SERVICES AGREEMENT

 

This SERVICES AGREEMENT (“Agreement”), effective as of April 2, 2012 (the
“Effective Date”), is entered into by and between Cyalume Technologies, Inc., a
Delaware corporation (the “Company”), Cyalume Technologies Holdings, Inc., a
Delaware corporation (“Holdings”) and East Shore Ventures, LLC, a Florida
limited liability company (“Contractor”) (collectively, the “Parties” and, each,
a “Party”).

 

WHEREAS, Zivi Nedivi (“Nedivi”) is an employee of Contractor; and

 

WHEREAS, the Company, a wholly owned subsidiary of Holdings, desires that
Contractor be a consultant to the Company and provide to it services of the type
customarily performed by a Chief Executive Officer (“CEO”) and for Nedivi to
personally provide such services, and Contractor desires to accept such
engagement, pursuant to the terms and conditions of hereof;

 

NOW, THEREFORE, on the basis of the foregoing premises and in consideration of
the mutual covenants and agreements contained herein, the Parties agree as
follows:

 

1.          Condition Precedent; Appointment of Nedivi as CEO and Board Member.
The Company’s obligations hereunder are expressly conditioned upon Contractor
and Nedivi executing and delivering to the Company a copy of the “Inducement
Agreement” annexed hereto as Exhibit A, the terms of which are incorporated
herein by reference. As a matter of corporate designation only, and without
entering into an employment relationship with Nedivi, effective as of the
Effective Date, Holdings and the Company shall appoint, and they shall each
cause their direct and indirect subsidiaries and affiliates to appoint, Nedivi
as their respective CEO and, pursuant to the Inducement Agreement, Nedivi shall
accept such corporate designations. Further, within a reasonable period of time
following the Effective Date, Nedivi shall be appointed as a member of the Board
of Directors of the Company (the “Board”), and, pursuant to the Inducement
Agreement, Nedivi shall accept such appointment.

 

2.          Services. Contractor shall render to the Company and Holdings, and
their direct and indirect subsidiaries and affiliates (collectively, the
“Company Group”), services consistent with those typically performed by a CEO of
a publically-traded company and such other duties commensurate with such a
position as shall be specified or designated by the Board from time to time (the
“Services”). The Services shall be exclusively and personally performed by
Nedivi. Although Nedivi’s primary residence is in Israel, where he will, among
other things, be working on the Company Group’s Israel initiatives, Nedivi shall
spend whatever time is necessary at the Company Group’s facilities in the United
States, and shall undertake such further travel, as is reasonably necessary to
satisfactorily perform the Services.

 

3.          Term. Contractor’s engagement hereunder shall commence on the
Effective Date and shall continue for a period of three (3) years thereafter
(the “Initial Term”), subject to earlier termination exclusively as provided for
in Section 8 below, and subject to extension as provided in the following
sentence. Following the Initial Term, provided Notice of Non-Renewal has not
been given (as defined in and in accordance with the provisions of Section 8.6
below), Contractor’s engagement hereunder shall automatically be extended for
successive, additional one-year periods (each a “Renewal Term”), subject to
earlier termination exclusively as provided for in Section 8 below. For the
purposes of this Agreement, the “Term” shall mean the period of Contractor’s
engagement hereunder.

 

  Company Initials:____   Contractor Initials:____

 

 

 

 

4.          Fees.

 

4.1           Cash Fee. During the Term only, in consideration for the Services,
the Company shall pay Contractor a cash fee at the rate of $37,500 per month
(the “Cash Fee”), which fee shall be paid monthly in arrears on or before the
last day of each month. The Cash Fee for any partial month in which Contractor
is engaged hereunder shall be pro-rated based on the number of days in such
partial month Contractor was engaged hereunder. The Board shall review the Cash
Fee, at least annually, for merit increases and may be increased at any time or
from time to time (but shall not be decreased) from the then current Cash Fee.
The Cash Fee will not be reduced for any vacation time (up to four weeks per
year), personal days (up to ten days per year) or holidays observed by the
Company that are taken by Nedivi during the Term.

 

4.2           Bonus. During the Term only, Contractor shall be eligible for an
annual bonus for each fiscal year of the Company (a “Bonus”), subject to the
terms and conditions of this Section 4.2. The payment and amount of any Bonus
for a given fiscal year shall be based on performance targets mutually agreed
upon by the Parties in writing for such fiscal year (the “Annual Performance
Targets”). The Annual Performance Targets for the fiscal year in which the
Effective Date occurs shall be established within forty-five (45) days after the
Effective Date, and the Annual Performance Targets for each subsequent fiscal
year shall be established within forty-five (45) days after the beginning of
such fiscal year. If the Company’s performance meets, but does not exceed, the
Annual Performance Targets for a given fiscal year, the amount of the Bonus for
such fiscal year shall equal 140% of the annualized rate of the Cash Fee in
effect as of the end of such fiscal year. If the Company’s performance exceeds
the Annualized Performance Targets for a given fiscal year, the amount of the
Bonus for such fiscal year shall equal 140% of the annualized rate of the Cash
Fee in effect as of the end of such fiscal year, plus an additional 1% of such
annualized rate for each 1% by which the Company’s performance exceeds the
Annualized Performance Targets for such fiscal year. If the Company’s
performance fails to meet the Annualized Performance Targets for a given fiscal
year, the amount of the Bonus for such fiscal year shall equal 140% of the
annualized rate of the Cash Fee in effect as of the end of such fiscal year,
less 2% of such annualized rate for each 1% by which the Company’s performance
failed to meet the Annualized Performance Targets for such fiscal year,
provided, however, that Contractor shall not be eligible for any Bonus for a
given fiscal year in which the Company’s performance was less than or equal to
70% of the Annualized Performance Targets for such fiscal year. Provided
Contractor has not been terminated under Section 8.3 below (for Cause by the
Company) prior to the payment thereof, Contractor shall be eligible for (i) a
Bonus for each fiscal year on the last day of which Contractor is engaged
hereunder and (ii) if Contractor’s engagement hereunder is terminated other than
on the last day of a fiscal year, a pro-rated Bonus for the fiscal year during
which Contractor’s engagement hereunder is terminated, based on the number of
full calendar months Contractor was engaged hereunder during such fiscal year.
Any Bonus earned for any full or partial fiscal year shall be paid in the
following fiscal year within 30 days after the Company’s audited financial
statements are issued, but in no event later than June 30th of such following
fiscal year regardless of whether such audited financial statements are issued
by such date.

 

  Company Initials:____   Contractor Initials:____

 

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4.3           Equity.

 

(a)          Option. The Company’s Board of Directors previously approved the
issuance of a ten year option (the “Option”) to Contractor to purchase 1,111,963
shares of the Company’s Common Stock (the “Shares”) at an exercise price per
Share equal to $3.60. The Option shall become exercisable annually in five equal
installments on each of the first five anniversaries of the approval of the
issuance of the Option. The Option will contain provisions providing (i) that
the Option will not become exercisable as to 141,333 of the Shares unless a
proportional number of shares underlying the warrants issued to Granite Creek
FlexCap I, L.P. and/or Patriot Capital II, LP are exercised; (ii) that, in the
event that, prior to the date that the Option is fully exercisable, (A) there is
a Change of Control or (B) Contractor’s engagement hereunder is terminated
pursuant to Section 8.5 below (by the Company without Cause or by Contractor for
Good Reason), the Option shall become fully exercisable as of the date of such
Change of Control or termination, provided, however, that, if such termination
of Contractor’s engagement occurs within the first eighteen (18) months of the
Effective Date, then only two-fifths (2/5) of the Option shall become fully
exercisable as of the date of such termination; (iii) for piggyback registration
rights; and (iv) that Contractor will receive a cash payment equal to the Tax
Payment (as defined below) pursuant to the terms of Section 4.3(c) below.
Notwithstanding anything in this Section 4.3(a) to the contrary, if, prior to
the date that the Option is fully exercisable, Contractor’s engagement hereunder
is terminated pursuant to Section 8.5 below (by the Company without Cause or by
Contractor for Good Reason) upon or following Contractor and/or Nedivi being
formally charged with a felony, the Option shall not become fully exercisable as
of the date of such termination, but rather will become fully exercisable only
upon a final disposition of such felony charge that does not result in
Contractor and/or Nedivi being convicted of or pleading no contest to a felony.
Assuming that the Option is able to be registered by the Company on a
Registration Statement on Form S-8, the Company shall so register the Option
prior to the first anniversary of the approval of the issuance of the Option.

