FREE TRANSLATION FROM HEBREW
INTERNAL AGREEMENT
Made and entered in Tel Aviv on 7th of September 1997 by and between ▇▇▇▇ FIAT
("FIAT"), ▇▇▇▇▇ ▇▇▇▇▇▇ ("TULPAN"), ▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇"), TELRAD HOLDINGS LTD.
("TELRAD") and KOOR CAPITAL MARKETS LTD. ("KOOR").
WHEREAS the parties own all the issued fully paid for share capital of A.R. Data
Security Ltd. ("AR") as provided for in the investment agreement dated June 30,
1996;
AND WHEREAS the parties are conducting negotiations with CYLINK CORPORATION
("CYLINK") a NASDAQ traded public corporation registered in California by which
all of AR's holdings in Algart Holdings Ltd. and in Algorithmic Research Ltd.
will be sold to Cylink in consideration for cash and Cylink shares;
AND WHEREAS the parties wish to adopt a voluntary liquidation resolution
following the execution of a Solvency Declaration by AR's Board of Directors and
sell all of AR's holdings in the above companies during the process of voluntary
liquidation and the division of all proceeds as liquidation dividend among the
parties according to their proportional ownership;
AND WHEREAS in accordance with the Cylink Agreement the consideration will be
deposited, in part, as security for the indemnification of Cylink and the
remaining shares will be eligible for registration according to the restriction
terms set forth in the Cylink Agreement;
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
Liquidation of AR
1. Prior to executing the Cylink Agreement the parties will adopt a
voluntary liquidation resolution of AR. The parties will authorize the
liquidator to enter into an agreement for the sale of all of AR's
holdings in Algart and Algorithmic for cash and shares and for the
allocation of all proceeds among the parties according to their
proportional ownership.
1.1 The parties appoint Adv. Zeev May as AR's liquidator and
further agree that the liquidation proceeding may be canceled
in the event the Cylink Agreement is not signed.
1.2 The parties will pay their proportional share in all the
liquidation expenses and costs, including taxes. This
undertaking to be enforced in as much as the liquidation funds
will be sufficient. Such payments will be paid immediately
upon receipt of the Liquidator's demand, either to the
liquidation fund or directly to the authority.
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1.3 The parties agree to deposit, out of the cash consideration,
an amount sufficient, according to the assessment of the tax
attorneys, to pay for the capital gains tax to which the
consideration is subject. All profits accrued on the deposit
will serve to cover future liquidation expenses. All remaining
funds will be divided proportional between the parties upon
completing the liquidation procedure.
1.4 The parties undertake, jointly and severally, to compensate
the Liquidator for all his costs and expenses should he be
sued be either party and/or Cylink in any matter associated
with the Cylink Agreement.
Past Agreements
2. 2.1 Other than the internal matter concerning non-dilution to be
settled within 15 days and subject to the execution of the
Cylink Agreement, the parties agree that all provisions of the
investment agreement dated June 30, 1996 shall be annulled and
the provisions of this and the Cylink Agreement shall prevail.
Resolutions
2.2 Any matter requiring a decision by the parties after
liquidation proceedings were begun, will be resolved in AR's
shareholders meeting by written resolution.
2.3 Decisions dealing with the Trust, including the appointment of
the Representative and the Trustee and their removal from
office require a unanimous written decision of the parties
("PARTIES DECISION"). A written document signed by all parties
is to be considered as a Parties Decision.
Appointment of H&Q
3. The parties agree that ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ ("Representative") will serve
as joint market maker for each party's shares and as Trustee for the
restricted shares as provided for in the Escrow Agreement. Upon opening
an account with the Representative, the shares will be deposited in the
account by Koor Investment House (H.A.L) Ltd. within 7 days from the
opening of the account, and for as long as no party has instructed
otherwise, each for its shares. The costs associated with Koor's
handling will not exceed the quotation issued by H&Q.
Sale of Shares in the Restricted Periods
4. The parties will comply with the restriction terms specified in the
Sellers Agreement ("RESTRICTION PERIOD"). The parties will abide with
all rules of law and regulations, both in Israel and in the USA,
governing the holding and trading of traded shares. If required, they
will fulfill all requirements
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necessary for the release of the traded shares from the filing of a
prospectus according to the Law of Securities, 1968.
5. Unless otherwise decided, the parties will instruct Cylink, and they
hereby instruct the Representative to request that Cylink at the date
provided for according to the Sellers Agreement, register all
registerable shares in any restriction period, and for as long as it is
required according to law.
First Period Shares
6. The parties will instruct the Representative, in writing, immediately
following the execution of the Cylink Agreement, to take all measures
required for the sale of 250,000 shares free for Block Trading in the
first 12 months following the execution of the Cylink Agreement ("FIRST
PERIOD"). This is subject to the restriction provisions and for as long
as the share price does not decrease below US $20.00 per share in the
first 40 days and below US $15.00 afterwards. The Representative shall
employ his best professional judgment in order to maximize the parties
profits and sell the maximum allowed shares during the first year. This
instruction will remain in force on all Block Traded shares until all
are sold or until termination of the special restriction provisions.
7. Amendments to the first period instructions require a unanimous
decision of the parties.
Other Periods' Shares
8. The following instructions shall apply to the sale of the parties
shares in other restriction periods:
8.1 Each party is free to instruct the Representative, at all
times, to sell his shares, all or in part, for as long as he
does not sell more than his proportional amount at any given
restriction period and/or month ("THE PERMITTED AMOUNT")
without the consent of all other parties.
8.2 The parties will instruct the Representative to maintain a
record of all shares in their ownership at any particular time
and the remaining amount they are allowed to sell at any
period and in any month according to the applicable
restriction terms and toward the end of each restriction
period, will inform them of the amount of shares that may
still be sold.
