Development Agreement

EXHIBIT 10(v)
DEVELOPMENT AGREEMENT


This DEVELOPMENT AGREEMENT ("Agreement") dated as of September 30, 1997 is entered into by and between AlliedSignal Inc., a Delaware corporation, by and through its Communications Systems business unit having a principal place of business at 1300 East Joppa Road, Baltimore, Maryland 21286-5999 ("AlliedSignal") and Mykotronx, Inc., a California corporation, having a principal place of business at 357 Van Ness Way, Suite 200, Torrance, California 90501 ("Mykotronx") and a wholly-owned subsidiary of Rainbow Technologies Inc. ("Rainbow"), AlliedSignal and Mykotronx may be individually referred to as a "Party" or collectively referred to as the "Parties".


WHEREAS, the Parties have entered into in addition to this Agreement: (a) an Asset Purchase Agreement ("Purchase Agreement"), dated September 30, 1997 (the "Closing Date"), for sale by AlliedSignal to Mykotronx of certain assets including assets used in the design, manufacture and sale of the Product line (the "Product"); and (b) a Manufacturing Agreement ("Manufacturing Agreement") in which AlliedSignal will manufacture the Products for Mykotronx for a period of time (all three agreements hereinafter referred to collectively as the "Collective Agreements"); and


WHEREAS, terms of the Purchase Agreement and the Manufacturing Agreement are incorporated herein by reference.


WHEREAS, the Parties have further determined that it is mutually desirable for AlliedSignal to develop an enhanced Product for sale by Mykotronx; and


WHEREAS, the Parties wish to enter into this Development Agreement which shall set forth the terms and conditions upon which AlliedSignal shall develop the Product for Mykotronx;


NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows:


1.0 GENERAL DEFINITIONS


A. "The Product" as used in this Agreement shall mean the equipment developed under this Agreement in accordance with the Product Specification, attached hereto as EXHIBIT A, and fully-endorsed by the NSA.


B. "Technical Information" means any and all tangible information including, but not limited to, designs, drawings, manufacturing processes, software code, and software documentation relating exclusively to the Product.


2.0 LICENSES GRANTED


A. For the term of this Agreement, Mykotronx grants and agrees to grant to AlliedSignal a nonexclusive, royalty-free license to use all intellectual property transferred to Mykotronx by AlliedSignal pursuant to the Purchase Agreement ("Intellectual Property") solely for the purpose of developing the Product. Mykotronx shall make available to AlliedSignal all necessary Intellectual Property required to develop the Product.


3.0 PRODUCT DEVELOPMENT


A. AlliedSignal shall develop the Product, and complete the upgrade to the High Speed Wireline Adapter adding an unbalanced interface, both in accordance with the Statement of Work and Development Schedule attached hereto as EXHIBIT B.


B. Mykotronx shall have the right, at its sole option and without obligation to provide the Product development assistance to AlliedSignal, to monitor the development of the Product for the purpose of understanding, the technical aspects of the Product and to facilitate the transmission of AlliedSignal Product know-how to Mykotronx.


1 2


(i) The employees listed below shall act as each Parties
technical correspondent in transmitting and receiving THE PRODUCT
know-how.


AlliedSignal: Michael Hayes


Mykotronx: Steve Sappington


(ii) Subject to any government regulations, AlliedSignal shall
permit personnel of Mykotronx access to AlliedSignal's Facility and
shall further provide, at no cost to Mykotronx, office space, telephone
service and access to office equipment and supplies reasonably
necessary to support Mykotronx personnel.


C. The development of the Product shall be completed by no later than September 30, 1998 at which time AlliedSignal shall have shipped or have ready for shipment fifty (50), NSA-endorsed Products ("Delivery Date").


4.0 KEY PERSONNEL


A. AlliedSignal shall dedicate the "Development Key Personnel" (as defined in the letter agreement, dated the date hereof, between AlliedSignal and Mykotronx) to the development of the Product provided such development requires full-time performance. In the event any Development Key Personnel inform AlliedSignal of plans to leave the employ of AlliedSignal, AlliedSignal shall use reasonable efforts to retain such person; provided, however, that the foregoing shall not require AlliedSignal to offer any bonuses, or increase salaries or benefits other than at AlliedSignal's discretion. Further, the foregoing shall not prevent AlliedSignal, in its sole discretion, from offering any Development Key Personnel a promotion, or prevent any Development Key Personnel from accepting any promotion or transfer (within AlliedSignal or otherwise); provided, however, that the General Manager of the Communication Systems division of AlliedSignal shall, in any event, use reasonable efforts to balance the needs of the Development Key Personnel and the needs of the development of the Product in a manner that is intended to be equitable to all of the Parties concerned. In the event any Key Development Personnel gives AlliedSignal notice that he or she has elected to leave AlliedSignal's employ, AlliedSignal shall give notice to Mykotronx and AlliedSignal agrees that Mykotronx will not be bound to the non-solicitation clause of the Purchase Agreement with respect to such individual.


5.0 DEVELOPMENT PRICE


A. Mykotronx shall reimburse AlliedSignal for costs incurred by AlliedSignal for development and transition to production of the Product after the Closing Date up to an amount not to exceed _______________ ($____________) (the "Development Price").


B. The Development Price shall be paid by Mykotronx to AlliedSignal in accordance with the following fee schedule:


(i) The Product development costs (as determined by
AlliedSignal in accordance with its past practice), which are
anticipated to be approximately $__________, are payable within 30 days
of the Closing Date;


(ii) an amount equal to $_________ less the amount paid in
subsection (i) upon completion of milestone 2.3(2) as set forth in
EXHIBIT B;


(iii) $______ upon completion of milestone 2.3 (3 ) as set
forth in EXHIBIT B;


(iv) $______ upon completion of milestone 2.3 (4 and 5) as set
forth in EXHIBIT B; and


(v) up to $________ upon complete of milestone 2.3 (6) a ...