 

(b)          Change of Control. A “Change of Control” shall be deemed to have
occurred if (i) any person (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), other than
the Company, any employee benefit plan of the Company, or any entity owned
directly or indirectly by the shareholders of the Company in substantially the
same proportion as their ownership of stock of the Company, enters into a
merger, acquisition, consolidation, purchase, stock acquisition, asset
acquisition, or similar business transaction with the Company and, as a result
thereof, becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of securities of the Company (not including
in the securities beneficially owned by such person any securities acquired
directly from the Company or its affiliates) representing 50% or more of the
combined voting power of the Company’s then outstanding voting securities,
unless the individuals who were members of the Board immediately prior to the
execution of the agreement providing for such transaction constitute a majority
of the board of directors of the surviving corporation or of a corporation
directly or indirectly beneficially owning a majority of the voting securities
of the surviving corporation; (ii) individuals who are directors or director
nominees of the Company as of the effective date of this Agreement (the
“Incumbent Board”) cease for any reason to constitute a majority of the Board,
provided that any individual becoming a director subsequent to the effective
date of this Agreement whose appointment or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds of the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or (iii) the stockholders of the Company approve
the complete liquidation or dissolution of the Company, or a sale or other
disposition of all or substantially all of the assets of the Company; provided,
however, that any transfer of assets to related parties described in Treasury
Regulation § 1.409A-3(i)(5)(vii)(B)(1) shall not constitute a Change in Control.

 

  Company Initials:____   Contractor Initials:____

 

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(c)          Tax Payment.

 

(i)          As used herein, “Tax Payment” means an amount which, after
reduction for all Taxes (as hereafter defined) as a result of the receipt of the
Tax Payment, is equal to the excess, if any, of the Ordinary Income Tax (as
hereafter defined) over the Capital Gain Tax (as hereafter defined).

 

(ii)         As used herein, “Taxes” means the Israeli, U.S. federal, state and
local income tax and self-employment tax that would be imposed on Contractor and
members of Contractor for the tax year in which the Option is exercised,
assuming that Contractor’s or the members of Contractor, as applicable, state
and local taxes are fully deductible for U.S. federal income tax purposes.

 

(iii)        As used herein, “Ordinary Income Tax” means the Israeli, U.S.
federal, state and local income tax and self-employment tax that Contractor or
the members of Contractor, as applicable, would pay for the tax year in which
the Option is exercised, as a result of exercising the Option, without taking
into account any other deductions in excess of the other income or gain that
Contractor or the members of Contractor, as applicable, may have.

 

(iv)        As used herein, “Capital Gain Tax” means the Israeli, U.S. federal,
state and local income tax (including any additional Medicare tax under Internal
Revenue Code Section 3101(b)(2)) that Contractor or the members of Contractor
would have been subject to if Contractor had sold the shares underlying the
portion of the Option which is exercised on the date of exercise for their fair
market value, assuming (i) that Contractor had a tax basis equal to the exercise
price for such shares and (ii) no deductions in excess of the other income or
gain that Contractor or the members of Contractor, as applicable, may have, are
taken.

 

  Company Initials:____   Contractor Initials:____

 

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(v)         Nedivi’s tax advisors will prepare (at the cost and expense of the
Company) the calculations (the “Tax Calculations”) of the Tax Payment, showing
in reasonable detail the Ordinary Income Tax, Capital Gain Tax and the Taxes
used in calculating the Tax Payment, for each of Contractor and each member of
Contractor for the tax year in which the Option is exercised. Nedivi shall give
a copy of such Tax Calculations to the chief financial officer of the Company
(the “CFO”), certifying that such Tax Calculations are true, correct and
complete. At that time, or promptly upon request of the CFO, Nedivi shall also
make available any additional underlying information reasonably necessary for
the Company to verify the Tax Calculations to (A) the CFO for the CFO’s
exclusive review and (B) if any, the independent accounting firm selected by the
parties to resolve any dispute regarding the amount of the Tax Payment (as
provided for below). The CFO shall not make or retain copies of any of the
documents disclosed to him in connection with such review, and the CFO shall
keep strictly confidential and not disclose to any other person the information
contained in such documents, except that, notwithstanding anything to the
contrary herein, the CFO may disclose such information as is reasonably
necessary to verify the Tax Calculations to (A) the Company’s accountants or
auditors and (B) if any, the independent accounting firm selected by the parties
to resolve any dispute regarding the amount of the Tax Payment (as provided for
below). Contractor and Nedivi shall cooperate with the Company in the
verification of the Tax Calculations. The Company shall raise any question or
dispute relating to the Tax Calculations within ten (10) business days after its
receipt of the Tax Calculations. If the parties cannot agree on the resolution
of the issues relating to the Tax Calculations within three (3) business days,
the issue shall be promptly presented to an independent accounting firm that is
reasonably acceptable to all of the parties, which agrees to resolve the dispute
within ten (10) business days and to keep all information disclosed in the
proceeding strictly confidential. The cost of such accounting firm shall be
borne by the Company, unless the accounting firm determines that that the Tax
Payment is less than ninety-five percent (95%) of the amount of the Tax Payment
as determined pursuant to the Tax Calculations. The Tax Payment shall be made by
the Company to Contractor or the members of Contractor, as applicable, within
three (3) days after the Tax Calculations have become final.

 

4.4           No Other Fees; Tax Reporting. Other than the fees provided by this
Section 4, Contractor shall not be entitled to any other fees or compensation of
any kind unless the Company specifically approves such compensation in advance
in writing. Neither federal, state, nor local taxes of any kind shall be
withheld or paid by the Company on behalf of Contractor in connection with
payments made by the Company under this Section 4. The Company shall issue a
Form 1099 to Contractor with respect to such payments that, in the aggregate,
are equal to or greater than $600 in any calendar year or as otherwise required
by law. Contractor acknowledges that, as an independent contractor, Contractor
will be solely liable for any taxes or other payments typically paid or made by
an employee which may be required by federal, state or local law to be deducted
from or paid on account of any payments made to Contractor by the Company under
this Agreement.

 

5.          Exclusivity and Reasonable Best Efforts. During the Term, (i)
Contractor (including Nedivi) shall in all material respects conform to and
comply with the lawful directions and instructions given to it by the Board;
(ii) subject to the proviso below, Nedivi shall devote his entire business time,
energy and skill to providing the Services under this Agreement; (iii)
Contractor and Nedivi shall use their reasonable best efforts to promote and
serve the interests of the Company Group and to perform their duties and
obligations hereunder in a diligent, trustworthy, businesslike and efficient
manner; (iv) Nedivi shall not engage in any other business, profession or
occupation for compensation or otherwise, except as provided below in this
Section 5; and (v) Contractor and Nedivi shall not engage in any activity that,
directly or indirectly, impairs or conflicts with their respective performance
of their obligations and duties to the Company Group, provided, however, that
the foregoing shall not prevent Nedivi from (A) managing his personal affairs
and passive personal investments, (B) participating in charitable, civic,
educational, professional or community affairs, (C) providing services for Eilam
Ltd. and (D) serving on the board of directors of Urban Aeronautics, so long as,
in the aggregate, any such activities do not unreasonably interfere or conflict
with Contractor’s and Nedivi’s duties hereunder or under the Inducement
Agreement or create a potential business or fiduciary conflict with any member
of the Company Group, as reasonably determined by the Board.

 

  Company Initials:____   Contractor Initials:____

 

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6.          Reimbursement for Expenses. Contractor is authorized to incur
reasonable expenses in the discharge of the Services, including, without
limitation, travel and lodging expenses incurred when Nedivi travels to the
United States and in furtherance of his other obligations under Section 2 above.
The Company shall also reimburse Contractor for travel-related expenses incurred
as a result of Nedivi’s travel to the United States in connection with
Contractor being interviewed and considered for the engagement hereunder.
Subject to the provisions of Section 20.3 below (“Section 409A Compliance”), the
Company shall reimburse Contractor for all such proper expenses (except for any
compensation or benefits provided to Nedivi or any of Contractor’s other
employees) upon presentation by Contractor of itemized accounts of such
expenditures. For the avoidance of doubt, Contractor shall be reimbursed for
each non-cancelable expense eligible for reimbursement hereunder that is
incurred prior to the date Contractor’s engagement is terminated hereunder (the
“Termination Date”), even if the incurred expenses relates to an event occurring
after the Termination Date (e.g., airline tickets purchased prior to the
Termination Date for a flight occurring after the Termination Date).

 

7.          Payment and Status of Nedivi.

 

7.1           Nedivi shall be an employee of Contractor. Nedivi shall not be an
employee of the Company, Holdings or any other member of the Company Group, and
Contractor represents and warrants that Nedivi is not working simultaneously
under any contrary arrangement or agreement that would make him or cause him to
be considered to be an employee or agent of the Company, Holdings or any other
member of the Company Group while providing the Services. Contractor has,
retains and shall continue to bear sole, exclusive and total legal
responsibility for Nedivi as the employer of Nedivi. This responsibility
includes, without limitation, the obligation to ensure full compliance with and
satisfaction of (i) all state and federal payroll, income and unemployment tax
requirements; (ii) all state and federal wage and hour requirements; (iii) all
worker’s compensation insurance and unemployment insurance requirements; and
(iv) all other applicable state and federal employment law requirements arising
from Contractor’s employment of Nedivi and/or the performance of the Services or
other work hereunder by Nedivi. Nedivi shall not be treated as an employee of
the Company, Holdings or any other member of the Company Group for any reason,
including without limitation for purposes of vacations, disability, insurance,
pensions or other employee benefits offered or provided by any member of the
Company Group.

