for by the Plan shall be such employees, independent contractors and consultants of ARL and of its subsidiaries, but excluding executive officers and directors of the Company, whether currently existing or which become such after adoption of the Plan as the Committee, in its discretion, shall designate from time to time. If an eligible individual is granted an option under this Plan, and later is transferred to the Company or an Affiliate of the Company, such individual shall continue to be eligible to participate under the Plan to the extent of such previously granted options. 2. 5. The Option Price. The purchase price of the Stock covered by each nonqualified stock option shall be the price as established by the Board or the Committee, as applicable. The exercise price of an option shall be subject to adjustment to the extent provided in paragraph 3(b), above. 6. Terms and Conditions of Options. a. Each option granted pursuant to the Plan will be evidenced by a written stock option agreement executed by the Company and the person to whom such option is granted. b. The Committee shall determine the term of each option granted under the Plan; provided, however, that the terms of all options granted under the Plan shall not be for more than ten (10) years. c. An optionee's stock option agreement may contain such other terms, provisions and conditions consistent with this Plan as may be determined by the Committee. 7. Use of Proceeds. Cash proceeds realized from the issuance of Stock under the Plan shall constitute general funds of the Company. 8. Amendment, Suspension, or Termination of the Plan. a. The Board may at any time amend, suspend or terminate the Plan as it deems advisable; provided that such amendment, suspension or termination complies with all applicable requirements of state and federal law. b. No option may be granted under the Plan during any suspension or after the termination of the Plan, and no amendment, suspension or termination of the Plan shall without the affected individual's consent, alter or impair any rights or obligations under any option previously granted under the Plan. 9. Assignability. Unless otherwise provided in a specific option agreement, each option granted pursuant to this Plan shall, during an optionee's lifetime, be exercisable only by such optionee, and neither the option nor any right hereunder shall be transferable by such optionee by operation of law or otherwise other than by will or the laws of descent and distribution. 3. 10. Payment Upon Exercise of Options. Payment of the purchase price of Stock to be received upon exercise of any option granted under this Plan shall be made in cash or in such other manner as the Committee may approve. 4. CYLINK CORPORATION CYLINK/ARL 1997 NONQUALIFIED STOCK OPTION PLAN NONQUALIFIED STOCK OPTION AGREEMENT THIS NONQUALIFIED STOCK OPTION AGREEMENT ("Agreement") is made as of September 8, 1997, between CYLINK CORPORATION, a California corporation (the "Company"), and A ("Optionee"). WITNESSETH: WHEREAS, the Company has adopted the Cylink/ARL 1997 Stock Option Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and made a part hereof; and WHEREAS, the Company regards Optionee as a valuable employee or director of, or service provider to, Algorithmic Research Ltd., a company organized and existing under the laws of the state of Israel ("ARL"), or one of ARL's subsidiaries, and has determined that it would be to the advantage and in the interests of the Company and its shareholders to grant the option provided for in this Agreement to Optionee; 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 <> shares of the Company's Common Stock, $0.01 par value per share (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 is not intended to qualify as an incentive stock option. 2. Option Price. The per share purchase price of the Stock subject to this option shall be U.S.$0.01. The term "Option Price" as used in this Agreement refers to the per share purchase price of the Stock subject to this option. 3. Option Period. This option shall be exercisable only during the Option Period (as defined below), and during such Option Period, the exercisability of this option shall be subject to the vesting provisions of paragraph 4 hereof. The "Option Period" shall commence on September 8, 1997 and shall terminate on September 8, 2007 (the "Termination Date"). 4. Vesting of Right to Exercise Options. The Optionee shall have the right to exercise this option in accordance with the following schedule: Exercisable as of March 1, 1998: C Exercisable as of September 1, 1998: D Exercisable as of September 1, 1999: E Any portion of this option that is not exercised shall accumulate and may be exercised at any time during the Option Period prior to the Termination Date. In no event shall the Company be required to issue fractional shares. In lieu of any fractional share otherwise required to be issued upon exercise of this option, the fraction of a share shall be rounded up to the nearest whole share. Notwithstanding anything to the contrary contained in this Agreement, the entire unvested portion of this option shall become immediately exercisable upon the first to occur of any of the following events: (a) the date of commencement of a tender or exchange offer relating to at least 50% of the outstanding shares of Stock; (b) the date on which a Change in Control of the Company occurs; (c) the date on which a Change in Control of ARL occurs; (d) the date of execution of any binding letter of intent, contract, agreement or understanding contemplating or otherwise relating to an event of the type referred to in clause "(b)" of this sentence; (e) the date of occurrence of any material breach or default by the Company with respect to any of its obligations under Article 5 of that certain Option Grant Agreement of even date herewith between the Company and Optionee, which breach or default is not cured within twenty (20) days after notice thereof is given to the Company; or (f) the date on which Optionee shall die or become disabled. For purposes of this Agreement, the following terms shall have the following respective meanings: A "Change in Control of the Company" shall be deemed to have occurred if: (a) any person or entity (other than Pittway Corporation) or "group" (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of