PARENT SHAREHOLDERS INDEMNITY AGREEMENT
THIS PARENT SHAREHOLDERS INDEMNITY AGREEMENT ("Agreement") is made as
of September 8, 1997, by and among CYLINK CORPORATION, a California corporation
(the "Purchaser") and the parties identified on Schedule A hereto (the "Parent
Shareholders"), who collectively constitute all of the shareholders of A.R. DATA
SECURITY LTD., a limited liability company organized under the laws of the State
of Israel (the "Seller").
RECITALS
A. Contemporaneously with the execution and delivery of this Agreement, the
Purchaser is acquiring from the Seller (i) all of the issued and outstanding
shares of Algorithmic Research Ltd., a limited liability company organized under
the laws of the State of Israel (the "Company"), that are owned by the Seller,
and (ii) all of the issued and outstanding shares of Algart Holdings Ltd., a
limited liability company organized under the laws of the State of Israel,
pursuant to that certain Stock Purchase Agreement dated as of September 7, 1997
among the Purchaser, the Company and the Seller (the "Purchase Agreement").
B. This Agreement is being entered into pursuant to Section 7.7 of the Purchase
Agreement.
AGREEMENT
The parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to them in the Purchase Agreement. In addition, as used in this
Agreement, the following terms shall have the following respective meanings:
A Parent Shareholder's "Percentage Share" shall mean the "Percentage
Share" set forth opposite such Parent Shareholder's name on Schedule A hereto.
An Individual Parent Shareholder's "Specified Intellectual Property"
shall mean: (i) those material patents developed by such Individual Parent
Shareholder that provide intellectual property protection for any software,
hardware or invention that (A) has been personally developed by such Individual
Parent Shareholder, and (B) is material to the business of the Company and its
Subsidiaries; and (ii) those material copyrights and trade secrets developed by
such Individual Parent Shareholder that provide intellectual property protection
for any software, hardware or invention that (A) relates to encryption
technology, (B) has been personally developed by such Individual Shareholder,
and (C) is material to the business of the
1
Company and its Subsidiaries. For purposes of the preceding sentence, any
software, hardware or invention will be deemed to be "material to the business
of the Company and its Subsidiaries" only if such software, hardware or
invention is incorporated in, and is a material component of, any Material
Company Product (or any material component, module, feature or subassembly of
any such Material Company Product).
2. REPRESENTATIONS AND WARRANTIES.
2.1 Capitalization. Each Parent Shareholder represents and warrants to
the Purchaser that, as of the time immediately prior to the Closing, except as
disclosed in the Company Schedule or as disclosed or otherwise described in any
of the documents listed or otherwise referred to in the Company Schedule, the
representations and warranties of the Seller set forth in Sections 2.1, 2.5 and
2.6 of the Purchase Agreement were true and accurate in all material respects.
2.2 Ownership of Specified Intellectual Property. Each Individual
Parent Shareholder represents and warrants to the Purchaser that, as of the time
immediately prior to the Closing, except as disclosed in the Company Schedule or
as disclosed or otherwise described in any of the documents listed or otherwise
referred to in the Company Schedule, such Individual Parent Shareholder has
assigned to the Company (or has otherwise permitted the Company to acquire) all
of his ownership rights (if any) in his Specified Intellectual Property, and has
not voluntarily assigned (or otherwise voluntarily granted or transferred) any
of his ownership rights (if any) in his Specified Intellectual Property to any
university or to any other third party.
2.3 No Implied Representations. Except as expressly set forth in
Sections 2.1 and 2.2 hereof, no Parent Shareholder is making any representation
or warranty, implied or otherwise, or is providing any assurances of any nature
whatsoever. Without limiting the generality of the foregoing, no Parent
Shareholder is making or shall be deemed to have made any representation or
warranty regarding the validity, ownership or status of any patent, copyright or
other intellectual property right, or regarding the existence or absence of any
rights or any potential liabilities or risks associated with the exploitation of
any such intellectual property right.