 

7.2           Contractor shall indemnify, defend and hold harmless the Company
and its affiliates, and their respective officers, directors, shareholders,
employees, agents and other representatives from and against any and all
asserted or threatened claims, demands, losses, liabilities, damages, judgments,
expenses (including reasonable attorneys’ fees) and causes of action (“Claims”
and, each, a “Claim”) that is predicated in any manner on a finding by any
court, enforcement agency, government entity, arbitrator or other adjudicator,
in each case solely related to employment taxes, that Nedivi is an employee or
joint employee of the Company, Holdings or any other member of the Company
Group. Unless the Company requests otherwise, Contractor shall have the
obligation to control the defense, negotiation and settlement of any claim for
which Contractor has the obligation to provide indemnification. The Company
shall cooperate and assist Contractor in the defense of any such claim.

 

  Company Initials:____   Contractor Initials:____

 

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8.          Termination.

 

8.1           Death. Contractor’s engagement hereunder shall immediately and
automatically be terminated upon Nedivi’s death.

 

8.2           Disability. The Board may terminate Contractor’s engagement
hereunder due to Nedivi’s Disability by providing written notice of such
termination and its effective date to Contractor. For the purposes of this
Agreement, “Disability” shall mean Nedivi has been, with or without a reasonable
accommodation, unable to perform the essential functions of the Services due to
a physical or mental injury, infirmity or incapacity for a period of 120
consecutive days or 150 days during any twelve-month period. Any dispute as to
whether Nedivi has a Disability shall be resolved by an independent physician
(at the sole cost and expense of the Company), reasonably acceptable to
Contractor and the Board, whose determination shall be final and binding upon
both Contractor and the Company. If the Board and Contractor are unable to agree
on the selection of such an independent physician, each shall appoint a
physician and those two physicians shall select a third physician who (at the
sole cost and expense of the Company) shall make the determination of whether
Nedivi has a Disability. Notwithstanding the foregoing, in the event that, as a
result of earlier absence because of mental or physical incapacity, Nedivi
incurs a “separation from service” within the meaning of such term under
“Section 409A” (as defined in Section 20.3 below), Contractor’s engagement
hereunder shall automatically be terminated on such date as a Disability
termination.

 

8.3           For Cause by the Company. The Board may terminate Contractor’s
engagement hereunder for Cause, at any time, upon written notice reasonably
detailing the grounds giving rise to Cause. For purposes of this Agreement, the
term “Cause” means Contractor’s and/or Nedivi’s (i) willful material misconduct;
(ii) material failure to materially perform the Services; (iii) willful refusal
to follow a reasonable and lawful directive of the Board, or committee thereof,
that is materially related to and consistent with the provisions of Section 2
above; (iv) material failure to materially comply with the Company Group’s
reasonable and lawful material written policies and practices, if any,
applicable to Contractor and/or Nedivi; (v) an act of theft, fraud or dishonesty
of a material nature against any member of the Company Group that is material to
the Company Group as a whole; (vi) conviction of a felony; or (vii) material
breach of any material term of this Agreement or the Inducement Agreement;
provided, however, that, in the event of conduct described in clauses (ii)
(provided such conduct is not willful), (iii), (iv) and (vii) that is capable of
being cured, Cause shall exist only if the Company provides written notice to
Contractor reasonably detailing such grounds giving rise to Cause and Contractor
or Nedivi, as applicable, fails to cure such grounds for Cause to the reasonable
satisfaction of the Company within a reasonable period of time after delivery to
Contractor of such written notice, which in no event shall exceed fifteen (15)
calendar days. The date of termination of Contractor’s engagement hereunder in
the event such engagement is terminated for Cause shall be the date on which
Contractor is given notice of termination under this Section 8.3, except, if a
notice period is required, Contractor’s engagement hereunder shall terminate
upon the expiration of said notice period if Contractor fails to previously cure
the grounds giving rise to Cause. No termination of Contractor for Cause shall
be permitted unless the written notice of such termination occurs during the
ninety (90) day period immediately following the date that the events or actions
constituting Cause first become known to the Board.

 

  Company Initials:____   Contractor Initials:____

 

7

 

 

8.4           Termination by Contractor for Good Reason. Contractor may
terminate its engagement hereunder for Good Reason, at any time, provided that
Contractor provides the Company with ten (10) days’ prior written notice of such
termination and such notice is given within sixty (60) days of when Good Reason
first arises. For the purpose of this Agreement, "Good Reason" means (i) a
material and substantial diminution in the titles, authority, duties or
responsibilities as contemplated by Section 2 above (other than while Nedivi is
temporarily physically or mentally incapacitated or as required by applicable
law), (ii) a failure by the Company to pay Contractor the fees and other
benefits provided for herein, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith; (iii) a requirement that
Contractor report to a person other than the Board; or (iv) other material
breach by the Company of a material provision of this Agreement; provided (i)
Contractor has provided the Company with written notice reasonably detailing
such breach within sixty (60) days of the occurrence thereof or, if later,
within thirty (30) days of the date upon which Contractor first becomes aware of
such breach, and (ii) the Company fails to cure (if curable) such breach within
thirty (30) days after delivery to it of such written notice. The date of
termination of Contractor’s engagement hereunder in the event Contractor
terminates its engagement for Good Reason shall be the effective date of
Contractor’s termination for Good Reason, except that Company may waive all or
any part of the above-referenced 10-day notice period or of the 30-day cure
period, in which event Contractor’s engagement hereunder shall terminate on the
last day of such notice or cure period that has not been waived or, if the
entire notice or cure period has been waived, the date on which the entire
notice period and cure periods were waived.

 

8.5           Without Cause or Without Good Reason. The Company may terminate
Contractor’s engagement hereunder without Cause, at any time, with or without
prior notice, in its sole and complete discretion, by providing written notice
of such termination and its effective date to Contractor. Likewise, Contractor
may terminate its engagement hereunder without Good Reason upon sixty (60) days
prior written notice to the Board without any liability.

 

8.6           Expiration of the Term. Provided Contractor’s engagement hereunder
has not been previously terminated pursuant to the terms hereof, Contractor’s
engagement hereunder shall be terminated upon the expiration of the then current
term if one Party provides notice to the other of its decision not to renew this
Agreement upon the expiration of the then current term (“Notice of
Non-Renewal”). A Notice of Non-Renewal by Contractor shall be effective only if
it is provided to the Company at least sixty (60) days prior to the end of the
then current term.

 

  Company Initials:____   Contractor Initials:____

 

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9.          Effect of Termination of Contractor’s Engagement.

 

9.1           Generally. In the event Contractor’s engagement hereunder
terminates, Contractor shall have no right to receive any compensation, benefits
or any other payments or remuneration of any kind from the Company Group, except
as otherwise provided by this Section 9, in any separate written agreement
between Contractor and the Company or as may be required by law. In the event
Contractor’s engagement hereunder is terminated for any reason, including under
Section 8.6 above (Expiration of the Term), Contractor shall receive the
following (collectively, the “Accrued Amounts”): (i) its Cash Fee through and
including the effective date of such termination (the “Termination Date”), which
shall be paid pursuant to the terms of Section 4.1 above, (ii) payment for
unreimbursed business expenses subject to, and in accordance with, the terms of
Section 6 above, (iii) to the extent due pursuant to the terms of Section 4.2
above, any unpaid Bonus in respect to any completed fiscal year that has ended
on or prior to the Termination Date and, if the Termination Date is other than
on the last day of a fiscal year, any pro-rated Bonus in respect to the fiscal
year in which the Termination Date occurs, which, in each case, shall be paid
pursuant to the terms of Section 4.2 above, and (iv) rights to indemnification
by virtue of Contractor’s and/or Nedivi’s position as an officer or director of
a member of the Company Group and the benefits under any directors’ and
officers’ liability insurance policy maintained by any member of the Company
Group.