at least 50% of the voting securities of the Company; (b) a merger, consolidation or similar transaction involving the Company or any affiliate of the Company is effected, and the shareholders of the Company immediately prior to such transaction own less than 60% of the voting securities of the surviving corporation in such transaction; (c) assets representing more than 50% of the aggregate net book value of the Company's assets (exclusive of its wireless communications division) are sold or otherwise transferred to any person (or persons) or entity (or entities) (in a single transaction or a series of transactions); or (d) the individuals who, as of the date of this Agreement, are members of 2 the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board of Directors of the Company (provided, however, that if the election, or nomination for election by the Company's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board). A "Change in Control of ARL" shall be deemed to have occurred if: (a) a person or entity (other than the Company) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of at least 50% of the voting securities of ARL (other than in connection with a Change in Control of the Company); (b) ARL ceases to own more than 50% of the outstanding shares of ARL; or (c) assets representing more than 50% of the aggregate net book value of ARL's assets are sold or otherwise transferred to any person (or persons) or entity (or entities) (in a single transaction or a series of transactions). 5. 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 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 or postal or express money order payable to the order of the Company in lawful money of the United States. As soon as practicable after receipt of the notice required in this paragraph 5, the Company shall, without transfer or issue tax and without other incidental expense to Optionee, issue in the name of Optionee, and deliver to Optionee, a certificate or certificates of such shares of Stock. 6. 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 or other change in the corporate structure of the Company, the Company shall 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 6 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 6, a "Corporate Transaction" shall include any of the following shareholder-approved transactions to which the Company is a party: 3 (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 (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. In the event of any Corporate Transaction, this option shall be assumed in full by the successor corporation or its parent company, or substitute options shall be issued to Optionee, in either case having substantially equivalent provisions as the option granted pursuant to this Agreement (except that (i) following such Corporate Transaction, this option shall be exercisable only for the securities or other property issued or paid in such Corporate Transaction to holders of an equal number of shares of Stock as are then subject to this option, and (ii) if such Corporate Transaction constitutes a "Change in Control of the Company" (as defined above), this option shall become immediately exercisable on the date on which such Corporate Transaction occurs). 7. 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. 8. 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 such shares shall have been issued upon the exercise of this option. 4 9. No Effect On Terms Of Employment. SUBJECT TO THE TERMS OF ANY WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, ANY MEMBER OF THE CYLINK/ARL GROUP 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. 10. 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 at 910 Hermosa Court, Sunnyvale, California 94086, USA, 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 (a) when delivered in person, (b) three business days after delivery to an "overnight" courier, or (c) 24 hours after delivery by facsimile transmission (if receipt of such facsimile is evidenced by a transmission report or other reasonable evidence of the successful and accurate transmission of such notice or communication). 11. Committee Decisions Conclusive. All decisions of the Board of Directors of the Company of a Committee designated by it upon any question arising under the Plan or under this Agreement shall be conclusive. 12. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company. Where the context requires, "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. 13. Governing Law; Venue. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California. Any dispute arising out of or relating to this Agreement shall be resolved through binding arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The venue for such arbitration proceedings shall be in London, England. The resolution of a dispute by the arbitrator shall be conclusive and binding upon the parties hereto and judgment may be entered thereon in any court having jurisdiction thereof. The arbitrator shall have the authority to make an award of actual compensatory damages incurred by a party in connection with a dispute, but shall have no right to grant special, punitive or 5 exemplary damages or indirect or consequential damages or to grant any form of equitable relief (except that the arbitrator may, as part of his award, require the Company to perform its obligations under this Agreement). IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement as of the day and year first above written. THE COMPANY: CYLINK CORPORATION By ____________________________________________ Its ___________________________________________ OPTIONEE _______________________________________________ A Address: _______________________________________________ _______________________________________________ _______________________________________________ 6 EX-21 16 p16085_ex21-1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 Subsidiaries 1. The Company has the following subsidiaries: (a) Cylink International Corporation, Cayman Islands (b) Cylink Limited, United Kingdom (c) Cylink Consultancy Ltd., United Kingdom (d) Cylink Pte. Ltd., Singapore (e) Cylink Foreign Sales Corporation, Virgin Islands (f) Cylink Communications B.V., the Netherlands (g) Caro-Kann Corporation, California (h) SARL Cylink France -----END PRIVACY-ENHANCED MESSAGE-----