3. SURVIVAL. The representations and warranties contained in this Agreement
shall survive until the expiration of the applicable statute of limitations, at
which time such representations and warranties shall terminate and expire and
shall cease to be of any force or effect, and all liability of the parties with
respect to such representations and warranties shall thereupon be extinguished.
4. INDEMNIFICATION.
4.1 Indemnification by the Parent Shareholders. Subject to the
limitations on indemnification set forth in Section 4.4 hereof and elsewhere in
this Agreement, each Parent Shareholder shall indemnify and reimburse the
Purchaser for such Parent Shareholder's
2
Percentage Share of the net amount of any Damages incurred by the Purchaser as a
proximate result of any inaccuracy in the representation and warranty made by
such Parent Shareholder in Section 2.1 hereof. For purposes of calculating the
net amount of such Damages, there shall be deducted an amount equal to the
aggregate dollar value (determined in the manner set forth in the Escrow
Agreement) of all cash and Escrow Shares distributed by the Escrow Agent to the
Purchaser in connection with any indemnification claim based on or related to
any inaccuracy or alleged inaccuracy in any of the representations and
warranties of the Seller contained in Sections 2.1, 2.5 and 2.6 of the Purchase
Agreement.
4.2 Indemnification by the Individual Parent Shareholders. Subject to
the limitations on indemnification set forth in Section 4.4 hereof and elsewhere
in this Agreement, each Individual Parent Shareholder shall indemnify and
reimburse the Purchaser for the net amount of any Damages incurred by the
Purchaser as a result of any inaccuracy in the representation and warranty made
by such Individual Parent Shareholder in Section 2.2 hereof. For purposes of
calculating the net amount of such Damages, there shall be deducted an amount
equal to the aggregate dollar value (determined in the manner set forth in the
Escrow Agreement) of all cash and Escrow Shares distributed by the Escrow Agent
to the Purchaser in connection with any indemnification claim based on or
related to any inaccuracy or alleged inaccuracy in any of the representations
and warranties of the Seller contained in Section 2.17(f) of the Purchase
Agreement.
4.3 Notification; Control of Proceedings. The Purchaser shall, with
reasonable promptness, give written notice (as provided in this Section 4.3) if
the Purchaser or any of its affiliates becomes aware of any loss, liability,
damage or expense with respect to which an indemnification claim may be asserted
by the Purchaser under this Agreement; provided, however, that for the sole
purpose of determining whether written notice must be provided by the Purchaser
under this Section 4.3 (and for the purpose of determining whether any Parent
Shareholder will have the right to defend a particular action, claim or
proceeding), the limitation set forth in Section 4.4 shall not be taken into
account. Such written notice shall be given to: (i) all of the Parent
Shareholders, if such indemnification claim may be asserted pursuant to Section
4.1 hereof; or (ii) the particular Individual Parent Shareholder(s) against whom
such indemnification claim may be asserted, if such indemnification claim may be
asserted pursuant to Section 4.2 hereof. (The failure of the Purchaser to
deliver such written notice with reasonable promptness shall not be deemed to
bar or otherwise limit the rights of the Purchaser hereunder unless such failure
materially prejudices any of the rights or defenses of any of the Parent
Shareholders.) If any claim is made by a third party or an action or proceeding
is commenced for which the Purchaser shall seek indemnification from any Parent
Shareholder, the Purchaser shall, with reasonable promptness, give to such
Parent Shareholder written notice of such claim, action or proceeding and
request such Parent Shareholder to defend the same. Such Parent Shareholder
shall have the right to defend such claim, action or proceeding at his or its
own expense, and (if such Parent Shareholder elects to defend such claim, action
or proceeding) shall give written notice to the Purchaser of the commencement of
the defense of such claim, action or proceeding by such Parent Shareholder. The
Purchaser shall be entitled to participate at its own
3
expense with such Parent Shareholder in such defense (subject to the right of
such Parent Shareholder to control such defense), but shall not be entitled in
any way to release, waive, settle, modify or pay such claim, action or
proceeding without the written consent of such Parent Shareholder. In the event