 

9.2           Termination Pay. In the event Contractor’s engagement is
terminated by the Company pursuant to Section 8.5 above (without Cause) or
Section 8.6 above (by Notice of Non-Renewal), or by Contractor pursuant to
Section 8.4 hereof (Good Reason), in addition to the Accrued Amounts, Contractor
shall be entitled to receive an amount equal to the Cash Fee immediately prior
to the Termination Date (“Contractor’s Final Cash Fee”) for a six-month period
(the “Termination Pay”), subject to and in accordance with the terms of this
Section 9.2. Payment of the Termination Pay is conditioned on (i) Contractor’s
continued compliance in all material respects with the terms of this Agreement
that survive termination of Contractor’s engagement hereunder; (ii) Nedivi’s
continued compliance in all material respects with the terms of the Inducement
Agreement that survive termination of Contractor’s engagement hereunder; and
(iii) Contractor and Nedivi each signing, within fifty (50) days following the
Termination Date, a respective General Release of Claims in the forms that are
respectively annexed hereto as Exhibit B and Exhibit C, which forms may be
modified as necessary to comply with the then applicable law. Payment of
Contractor’s Final Cash Fee for the above period shall be paid in monthly
installments in the same manner as provided for in Section 4.1 above, with the
first such payment to be made within sixty (60) days following the Termination
Date, provided that, if such 60-day period spans two calendar years, then
payment of the Termination Pay shall commence in the calendar year following the
year in which the Termination Date occurs. The first payment of Termination Pay
shall include payment for any monthly payments that would have otherwise been
paid between the Termination Date and the date of such payment.

 

9.3           In the event Contractor’s engagement hereunder is terminated,
Nedivi shall be deemed to have resigned from all positions held in the Company
Group, including without limitation that of CEO. Upon request by the Company,
Consultant shall promptly sign, or cause Nedivi to sign, any and all documents
reflecting such resignations as of the Termination Date.

 

10.         Notice of Termination. In the event Contractor elects to terminate
his engagement hereunder by terminating this Agreement for Good Reason under
Section 8.4 above or by giving Notice of Non-Renewal under Section 8.6 above,
Contractor agrees to provide the Company with the applicable prior written
notice of termination required by such Sections (the “Notice Period”). The Board
may, in its discretion, elect to have Contractor perform no Services for all or
any part of the Notice Period. Additionally, during the Notice Period, (i)
Contractor shall perform any services the Board reasonably and lawfully requests
of Contractor consistent with the provisions of Section 2 above, and (ii) the
Company retains the right to terminate Contractor’s engagement hereunder
pursuant to Section 8.3 above.

 

  Company Initials:____   Contractor Initials:____

 

9

 

 

11.         Confidentiality, Non-Solicitation and Non-Competition.

 

11.1         Representations and Acknowledgements. Contractor acknowledges and
agrees that: (i) among the Company Group’s most valuable and indispensable
assets are its Confidential Information (defined below) and its close
relationships with its customers, suppliers and employees, which the Company
Group has devoted and continues to devote a substantial amount of time, money
and other resources to develop; (ii) in connection with performing the Services,
Contractor and Nedivi will be exposed to and acquire the Company Group’s
Confidential Information and develop, at the Company Group’s expense, special
and close relationships with the Company Group’s customers and suppliers; (iii)
the Company Group’s Confidential Information and close customer, supplier and
employee relationships must be protected; (iv) this Section 11 is a material
provision of this Agreement and the Company and Holdings would not engage
Contractor hereunder but for the promises and acknowledgements that Contractor
makes in this Section 11 and which Nedivi makes in the Inducement Agreement; and
(v) to the extent required by law, the covenants in this Agreement and the
Inducement Agreement contain reasonable limitations as to time, geographical
area and scope of activities to be restricted and that such covenants do not
impose a greater restraint on Contractor or Nedivi than is necessary to protect
the Company Group’s Confidential Information, close customer, supplier and
employee relationships and other legitimate business interests.

 

11.2         Confidential Information. During the Term and at all times
thereafter, Contractor (including Nedivi) will not, except as required to
provide the Services or as may be required by law, directly or indirectly, use
or disclose to any third person, without the prior written consent of the
Company, any Confidential Information of the Company Group. For purposes of this
Agreement, “Confidential Information” means all information of a confidential or
proprietary nature regarding the Company Group or its business or properties
that the Company Group has furnished or furnishes to Contractor (including
Nedivi), whether before or after the date of this Agreement, or is or becomes
available to Contractor (including Nedivi) by virtue of Contractor’s engagement
hereunder, whether tangible or intangible, and in whatever form or medium
provided, as well as all information Contractor (including Nedivi) generates
that contains, reflects or is derived from such information that, in each case,
has not been published or disclosed to, and is not otherwise known to, the
public (or only known to the public, directly or indirectly, as a result of
conduct by Contractor (including Nedivi) that is not authorized by the Company,
Holdings or any other member of the Company Group). Confidential Information
includes, without limitation, customer lists, customer requirements and
specifications, designs, financial data, sales figures, costs and pricing
figures, marketing and other business plans, product development, marketing
concepts, personnel matters, drawings, specifications, instructions, methods,
processes, techniques, computer software or data of any sort developed or
compiled by any member of the Company Group, formulae or any other information
relating to the Company Group’s services, products, sales, technology, research
data, software and all other know-how, trade secrets or proprietary information,
or any copies, elaborations, modifications and adaptations thereof. In the event
that a member of the Company Group is bound by a confidentiality agreement or
understanding with a customer, vendor, supplier or other party regarding the
confidential information of such customer, vendor, supplier or other party,
which is more restrictive than specified above in this Section 11.2, and of
which Contractor has notice or is aware, Contractor (including Nedivi) shall
adhere to the provisions of such other confidentiality agreement, in addition to
those of this Section 11.2.

 

  Company Initials:____   Contractor Initials:____

 

10

 

 

11.3         Non-Interference and Non-Competition.

 

(a)          No-Interference with Customers and Suppliers; Non-Competition.
Contractor agrees that, during the Restricted Period (defined below), regardless
of whether, or on what basis, Contractor’s engagement hereunder is terminated or
any claim that Contractor may have against any member of the Company Group under
this Agreement or otherwise, Contractor shall not, without the prior written
consent of the Company, directly or indirectly (defined below), actually or
attempt to:

 

(i)          solicit, induce, contact or persuade any Customer (defined below)
to terminate, reduce or refrain from renewing or extending its contractual or
other relationship with any member of the Company Group in regard to the
purchase of products or services developed, marketed or sold by any member of
the Company Group, or to become a customer of or enter into any contractual or
other relationship with Contractor or any other person or entity for products or
services that are the same, similar or otherwise in competition with the
products and services that the Company Group is providing, or is actively
contemplating to provide pursuant to its respective members’ current business
plans, in each case, as of the Termination Date (collectively, “Competing
Services”); and/or

 

(ii)         solicit, induce, contact or persuade any supplier of goods or
services to any member of the Company Group (“Supplier”) to terminate, reduce or
refrain from renewing or extending its contractual or other relationship with
any member(s) of the Company Group in regard to the supplying of goods or
services to such member(s) of the Company Group; and/or

 

(iii)        offer or provide to any Customer any Competing Services; and/or

 

(iv)        engage in the business of providing Competing Services in any
country in which any member of the Company Group is doing business, or is
actively contemplating to do business pursuant to its current business plan, in
each case, as of the Termination Date.

 

(b)          No Interference with Employees. Contractor agrees that, during the
Restricted Period, regardless of whether, or on what basis, Contractor’s
engagement hereunder is terminated or any claim that Contractor may have against
any member of the Company Group under this Agreement or otherwise, Contractor
shall not, without the prior written consent of the Company, directly or
indirectly, actually or attempt to: (i) solicit, induce or entice any employee,
consultant or independent contractor of a member of the Company Group to
terminate, reduce or refrain from renewing or extending such person’s or
entity’s business or employment relationship with such member of the Company
Group; (ii) solicit, induce or entice any employee of a member of the Company
Group to engage in Competing Services; or (iii) employ or otherwise engage as an
employee, independent contractor or consultant (a) any employee of the Company
Group or (b) any person who was employed by the Company Group within the then
prior twelve-month period.

 

  Company Initials:____   Contractor Initials:____

 

11

 

 

(c)          Definitions. For the purposes of this Section 11.3, the “Restricted
Period” shall mean the Term and for a period of two (2) years thereafter, except
that such period shall be extended for any period therein during which
Contractor and/or Nedivi were in violation of any provision of this Section 11.3
or of Section 4.3 of the Inducement Agreement. Notwithstanding the foregoing,
the Restricted Period shall end in the event that the Company fails to make any
payments required by Section 9 hereof within 10 days after written notice from
Contractor to the Company of such failure. For purposes of this Section 11.3(a),
“Customer” shall mean any company or individual: (i) who contacted Contractor
(including Nedivi), whom Contractor (including Nedivi) contacted or served, or
for whom Contractor (including Nedivi) supervised contact or service regarding
the actual or potential purchase of Company Group products or services during
the Term; (ii) who purchased products or services from the Company Group during
the Term; and/or (iii) who was an active prospect of the Company Group for the
purchase of products or services from the Company Group during the Term. For the
purpose of this Section 11.3, “directly or indirectly” shall include any
activity, on behalf of Contractor or Nedivi or on behalf of or in conjunction
with any other person or entity, whether as an employee, agent, consultant,
independent contractor, officer, director, principal, shareholder, equity
holder, partner, member, joint venturer, lender, investor or otherwise, except
that nothing in this Agreement shall prohibit any Contractor and/or Nedivi from
being a passive holder, for investment purposes only, of not more than 2% of the
outstanding stock of any company listed on a national securities exchange, or
actively traded in a national over-the-counter market.

