CiO 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 ...