that such Parent Shareholder does not accept the defense of such claim, action
or proceeding as provided above, or does not notify the Purchaser of its
election to defend such claim, action or proceeding within 30 days after such
Parent Shareholder's receipt of written notice of such claim, action or
proceeding from the Purchaser, the Purchaser shall have the full right to defend
such claim, action or proceeding in such manner as it may deem appropriate, but
such Parent Shareholder shall not have any liability with respect to any
compromise or settlement effected without its prior written consent (which
consent shall not be unreasonably withheld). In the event a Parent Shareholder
shall assume the defense of any such claim, action or proceeding, the Purchaser
shall cooperate in the defense of such claim, action or proceeding, and the
records of each shall be available to the other with respect to such defense;
provided, however, that such Parent Shareholder shall not, in the defense of any
such claim, action or proceeding, consent to the entry of any judgment or enter
into any settlement where such entry of judgment or settlement does not include
a provision releasing the Purchaser from all liability with respect to such
claim, action or proceeding, except with the written consent of the Purchaser
(which consent shall not be unreasonably withheld).
4.4 Limitations on Indemnification. Notwithstanding anything contained
in Section 4.1 or 4.2 hereof or elsewhere in this Agreement: (a) no Parent
Shareholder shall be liable to the Purchaser under this Agreement except to the
extent that the cumulative amount of indemnifiable Damages actually incurred by
the Purchaser as a proximate result of all inaccuracies in the representations
and warranties made by such Parent Shareholder in this Agreement actually
exceeds the Unused Deductible Amount; and a Parent Shareholder shall only be
required to pay, and shall only be liable for, the amount by which the
cumulative amount of indemnifiable Damages actually incurred by the Purchaser as
a proximate result of all such inaccuracies in the representations and
warranties made by such Parent Shareholder in this Agreement actually exceeds
the Unused Deductible Amount; and (b) no Parent Shareholder shall be liable
under this Agreement with respect to any indemnification claim based on an
inaccuracy in any representation or warranty of such Parent Shareholder if any
of the Purchaser's officers or directors had actual knowledge of the inaccuracy
in such representation or warranty (or of any facts or circumstances
constituting or resulting in such inaccuracy) prior to the execution of this
Agreement; provided, however, that the limitation provided by this clause "(b)"
shall not be available to a Parent Shareholder if such Parent Shareholder also
had such actual knowledge of the inaccuracy in such representation and warranty
(or of such facts or circumstances constituting or resulting in such inaccuracy)
prior to the execution of the Purchase Agreement. For purposes of this Section
4.4, "Unused Deductible Amount" shall mean the $250,000 deductible amount
referred to in Section 5.5 of the Purchase Agreement, to the extent such
deductible amount has not been utilized under the Purchase Agreement to reduce
the amount of indemnification payments made to the Purchaser by the Escrow
Agent.
4
4.5 Exclusive Remedy. Without limitation of any term of Article V of
the Purchase Agreement or the Escrow Agreement relating to the Purchaser's right
to make indemnification claims against the cash and Escrow Shares held by the
Escrow Agent, the indemnification provided for in Section 4 hereof shall be the
exclusive right and remedy of the Purchaser with respect to any claim against
any Parent Shareholder in connection with any of the transactions contemplated
by or referred to in the Purchase Agreement. No claim or cause of action with
respect to any inaccuracy in any representation or warranty contained in this
Agreement shall be enforceable unless made in accordance with the procedures set
forth in Section 4 hereof. Without limiting the generality of the foregoing (and
without limiting the Purchaser's right under Article V of the Purchase Agreement
to make indemnification claims against the cash and Escrow Shares held by the
Escrow Agent), except as expressly provided in this Agreement, none of the
Parent Shareholders shall have any liability to the Purchaser or to any of the
Purchaser's affiliates for any breach by the Seller of any of the Seller's
covenants, representations or warranties contained in the Purchase Agreement or
for any breach by any Parent Shareholder of any of the representations or
warranties contained in this Agreement.