 

12.         Intellectual Property.

 

12.1         The Company’s Proprietary Rights. Contractor acknowledges and
agrees that all Intellectual Property (defined below) created, made or conceived
by Contractor (including Nedivi), solely or jointly, during the Term that
relates to the actual or anticipated businesses of the Company Group or results
from or is suggested by any work performed by employees or other independent
contractors for or on behalf of the Company Group (“Company Intellectual
Property”) shall be deemed “work for hire” and shall be and remain the sole and
exclusive property of the Company or other applicable member of the Company
Group for any and all purposes and uses whatsoever as soon as Contractor
(including Nedivi) conceives or develops such Intellectual Property, and
Contractor (on behalf of itself and Nedivi) hereby agrees that its assigns,
executors, heirs, administrators or personal representatives shall have no
right, title or interest of any kind or nature therein or thereto, or in or to
any results and proceeds therefrom. If for any reason such Company Intellectual
Property is not deemed to be “work-for-hire,” then Contractor hereby irrevocably
and unconditionally assigns all rights, title, and interest in such Company
Intellectual Property to the Company and agrees that the Company is under no
further obligation, monetary or otherwise, to Contractor for such assignment.
Contractor also hereby waives all claims to any moral rights or other special
rights that Contractor may have or may accrue in any Company Intellectual
Property. As used in this Agreement, "Intellectual Property" shall mean and
include any ideas, inventions (whether or not patentable), designs,
improvements, discoveries, innovations, patents, patent applications,
trademarks, service marks, trade dress, trade names, trade secrets, works of
authorship, copyrights, copyrightable works, films, audio and video tapes, other
audio and visual works of any kind, scripts, sketches, models, formulas, tests,
analyses, software, firmware, computer processes, computer and other
applications, creations and properties, Confidential Information and any other
patents, inventions or works of creative authorship.

 

  Company Initials:____   Contractor Initials:____

 

12

 

 

12.2         Cooperation. Contractor (including Nedivi) agrees to assist the
Company Group, and to take all reasonable steps, with securing patents,
registering copyrights and trademarks, and obtaining any other forms of
protection for the Intellectual Property in the United States and elsewhere, all
at the sole cost and expense of the Company. In particular, at the Company’s
sole cost and expense, forthwith upon request of the Company, Contractor shall
execute, or cause Nedivi to execute, all such assignments and other documents
(including applications for patents, copyrights, trademarks, and assignments
thereof) and take all such other action as the Company may reasonably request in
order (i) to vest in the applicable member of the Company Group all of
Contractor’s and Nedivi’s right, title, and interest in and to such Intellectual
Property, free and clear of liens, mortgages, security interests, pledges,
charges, and encumbrances (“Liens”) (and Contractor (including Nedivi) agrees to
take such action as is reasonably necessary to remove all such Liens) and (ii),
if patentable or copyrightable, to obtain patents or copyrights (including
extensions and renewals) therefor in any and all countries in such name as the
Company shall determine. If – despite the Company’s reasonable best efforts to
get Contractor (including Nedivi) to sign any lawful or necessary documents
required in order for the Company Group to apply for and obtain any copyright or
patent with respect to any work performed by Contractor (including Nedivi) under
this Agreement (including applications or renewals, extensions, divisions or
continuations) – Contractor (including Nedivi) fails to sign such documents,
Contractor hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as Contractor’s agents and attorneys-in-fact to
act for and in Contractor’s behalf, and in Contractor’s place and stead, to
execute and file any such applications or documents and to do all other lawfully
permitted reasonable acts to further the prosecution and issuance of copyrights
and patents with respect to such Intellectual Property with the same legal force
and effect as if executed or undertaken by Contractor, provided that the Company
may not take any such act that would directly result in liability to Contractor
or Nedivi, unless such liability results from, in whole or in part, Contractor’s
(including Nedivi’s) breach of this Agreement or Nedivi’s breach of the
Inducement Agreement.

 

12.3         No infringement. Contractor represents and warrants to the Company
that, to the best of Contractor’s and/or Nedivi’s knowledge, all Services,
Intellectual Property and any other work Contractor (including Nedivi) delivers
to the Company Group shall be original and shall not infringe upon or violate
any patent, copyright or proprietary right of any person or third party.

 

12.4         License to Prior Invention. If Contractor (including Nedivi) in the
course of providing the Services incorporates into Company Intellectual Property
a product that Contractor has, alone or jointly with others, conceived,
developed or reduced to practice prior to Contractor’s engagement with the
Company in which Contractor has a property right (each, a “Prior Invention”),
Contractor hereby grants to the Company Group a perpetual, nonexclusive,
royalty-free, irrevocable, worldwide license (with the full right to sublicense)
to make, have made, modify, use and sell such Prior Invention.

 

  Company Initials:____   Contractor Initials:____

 

13

 

 

13.         Non-Disparagement.

 

13.1         During and after Contractor’s engagement hereunder, except as may
be required by law, Contactor and Nedivi may not make any statement (verbal,
written or otherwise) about the Company Group or any of its members or their
respective financial status, business, personnel, directors, officers,
consultants, services or business methods that is intended to or is reasonably
likely to disparage or denigrate the Company Group and/or any of its individual
members.

 

13.2         During and after Contractor’s engagement hereunder, except as may
be required by law, the Company Group will not cause any person to make, and
none of the Company Group’s officers and directors shall make, any disparaging
or denigrating statement (verbal, written or otherwise) about Contractor and/or
Nedivi including, without limitation, disparaging Contractor and/or Nedivi in
connection with disclosing the facts or circumstances surrounding any
termination of Contractor’s engagement hereunder or criticizing Contractor’s
and/or Nedivi’s performance as an executive officer of any member of the Company
Group. Nothing in this Section 13.2 shall create any personal liability on
behalf of any officers or directors of the Company Group.

 

14.         Cooperation. During and after the Term, Contractor (including
Nedivi) shall assist and cooperate with the Company Group, upon reasonable
advance notice with due consideration for his other business or personal
commitments, in connection with the defense or prosecution of any claim that may
be made against or by any member of the Company Group, or in connection with any
ongoing or future investigation or dispute or claim of any kind involving any
member of the Company Group, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding or executing and delivering to the applicable
member of the Company Group such documents that may be reasonably necessary to
carry out the provisions of this Section 14, in each case, to the extent such
claims, investigations or proceedings relate to the Services or any other work
performed or required to be performed by Contractor (including Nedivi),
pertinent knowledge possessed by Contractor (including Nedivi), or any act or
omission by Contractor (including Nedivi) involving the Company Group. In no
event shall Contractor’s (including Nedivi) cooperation materially interfere
with Contractor’s (including Nedivi) services for a subsequent employer or other
similar service recipient; however, Contractor (including Nedivi) will make
reasonable good faith efforts to fulfill its obligations under this Section 14
in a manner that will not result in any such interference. The Company will (i)
promptly reimburse Contractor for reasonable expenses Contractor (including
Nedivi) incurs in fulfilling Contractor’s obligations under this Section 14 and
(ii) except with respect to any testimony given by Contractor (including
Nedivi), reasonably compensate Contractor (including Nedivi) for any continued
material services as required under this Section 14.

 

  Company Initials:____   Contractor Initials:____

  

14

 

 

15.         Company Property. Contractor agrees that all Confidential
Information, trade secrets, drawings, designs, reports, computer programs or
data, books, handbooks, manuals, files (electronic or otherwise), computerized
storage media, papers, memoranda, letters, notes, photographs, facsimile,
software, computers, PDAs, Blackberries and other documents (electronic or
otherwise), materials and equipment of any kind that Contractor (including
Nedivi) has acquired or will acquire during the course of the Term and/or
providing the Services are and remain the property of the Company Group. Upon
termination of Contractor’s engagement hereunder, or sooner if requested by the
Company, Contractor (including Nedivi) shall return all such documents,
materials and records to the Company and not make or take copies of the same
without the prior written consent of the Company.