8.3 The parties will instruct the Representative not to sell, at
any given period, an amount of any party's shares exceeding
the Permitted Amount. Should there be an objective impediment
for the sale of the Permitted Amount put up for sale by the
parties at any given period, then the Representative will
conduct the sale on a "first come" basis, and all unsold
amounts will be sold at the first available opportunity.
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8.4 Should a party wish, in a particular month, to exceed his
Permitted Amount, the Representative shall attempt to
accommodate him, in whole or in part, on a "first come" basis,
always without prejudicing other parties' rights.
8.5 The parties will instruct the Representative to report, at
least at the end of each quarter, the Permitted Amount
remaining during that Restriction Period, both in the
accumulative and proportional to each party.
8.6 The parties agree that, according to a Parties Decision, each
party will be allowed to sell an amount exceeding the
Permitted Amount, up to the total Permitted Amount of all the
parties, either in a particular month or during a particular
Restriction Period, for as long as this does not constitute a
violation of the restriction provisions and the Cylink
Agreement.
Fiat, Tulpan and ▇▇▇▇▇ agree that should they decide not to
sell all their Permitted Amount during the second year, they
will inform Koor and Telrad, toward the end of the second year
that an additional Permitted Amount is at their disposal. In
the event that Koor and Telrad have exercised this option and
Fiat, Tulpan and ▇▇▇▇▇ wish to sell more than their Permitted
Amount during the third year, Koor and Telrad will transfer
part of their Permitted Amount, in an internal ratio among
them.
8.7 Upon termination of the Restriction Period, each party will be
free to sell his shares without need for approval from the
other parties. This shall also apply to any party released
from the restriction provisions.
8.8 A party violating the restriction quantities by exceeding the
Permitted Amount or selling by others than the Representative,
will compensate the other parties on all their damages, costs
and expenses and will allow the other parties, if so required,
to sell more than their Permitted Amount on his account.
Escrow, Instructions to the Trustee, Defending
9. 9.1 Until otherwise decided, the parties agree that the
Representative shall be appointed as Trustee according to the
Escrow Agreement. Adv. Zeev May shall serve as Seller's
Representative, until decided otherwise. The Seller's
Representative will not be entitled to any fees and will be
substitutes in a majority decision.
9.2 Instructions to the Trustee will be issued as provided for
hereunder or according to a Parties Decision.
10. Upon filing a claim against the trusteeship or upon service of a claim
against the Escrow, the Seller's Representative shall act, and the
parties will instruct him to act, as follows:
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10.1 The Seller's Representative will inform the parties
immediately and he will do his utmost to obtain a decision
from the parties if they wish to defend the claim and will
follow their instructions.
10.2 In the event no instructions are issued, the Seller's
Representative will inform the Trustee and Cylink within the
time set forth in the Cylink Agreement, that the parties will
defend the claim or demand. The Seller's Representative will
appoint whomever the parties instruct him to appoint in order
to defend the claim, and in the event no instructions are
given, will use his best judgement.
10.2.1 If a compromise offer is issued, it will be discussed
by the parties. If the parties cannot reach a decision
and the trust funds are sufficient to cover such
offer, a decision based on the proportional holdings
of the parties in the trusteeship's assets at the
time, will be adopted.
10.3 The Seller's Representative will demand instructions from the
parties as to the manner by which the defense costs are to be
financed. If an instruction in writing is not received within
30 days, he shall finance it out of the cash amounts deposited
with him and/or put up for sale shares held by the
trusteeship, subject to the terms and limitations provided for
in the Cylink Agreement.
10.4 The Seller's Representative shall act as required in order to
fulfill a final judgment against the Escrow.
10.5 While the parties are allowed to sell some of the trust shares
for the finance of certain legal expenses, it is possible that
the trust assets will not suffice ("SHORTAGE"). The parties
agree to supplement their proportional share of the Shortage,
for as long as together, and each according to his
proportional share, will not pay an amount exceeding the value
of the trust stocks.
10.6 A decision demanding the trust to pay expenses will be served
on the Trustee by the parties carrying signature of the
majority of the parties or by a representative of the parties
in the event a representative, not being the Seller's
Representative, was appointed by the parties.
11. A claim or a demand from Cylink based on Cylink's representations in
the Cylink Agreement is subject to a Parties Decision. A party electing
to participate in the claim will pay his proportional share of the
costs according to his holdings in AR.
Appointment of a Director in Cylink
12. For as long as the parties are entitled to appoint a director to
Cylink's Board of Directors, the director will be elected by a
unanimous resolution.
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13. Each party may vote his Cylink shares according to his discretion
without first receiving the approval of the other parties.
14. Any disagreement between the parties will be settled as follows:
14.1 The parties will convene and attempt to reach an agreement.
14.2 In the event of failure to reach an agreement within 72 hours,
the matter will be transferred to the decision of Adv. Zeev
May and Adv. ▇▇▇▇▇ ▇▇▇▇▇▇ as arbitrators. The Arbitrators will
not be bound by the rules of evidence of the rules of
procedure and will not be required to provide reasons for
their decision. In the event the arbitrators refuse to enter
into a decision or fail to enter into a decision within 72
hours, they will appoint a third arbitrator whose decision
will be final and binding.
Signed on the date first stated above:
▇▇▇▇ Fiat (-) ▇▇▇▇▇ ▇▇▇▇▇▇(-) ▇▇▇▇▇ ▇▇▇▇▇(-) Koor Capital Markets
Ltd.(-)
Telrad Holdings Ltd.(-)s
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