4.6 Subrogation. To the extent that any Parent Shareholder makes or is
required to make any indemnification payment to the Purchaser: (a) such Parent
Shareholder shall be entitled to exercise, and shall be subrogated to, any
rights and remedies (including rights of indemnity, rights of contribution and
other rights of recovery) that the Purchaser or any of the Purchaser's
affiliates may have against any other person or entity with respect to any
Damages, circumstances or matter to which such indemnification payment is
directly or indirectly related; (b) the Purchaser shall permit such Parent
Shareholder to use the name of the Purchaser and each of its affiliates in any
transaction or in any proceeding or other matter involving any of such rights or
remedies; and (c) the Purchaser shall take, and shall cause each of its
affiliates to take, such actions as such Parent Shareholder may reasonably
request for the purpose of enabling such Parent Shareholder to perfect or
exercise such Parent Shareholder's right of subrogation hereunder. Any rights of
a Parent Shareholder to subrogation pursuant to this Section 4.6 shall not be
exercisable until such Parent Shareholder shall have fully performed his or its
obligations pursuant to this Agreement as to the indemnification of the
Purchaser (with respect to the particular indemnification claim involved);
provided, however, that prior to the full performance of such indemnification
obligations (and to the extent reasonably required to preserve the rights of
such Parent Shareholder to subrogation), such Parent Shareholder shall be
permitted to take any action so required to preserve such subrogation rights.
4.7 Acts of Fraud. Each Parent Shareholder acknowledges and agrees that
no limitation or other term contained in this Agreement, the Purchase Agreement
or the Escrow Agreement shall serve to limit any liability such Parent
Shareholder may otherwise have under applicable law for any fraud intentionally
committed upon the Purchaser by such Parent Shareholder with respect to any
representation made to the Purchaser in any written agreement with the
Purchaser.
5
4.8 No Limitation of Actions. Nothing contained herein or in the
Purchase Agreement or the Escrow Agreement shall require the Purchaser to first
pursue its rights or remedies under Article V of the Purchase Agreement and the
Escrow Agreement as to any claim by the Purchaser that is based on the breach of
any representation or warranty in both this Agreement and the Purchase
Agreement. To the extent that the Purchaser shall first recover Damages from one
or more Parent Shareholders pursuant to this Agreement prior to any recovery
pursuant to Article V of the Purchase Agreement, the amounts recovered from such
Parent Shareholder shall be deducted from amounts payable pursuant to Section
5.2 of the Purchase Agreement.
5. GOVERNING LAW. This Agreement and the legal relations between the parties
arising hereunder shall be governed by and interpreted in accordance with the
laws of the State of California without regard to its conflict of law
provisions, and shall inure to the benefit of and be binding upon the successors
and assigns of the parties hereto. 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 London, England. The arbitrator's fees
and other related expenses of any arbitration under this Agreement (such as
expenses for transcripts of the arbitration proceedings) shall be borne by the
Purchaser and the Parent Shareholders who are parties to such arbitration in
such proportions as shall be determined by the arbitrator, or if there is no
such determination, then such fees and other expenses shall be borne one-half by
the Purchaser and one-half divided equally among the Parent Shareholders who are
parties to such arbitration. 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
exemplary damages or indirect or consequential damages or to grant any form of
equitable relief.
6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same document.
7. NOTICES. Any notice required or permitted hereunder shall be in writing and
shall be deemed 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), in each case addressed as follows:
If to the Purchaser: Cylink Corporation
000 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
Fax: 000-000-0000
6
With a copy to: Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx
Fax: 000-000-0000
If to a Parent
Shareholder: At the address for such Parent
Shareholder as set forth in
Schedule A hereto
With a copy to: Shinar, Shachor, Weissberger
5 Belt Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx 00000, Xxxxxx
Attn: Xxxxx Xxxxxx
Fax: 000-0-000-0000
Addresses may be changed by written notice given pursuant to this
Section. Any notice given hereunder may be given on behalf of any party by his
or its counsel or other authorized representative.
8. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understand
among the parties regarding the matters set forth herein and supersedes all
prior agreements and understandings, both written and oral, among or between any
of the parties with respect to the subject matter hereof.
9. AMENDMENTS. This Agreement may not be amended, modified or supplemented,
except by means of a written amendment signed by all parties hereto.
10. LIQUIDATION OF SELLER. Following the liquidation of the Seller, in
exercising the Seller's contractual rights under the Purchase Agreement, the
Parent Shareholders will be subject to the limitations and restrictions
applicable to the exercise of such contractual rights under Article V and the
other provisions of the Purchase Agreement. In addition, following the
liquidation of the Seller, the respective Parent Shareholders will cause to be
performed all continuing contractual obligations of the Seller under Sections
1.2(b), 4.7, 4.13, 9.1, 11.3, 11.6 and 11.7 of the Purchase Agreement and
Section 4(e) of the Escrow Agreement; provided, however, that, in the event of
any failure to cause any of such obligations to be performed, the liability (if
any) of each Parent Shareholder shall be limited to such Parent Shareholder's
Percentage Share of the compensable damages incurred by the Purchaser as a
proximate result of such failure. Notwithstanding anything to the contrary
contained in this Agreement or in any other document (and without limiting the
effect of the proviso to the preceding sentence), the total cumulative maximum
liability of each Parent Shareholder for all breaches of this Agreement and all
breaches of the Seller's Agreement of even date herewith shall be limited in the
aggregate
7
to the net dollar value of the assets of the Seller distributed to such Parent
Shareholder by the Seller in the dissolution and liquidation of the Seller, and
such Parent Shareholder's aggregate liability hereunder and thereunder shall in
no event exceed such amount.
11. MISCELLANEOUS. For purposes of this Agreement, the masculine gender shall be
deemed to include the feminine and neuter genders, and the neuter gender shall
be deemed to include the masculine and feminine genders.
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first stated above.
CYLINK CORPORATION
By: /s/ Xxxx X. Xxxx, Xx.
-------------------------------------------
Xxxx X. Xxxx, Xx.
Vice President,
Strategy and Business Development
By: /s/ Xxxxx Xxxxxx
-------------------------------------------
Xxxxx Xxxxxx
By: /s/ Xxxx Fiat
-------------------------------------------
Xxxx Fiat
By: /s/ Xxxxx Xxxxx
-------------------------------------------
Xxxxx Xxxxx
KOOR CAPITAL MARKETS
By: /s/ Xxxxx Xxxxxxxxx
-------------------------------------------
Xxxxx Xxxxxxxxx
President
By: /s/ Yair Na'aman
-------------------------------------------
Yair Na'aman
Head of Finance Division
TELRAD HOLDINGS LTD.
By: /s/ Oded Koritshoner
-------------------------------------------
Oded Koritshoner
Managing Director
9
By: /s/
-------------------------------------------
10
SCHEDULE A
TO PARENT SHAREHOLDERS INDEMNITY AGREEMENT
Name and Address of Parent Shareholder Percentage Share
Xxxxx Xxxxxx 31.407%
00 Xxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxx
Xxxx Fiat 31.407%
00 Xxxxxx Xxx Xxxxxx, Xxx Xxxx, Xxxxxx
Xxxxx Xxxxx 10.337%
00 Xxxxxxxxx Xxxxxx Xxxxxx, Xxxxx, Xxxxxx
Koor Capital Markets 7.501%
00 Xxxxxxxxxx Xxxxxxxxx, Xxx Xxxx, Xxxxxx
Telrad Holdings Ltd. 19.348%
00 Xxxxxxxxxx Xxxxxxxxx, Xxx Xxxx, Xxxxxx
11