 

16.         Remedies. Contractor acknowledges and agrees that a breach of
Sections 11 through 15 above or of Sections 4 through 7 of the Inducement
Agreement would injure the Company Group irreparably in a way which could not be
adequately compensated for by an award of monetary damages. Contractor therefore
consents to the issuance to the Company Group or any of its members, as
applicable, of a preliminary and/or permanent injunction, without the posting of
a bond, to restrain any such breach or threatened breach of those sections.
Additionally, in the event Contractor (including Nedivi) breaches or threatens
to breach any of the covenants, promises or obligations contained in this
Agreement or the Inducement Agreement, the Company Group shall be entitled to
recover without limitation from Contractor all costs and fees (including
reasonable attorneys’ fees) incurred by the Company Group in connection with
enforcing this Agreement. Nothing herein shall be construed, however, as
prohibiting the Company Group from pursuing any other available remedies for
such breach or threatened breach.

 

17.         Representations Regarding Prior Work and Legal Obligations.

 

17.1         Contractor represents and warrants that Contractor (including
Nedivi) has no agreement or other legal obligation with any prior employer, or
any other person or entity, that restricts Contractor’s ability to accept, or
Nedivi’s ability to perform the Services under, the engagement hereunder with
the Company. Contractor further represents and warrants that neither it nor
Nedivi is a party to any agreement (including, without limitation, a
non-competition, non-solicitation, no hire or similar agreement) and has no
other legal obligation that restricts in any way Contractor’s or Nedivi’s
ability to perform the Services and other obligations to the Company Group,
including, without limitation, those under this Agreement and the Inducement
Agreement.

 

17.2         Contractor acknowledges and agrees that it has been instructed by
the Company that at no time should Contractor or Nedivi divulge to or use for
the benefit of the Company Group any trade secret or confidential or proprietary
information of any previous entity with which Contractor or Nedivi was
affiliated or of any other third-party. Contractor expressly represents and
warrants that Contractor (including Nedivi) has not divulged or used any such
information for the benefit of the Company Group and will not do so.

 

17.3         Contractor represents and agrees that Contractor (including Nedivi)
has not and will not misappropriate any intellectual property belonging to any
other person or entity.

 

  Company Initials:____   Contractor Initials:____

 

15

 

 

17.4         Contractor represents and acknowledges that the Company is basing
important business decisions on these representations, agreements and
warranties, and it affirms that all of the statements included herein are true.
Contractor agrees that Contractor shall defend, indemnify and hold the Company
Group harmless from any Claim by any person in any way arising out of, relating
to, or in connection with a breach and/or the falsity of any of the
representations, agreements and warranties made by Contractor in this Section
17.

 

18.         Indemnification.

 

18.1         Subject to limitations imposed by law, the Company and Holdings
shall indemnify and hold harmless Contractor and Nedivi to the fullest extent
permitted by law from and against any and all claims, damages, expenses
(including attorneys’ fees), judgments, penalties, fines, settlements, and all
other liabilities incurred or paid by him in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and to which Contractor and/or Nedivi was or is a party or is
threatened to be made a party by reason of the fact that Contractor and/or
Nedivi is or was an officer, employee or agent of a member of the Company Group,
or by reason of anything done or not done by Contractor and/or Nedivi in any
such capacity or capacities, provided that Contractor and/or Nedivi, as
applicable, acted in good faith, in a manner that was not grossly negligent or
constituted willful misconduct and in a manner it or he reasonably believed to
be in or not opposed to the best interests of the Company Group, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
it or his conduct was unlawful. The Company also shall pay any and all expenses
(including reasonable attorney’s fees) incurred by Contractor and/or Nedivi as a
result of Contractor and/or Nedivi being called as a witness in connection with
any matter involving the Company Group and/or any of its officers or directors,
provided that the Company shall not be obligated to pay for any such attorney’s
fees if there is no appreciable risk of liability to Contractor and/or Nedivi as
a result of serving as such a witness, provided further that, in such event, the
Company (at its expense) will provide Contractor and/or Nedivi with reasonable
access to the Company’s legal counsel for the sole purpose of advising
Contractor and/or Nedivi in connection their serving as such a witness.

 

18.2         The Company and Holdings shall pay any expenses (including
attorneys’ fees), judgments, penalties, fines, settlements, and other
liabilities incurred by Contractor and Nedivi, as applicable, in investigating,
defending, settling or appealing any action, suit or proceeding described in
this Section 18 in advance of the final disposition of such action, suit or
proceeding, as such expenses (including attorneys’ fees), judgments, penalties,
fines, settlements, and other liabilities come due. The Company shall promptly
pay the amount of such expenses to Contractor and/or Nedivi, as applicable, but
in no event later than (ten) 10 days following Contractor’s and/or Nedivi’s
delivery to the Company of a written request for an advance pursuant to this
Section 18, together with a reasonable accounting of such expenses.

 

18.3         Contractor and Nedivi, as applicable, hereby undertake and agree to
repay to the Company any advances made pursuant to this Section 18 within ten
(10) days after an ultimate finding that Contractor and/or Nedivi, as
applicable, are not entitled to be indemnified by the Company for such amounts.

 

18.4         The Company shall make the advances contemplated by this Section 18
regardless of Contractor’s and Nedivi’s, as applicable, financial ability to
make repayment, and regardless whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 18 shall be unsecured and interest-free.

 

  Company Initials:____   Contractor Initials:____

 

16

 

 

18.5         The provisions of this Section 18 shall survive the termination of
the Term or expiration of the term of this Agreement.

 

19.         Liability Insurance. The Company Group will cover Nedivi and, to the
extent permitted by the applicable policies, Contractor under its officers’ and
directors’ liability insurance in the same amount and to the same extent as the
Company Group covers its other officers and directors.

 

20.         Miscellaneous Provisions.

 

20.1         Independent Contractor Relationship. Nothing in this Agreement
shall create a partnership or joint venture between the Parties, or any other
form of legal association that would impose liability upon one Party for the act
or failure to act of the other Party. Unless approved by the Company, Contractor
(including Nedivi) shall have no authority to bind any member of the Company
Group in any respect.

 

20.2         IRCA Compliance. This Agreement, and Contractor’s engagement
hereunder, are conditioned on Contractor establishing Nedivi’s identity and
authorization to work in the United States as required by the Immigration Reform
and Control Act of 1986 (IRCA).

 

20.3         Section 409A Compliance. Unless otherwise expressly provided, any
payment of compensation by Company to Contractor, whether pursuant to this
Agreement or otherwise, shall be made no later than the 15th day of the third
month (i.e., 2½ months) after the later of the end of the calendar year or the
Company’s fiscal year in which Contractor’s right to such payment vests (i.e.,
is not subject to a “substantial risk of forfeiture” for purposes of Code
Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”)).
For purposes of this Agreement, termination of Contractor’s engagement hereunder
shall be deemed to occur only upon “separation from service” as such term is
defined under Section 409A. Each payment and each installment of any severance
payments provided for under this Agreement shall be treated as a separate
payment for purposes of application of Section 409A. To the extent that any
severance payments (including payments on termination for “Good Reason”) come
within the definition of “involuntary severance” under Section 409A, such
amounts up to the lesser of two times Contractor’s annual compensation for the
year preceding the year of termination or two times the Section 401(a)(17) limit
for the year of termination, shall be excluded from “deferred compensation” as
allowed under Section 409A, and shall not be subject to the following Section
409A compliance requirements. All payments of “nonqualified deferred
compensation” (within the meaning of Section 409A) are intended to comply with
the requirements of Section 409A, and shall be interpreted in accordance
therewith. Neither Party individually or in combination may accelerate, offset
or assign any such deferred payment, except in compliance with Section 409A. No
amount shall be paid prior to the earliest date on which it is permitted to be
paid under Section 409A and Contractor shall have no discretion with respect to
the timing of payments except as permitted under Section 409A. Any Section 409A
payments which are subject to execution of a waiver and release which may be
executed and/or revoked in a calendar year following the calendar year in which
the payment event (such as termination) occurs shall commence payment only in
the calendar year in which the release revocation period ends as necessary to
comply with Section 409A. In the event that Nedivi is determined to be a “key
employee” (as defined and determined under Section 409A) of the Company at a
time when its stock is deemed to be publicly traded on an established securities
market, payments determined to be “nonqualified deferred compensation” payable
upon separation from service shall be made no earlier than (i) the first day of
the seventh (7th) complete calendar month following such termination, or (ii)
Nedivi’s death, consistent with the provisions of Section 409A.  Any payment
delayed by reason of the prior sentence shall be paid out in a single lump sum
at the end of such required delay period in order to catch up to the original
payment schedule. All expense reimbursement or in-kind benefits subject to
Section 409A provided under this Agreement or, unless otherwise specified in
writing, under any Company program or policy, shall be subject to the following
rules: (i) the amount of expenses eligible for reimbursement or in-kind benefits
provided during one calendar year may not affect the benefits provided during
any other year; (ii) reimbursements shall be paid no later than the end of the
calendar year following the year in which Contractor incurs such expenses, and
Contractor shall take all actions necessary to claim all such reimbursements on
a timely basis to permit the Company to make all such reimbursement payments
prior to the end of said period, and (iii) the right to reimbursement or in-kind
benefits shall not be subject to liquidation or exchange for another benefit.
Notwithstanding anything herein to the contrary, no amendment may be made to
this Agreement if it would cause the Agreement or any payment hereunder not to
be in compliance with Section 409A.

 

  Company Initials:____   Contractor Initials:____

 

17

 

 

 

20.4         Assignability and Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the heirs, executors, administrators,
successors and legal representatives of Contractor, and shall inure to the
benefit of and be binding upon the Company and its successors and assigns, but
the obligations of Contractor (which must be performed personally by Nedivi) are
personal services and may not be delegated or assigned. Contractor shall not be
entitled to assign, transfer, pledge, encumber, hypothecate or otherwise dispose
of this Agreement, or any of Contractor’s rights and obligations hereunder, and
any such attempted delegation or disposition shall be null and void and without
effect. This Agreement may be assigned by the Company to a person or entity that
is an affiliate or a successor in interest to substantially all of the business
operations of the Company, if in any such case such person or entity shall by
operation of law or expressly in writing assume all obligations of the Company
hereunder as fully as if it had been originally made a party thereto, but may
not otherwise assign this Agreement or its rights and obligations hereunder.
Upon such assignment, the rights and obligations of the Company hereunder shall
become the rights and obligations of such affiliate or successor person or
entity.

 

20.5         Right of Set-Off. To the extent permitted by applicable law, each
Party may at any time offset against any amounts owed to the other Party
hereunder or otherwise due to such other Party, or anyone claiming through or
under such other Party, any debt or debts due or to become due to it from such
other Party.

 

20.6         Severability and Blue Penciling. If any provision of this Agreement
is held to be invalid, the remaining provisions shall remain in full force and
effect. However, if any court determines that any covenant in this Agreement is
unenforceable because the duration, geographic scope or restricted activities
thereof are overly broad, then such provision or part thereof shall be modified
by reducing the overly broad duration, geographic scope or restricted activities
by the minimum amount so as to make the covenant, in its modified form,
enforceable.

 

  Company Initials:____   Contractor Initials:____

 

18

 

 

20.7         Choice of Law and Forum. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware, without regard to
its conflict-of-law principles. The parties agree that any dispute concerning or
arising out of this Agreement or Contractor’s engagement hereunder (or
termination thereof) shall be tried exclusively in an appropriate state or
federal court in the state of Delaware and hereby consent, and waive any
objection, to the jurisdiction of any such court.

  

20.8         Mutual Waiver of Jury Trial. Contractor and the Company each hereby
waive the right to trial by jury in any action or proceeding, regardless of the
subject matter, between them, including, without limitation, any action or
proceeding based upon, arising out of, or in any way relating to this Agreement
and all matters concerning Contractor’s engagement hereunder (or the termination
thereof). Contractor and the Company further agree that either of them may file
a copy of this Agreement with any court as written evidence of the knowing,
voluntary, and bargained agreement between Contractor and the Company
irrevocably to waive trial by jury, and that any dispute or controversy
whatsoever between Contractor and the Company Group shall instead be tried in a
court of competent jurisdiction by a judge sitting without a jury.

 

20.9         Notices.

 

(a)          Any notice or other communication under this Agreement shall be in
writing and shall be delivered by hand, email or mailed by overnight courier or
by registered or certified mail, postage prepaid:

 

(i)          If to Contractor, to Contractor’s address on the books and records
of the Company, with a copy to Bruce I. March, Greenberg Traurig, P.A., 401 East
Las Olas Blvd., Suite 2000, Fort Lauderdale, FL 33301, marchb@gtlaw.com.

 

(ii)         If to the Company, to the Chairman of the Board of Directors, 96
Windsor Street, West Springfield, Massachusetts, 01089, or at such other mailing
address or email address as it may have furnished in writing to Contractor, with
a copy to Mark J. Goldberg, Loeb & Loeb LLP, 345 Park Avenue, New York, N.Y.
10154, mgoldberg@loeb.com.

 

(b)          Any notice so addressed shall be deemed to be given: if delivered
by hand or email, on the date of such delivery; if mailed by overnight courier,
on the first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.

 

20.10        Survival of Terms. All provisions of this Agreement that, either
expressly or impliedly, contain obligations that extend beyond termination of
Contractor’s engagement hereunder, including without limitation those in
Sections 9, 11-16 and 18-20 hereof, shall survive the termination of this
Agreement and of Contractor’s engagement hereunder for any reason.

 

  Company Initials:____   Contractor Initials:____

 

19

 

 

20.11         Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any Party. The Parties acknowledge that both of them have
participated in drafting this Agreement; therefore, any general rule of
construction that any ambiguity shall be construed against the drafter shall not
apply to this Agreement. In this Agreement, unless the context otherwise
requires, the masculine, feminine and neuter genders and the singular and the
plural include one another.

 

20.12         Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the Parties. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements regarding such subject matter. The Company and Contractor each
acknowledges and agrees that it is not relying on, and it may not rely on, any
oral or written representation of any kind that is not set forth in writing in
this Agreement.

 

20.13         Waivers and Amendments. This Agreement may be altered, amended,
modified, superseded or canceled, and the terms hereof may be waived, only by a
written instrument signed by the Parties or, in the case of a waiver, by the
Party alleged to have waived compliance. Any such signature of the Company must
be by an authorized signatory for the Board. No delay by any Party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any Party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any other or further exercise thereof or the exercise of any other such
right, power or privilege.

 

20.14         Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the Parties, other members of the Company Group, Nedivi
and their respective heirs, personal representatives, legal representatives,
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.

 

20.15         Counterparts. This Agreement may be executed in counterparts, and
each counterpart, when executed, shall have the efficacy of a signed original.
Photographic, electronically scanned and facsimiles of such signed counterparts
may be used in lieu of the originals for any purpose.

 

[The remainder of this page is intentionally blank; signature page follows.]

 

  Company Initials:____   Contractor Initials:____

 

20

 

 

IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of
the Effective Date.

 

EAST SHORE VENTURES LLC         By: /s/ Zivi Nedivi     Name: Zivi Nedivi    
Title: President         CYALUME TECHNOLOGIES, INC.       By: /s/ Yaron Eitan  
  Name: Yaron Eitan, on behalf of the special committee             CYALUME
TECHNOLOGIES HOLDINGS, INC.         By: /s/ Yaron Eitan     Name: Yaron Eitan,
on behalf of the special committee      

 

  Company Initials:____   Contractor Initials:____

 

21

 

 

Exhibit A

 

INDUCEMENT AGREEMENT

 

  Company Initials:____   Contractor Initials:____

 

 

 

 

Exhibit B – Form of General Release of Claims for Contractor

 

GENERAL RELEASE OF CLAIMS

 

1.          For good and valuable consideration, including without limitation
the payments provided by Section 9.2 of the Services Agreement (“Services
Agreement”), effective as of April 2, 2012, by and between Cyalume Technologies,
Inc. (the “Company”), Cyalume Technologies Holdings, Inc. (“Holdings”) and East
Shore Ventures, LLC, (“Contractor”), Contractor hereby voluntarily, knowingly
and willingly releases, acquits and forever discharges the Company, Holdings and
their former and current parents, subsidiaries, divisions, affiliates,
predecessors, successors and assigns, and each of their current and former
agents, employees, officers, directors, shareholders, members, trustees, heirs,
attorneys, representatives, owners and servants, (collectively, the “Released
Parties”) from any and all claims, costs or expenses of any kind or nature
whatsoever (collectively, “Claims”), whether known or unknown, foreseen or
unforeseen, that Contractor ever had, now has or may have based upon any matter,
fact, cause or thing, occurring from the beginning of time up to and including
the date Contractor executes this General Release of Claims, including, without
limitation, all Claims regarding or arising out of the Services Agreement,
Contractor’s independent contractor relationship with the Company, Nedivi’s
service as the Chief Executive Officer of the Company, any events that may have
occurred during the course of Contractor’s and/or Nedivi’s respective
relationships with the Company or the termination of such relationships, or any
other matters or Claims of any kind or nature, whether based in tort, breach of
express or implied contract, wrongful termination or other type of legal theory.
Notwithstanding anything in this paragraph 1 to the contrary, this General
Release of Claims shall not apply to (i) any rights to receive any payments or
benefits pursuant to Section 9 of the Services Agreement, (ii) any rights or
claims that may arise as a result of events occurring after the date this
General Release of Claims is executed, (iii) any indemnification rights
Contractor may have against Company, Holdings and any and all of their
respective subsidiaries and affiliates (collectively, the “Company Group”), (iv)
any claims for benefits under any directors’ and officers’ liability policy
maintained by any member of the Company Group in accordance with the terms of
such policy, and (v) any rights as a holder of equity securities of Holdings.

 

2.          Contractor represents that it has not filed against any of the
Released Parties any Claims that it has released in paragraph 1 above, and
covenants and agrees that it will never individually or with any person file, or
commence the filing of, any such Claim with any governmental agency, or against
the Released Parties.

 

3.          Contractor acknowledges and agrees that, if it breaches the terms of
this General Release of Claims by filing, bringing or participating in any
Claims or actions contrary to its general release of claims and representations
herein, in addition to any other rights and remedies the Company and any other
members of the Company Group may have against Contractor, Contractor agrees to
pay the costs and expenses (including reasonable attorney’s fees) incurred by
the Company or another member of the Company Group, as the case may be, in
defending against such Claims or actions brought by Contractor or on
Contractor’s behalf or in enforcing the terms of this General Release of Claims.

 

  Company Initials:____   Contractor Initials:____

 

 

 

 

4.          Contractor hereby acknowledges and hereby reaffirms its continuing
obligations to members of the Company Group pursuant to the Services Agreement
(including without limitation pursuant to Sections 9, 11-16 and 20 thereof).
Contractor acknowledges, represents and warrants that it has complied and will
continue to comply with the terms of Section 11 of the Services Agreement.

 

5.          Contractor acknowledges and agrees that (i) this General Release of
Claims shall be interpreted and enforced in accordance with the laws of the
State of Delaware, without regard to its conflict-of-law principles, and (ii)
any dispute concerning or arising out of this General Release of Claims or
Contractor’s engagement under the Services Agreement (or termination thereof)
shall be tried exclusively in an appropriate state or federal court in the state
of Delaware and hereby consents, and waives any objection, to the jurisdiction
of any such court.

 

6.          Contractor acknowledges that it has read this General Release of
Claims, that it has been advised by an attorney with respect to the meaning and
effect of the terms of this General Release of Claims, and that it executes this
General Release of Claims voluntarily and with full knowledge of its
significance and the consequences thereof.

 

7.          This General Release of Claims shall take effect upon Contractor’s
execution of this General Release of Claims.

  

EAST SHORE VENTURES LLC         By:       Name:     Title:  

 

  Company Initials:____   Contractor Initials:____

 

2

 

 

Exhibit C – Form of General Release of Claims for Nedivi

 

GENERAL RELEASE OF CLAIMS

 

1.          For good and valuable consideration, including without limitation
the payments made to East Shore Ventures, LLC, (“Contractor”), of which Zivi
Nedivi (“Nedivi”) is a member, pursuant to Section 9.2 of the Services
Agreement, effective as of April 2, 2012, by and between Cyalume Technologies,
Inc. (the “Company”), Cyalume Technologies Holdings, Inc. (“Holdings”) and
Contractor, Nedivi hereby voluntarily, knowingly and willingly releases, acquits
and forever discharges the Company, Holdings and their former and current
parents, subsidiaries, divisions, affiliates, predecessors, successors and
assigns, and each of their current and former agents, employees, officers,
directors, shareholders, members, trustees, heirs, attorneys, representatives,
owners and servants, (collectively, the “Released Parties”) from any and all
claims, costs or expenses of any kind or nature whatsoever (collectively,
“Claims”), whether known or unknown, foreseen or unforeseen, that Nedivi ever
had, now has or may have based upon any matter, fact, cause or thing, occurring
from the beginning of time up to and including the date Nedivi executes this
General Release of Claims, including, without limitation, all Claims regarding
Contractor’s independent contractor relationship with the Company, Nedivi’s
appointment as the Chief Executive Officer (“CEO”) of the Company, Holdings and
their respective subsidiaries and affiliates (the “Company Group”), any events
that may have occurred during the course of Contractor’s and/or Nedivi’s
respective relationships with the Company Group or the termination of such
relationships, whether for tort, breach of express or implied employment
contract, wrongful discharge, intentional infliction of emotional distress, or
defamation or injuries incurred in connection Contractor’s or Nedivi’s provision
of services to the members of the Company Group or the termination of their
respective relationships with the Company Group. Nedivi acknowledges that the
Company has encouraged him to consult with an attorney of his choosing, and
through this General Release of Claims encourages him to consult with his
attorney with respect to possible claims under the Age Discrimination in
Employment Act (“ADEA”) and that he understands that the ADEA is a federal
statute that, among other things, prohibits discrimination on the basis of age
in employment and employee benefits and benefit plans. Without limiting the
generality of the release provided above, Nedivi expressly waives any and all
claims under ADEA that he may have as of the date hereof. Nedivi further
understands that, by signing this General Release of Claims, he is in fact
waiving, releasing and forever giving up any claim under the ADEA, as well as
all other laws within the scope of this paragraph 1 that may have existed on or
prior to the date hereof. Notwithstanding anything in this paragraph 1 to the
contrary, this General Release of Claims shall not apply to (i) any rights to
receive any payments or benefits pursuant to Section 9 of the Services
Agreement, (ii) any rights or claims that may arise as a result of events
occurring after the date this General Release of Claims is executed, (iii) any
indemnification rights Nedivi may have against a member of the Company Group,
(iv) any claims for benefits under any directors’ and officers’ liability policy
maintained by any member of the Company Group in accordance with the terms of
such policy, and (v) any rights as a holder of equity securities of Holdings.

 

2.          Nedivi represents that he has not filed against any of the Released
Parties any Claims that he has released in paragraph 1 above, and covenants and
agrees that he will never individually or with any person file, or commence the
filing of, any such Claim against the Released Parties; provided, however,
Nedivi shall not have relinquished his right to commence a proceeding to
challenge whether he knowingly and voluntarily waived his rights, if any, under
ADEA.

 

  Company Initials:____   Contractor Initials:____

 

 

 

 

3.          Nedivi confirms that he either has or hereby resigns his appointment
as CEO of the members of the Company Group and all other officer or director
positions (other than as a shareholder) that he may have with any and all
members of the Company Group.

 

4.          Nedivi acknowledges and agrees that, if he breaches the terms of
this General Release of Claims by filing, bringing or participating in any
Claims or actions contrary to his general release of claims and representations
herein, in addition to any other rights and remedies the Company and any other
members of the Company Group may have against Nedivi, Nedivi agrees to pay the
costs and expenses (including reasonable attorney’s fees) incurred by the
Company or another member of the Company Group, as the case may be, in defending
against such Claims or actions brought by Nedivi or on Nedivi’s behalf or in
enforcing the terms of this General Release of Claims. This paragraph 4 shall
not apply to any Claims that Employee files under ADEA or any challenge that
Employee makes to the validity of the ADEA waiver contained in this General
Release of Claims.

 

5.          Nedivi hereby acknowledges and hereby reaffirms his continuing
obligations to members of the Company Group pursuant to the Inducement
Agreement, effective as of April 2, 2012, between himself and Contractor
(including without limitation pursuant to Sections 4 through 8 thereof). Nedivi
acknowledges, represents and warrants he has complied and will continue to
comply Section 4 of the Inducement Agreement.

 

6.          Nedivi hereby acknowledges that the Company has informed him that he
has up to fifty (50) days following the termination of Contractor’s engagement
under the Services Agreement to sign this General Release of Claims and he may
knowingly and voluntarily waive that fifty (50) day period by signing this
General Release of Claims earlier. Nedivi also understands that he shall have
seven (7) days following the date on which he signs this General Release of
Claims within which to revoke it by providing a written notice of his revocation
to the Chairman of the Board of Directors of the Company, with a copy to Mark J.
Goldberg, Esq., Loeb & Loeb LLP, 345 Park Avenue, New York, NY 10154,
mgoldberg@loeb.com.

 

7.          Nedivi acknowledges and agrees that (i) this General Release of
Claims shall be interpreted and enforced in accordance with the laws of the
State of Delaware, without regard to its conflict-of-law principles, and (ii)
any dispute concerning or arising out of this General Release of Claims or
Contractor’s engagement under the Services Agreement (or termination thereof)
shall be tried exclusively in an appropriate state or federal court in the state
of Delaware and hereby consents, and waives any objection, to the jurisdiction
of any such court.

 

8.          Nedivi acknowledges that he has read this General Release of Claims,
that he has been advised that he should consult with an attorney before he
executes this General Release of Claims, and that he understands all of its
terms and executes it voluntarily and with full knowledge of its significance
and the consequences thereof.

 

  Company Initials:____   Contractor Initials:____

 

2

 

 

9.          This General Release of Claims shall take effect on the eighth day
following Nedivi’s execution of this General Release of Claims, unless
previously revoked by Nedivi pursuant to paragraph 6 above.

 

      Dated:___________   Zivi Nedivi    

 

  Company Initials:____   Contractor Initials:____

 

3