Document:

Exhibit 10.2

                     TEL-INSTRUMENT ELECTRONICS CORPORATION

                              EMPLOYMENT AGREEMENT

            This  Agreement,  made on this  19th  day of  August,  2002,  by and
between  Tel-Instrument  Electronics  Corp.,  hereinafter  referred  to  as  the
"Company", and Charles R. Palanzo, hereinafter referred to as the "Employee."

                              W I T N E S S E T H:

            WHEREAS,  the Company wishes to assure itself of the services of the
Employee; and

            WHEREAS,  the Employee desires to serve in the employ of the Company
on a full-time basis, and upon the terms and conditions hereafter provided;

            NOW,  THEREFORE,  in  consideration  of  the  premises  and  of  the
respective  representations and warranties set forth and of the mutual covenants
herein  contained,  and as an  inducement to the Company to employ the Employee,
the parties hereby agree as follow:

      1. Employment. The Company agrees to employ the Employee, and the Employee
agrees to enter the employ of the Company as of August 19, 2002,  upon the terms
and conditions provided herein.

      2. Position and Responsibilities.  Employee shall serve as Chief Operating
Officer and  Vice-President  of the Company,  and shall exercise such powers and
comply  with  and  perform  such  directions  and  duties,  consistent  with his
executive  position,  regarding  the  business and affairs of the Company as may
from  time to time be  vested  in or given to him by the  President  or Board of
Directors  of the  Company  (the  "Board"),  and shall use  diligent  efforts to
improve, advance and extend the business of the Company.

                                       1
<PAGE>

The Employee shall at all times report to, and his activities shall at all times
be subject to the direction and control of, the President.  The Employee  agrees
to devote all of his  available  business  time,  attention  and services to the
discharge of such duties for the best interest of the Company.  The Employee and
the  President  of the  Company  shall  determine  additions  to the  Employee's
responsibilities,  leading to his possibly  becoming Chief Executive  Officer of
the Company,  as outlined in Exhibit 1 to this Agreement.  The President and the
Board will make the final  determination  when  additional  responsibilities  in
accordance with Exhibit 1, should be made.

      3. Obligation of Loyalty to the Company.

            A.  During  the term of this  Agreement  and while  employed  by the
Company, the Employee agrees that he will not:

                  a. Make any  statement  or perform any act intended to advance
any interest of any existing or prospective competitor of the Company in any way
that will or may injure the Company in its  relationship  and dealings  with any
existing or potential supplier, customer, stockholder or creditor; or solicit or
encourage  any other  employee  of the Company to do any act that is disloyal to
the Company or inconsistent with the Company's  interests or in violation of any
provision of this Agreement;

                  b. Solicit any other employee to participate in or assist with
the formation or operation of any business intended to compete with the Company,
or with respect to the possible future  employment of such other employee by any
such business;

                  c. Inform any  existing  or  potential  customer,  supplier or
creditor of the Company that Employee  intends to resign,  or make any statement
or do any act intended to cause any existing or potential customer,  supplier or
creditor of the Company to learn of the Employee's intention to resign;

                  d. Discuss with any existing or potential  customer,  supplier
or creditor of the  Company  the present or future  availability  of services or
products

                                       2
<PAGE>

provided by a business that competes with or where such services or products are
competitive with services or products that the Company provides.

            B. The  Employee  acknowledges  receiving  and reading a copy of the
Company's Declaration of Corporate Policy, a copy of which is annexed as Exhibit
2 to and  made a part  of this  Agreement,  and the  Employee  agrees  to act in
accordance therewith as long as he is an Employee of the Company.

      4. Compensation.  The Company will provide the Employee with the following
compensation during his employment:

            a. Salary:                  Base  salary  of   $130,000   per  year,
                                        payable in conformity with the Company's
                                        customary    practices    for   employee
                                        compensation, as such practices shall be
                                        established from time to time.

            b. Severance:               As  more   specifically   described   in
                                        Section   7A   below,    nine    months'
                                        severance,  tied to base salary,  during
                                        the first 12 months of  employment;  six
                                        months'  severance  during the second 12
                                        months of  employment.  Severance  would
                                        apply to any  termination or separation,
                                        other than for cause,  initiated  by the
                                        Company.

            c. Incentive:               Participation  in  "key  man"  incentive
                                        program  (tied to profits and  averaging
                                        15% per year since inception in FY '97),
                                        which will be  pro-rated  for the FY '03
                                        which began on April 1, 2002.

                                       3
<PAGE>

            d. Stock  Options:          Options will be granted  pursuant to the
                                        Company's  Employee Stock Option Plan of
                                        1998 to purchase 35,000 shares of common
                                        stock  exercisable  at the closing price
                                        as  defined  in the  Plan on the date of
                                        employment;  the  Employee  may exercise
                                        7,000  options  after the first year and
                                        an  additional  7,000  per  year for the
                                        balance  of  the  option   term,   which
                                        expires   five  years  from  grant.   In
                                        addition,  the stock  options  listed in
                                        Exhibit 1 will be granted upon achieving
                                        the   associated   milestones.   Options
                                        granted  to the  Employee  shall  become
                                        immediately   exercisable   should   the
                                        Company   be   sold   or   merged,    or
                                        substantially  all its  assets are sold,
                                        or if any person or group (not including
                                        Employee)  hereafter  acquires ownership
                                        of 40% or more of the  common  stock  of
                                        the Company, or if a "change of control"
                                        occurs  which  would be  required  to be
                                        disclosed  under the proxy  rules  under
                                        the Securities Exchange Act of 1934.

            e. Medical:                 Fully-paid medical insurance after three
                                        months'  employment,  providing coverage
                                        and  at  a   cost   offered   to   other
                                        management employees.  The Company has a
                                        "Point of  Service"  plan with  Aetna/US
                                        Healthcare.

            f. Life   Insurance:        $65,000   face   amount   of  term  life
                                        coverage

                                       4
<PAGE>

                                        after three months' employment, assuming
                                        the carrier  will provide  coverage,  at
                                        Company cost.

            g. 401(k) Plan:             See a copy of the enclosed plan.

            h. Vacation:                Three weeks per year up to five years of
                                        employment,  and four weeks  thereafter.
                                        Vacation  begins accruing on the date of
                                        employment.

            i. Holidays:                Nine   paid    days   per    year.

            j. Sick/Personal:           Ten  days  per year, beginning after one
                                        month of employment.

            k. Relocation:              The  Employee  shall  receive  from  the
                                        Company   reimbursement  for  reasonable
                                        moving    expenses    related   to   his
                                        relocation to the Carlstadt,  New Jersey
                                        area to accept  this  position  with the
                                        Company,  in an aggregate  amount not to
                                        exceed 67% of his base salary.  Adequate
                                        verification of such expenses shall be a
                                        prerequisite to such reimbursement.  The
                                        amount  of  such  reimbursement  that is
                                        includible  in  gross  income,   or  not
                                        deductible  by  Employee,   for  Federal
                                        income tax  purposes  shall be  "grossed
                                        up"  to   cover   all  or  part  of  the
                                        Employee's   Federal   and   State   tax
                                        liabilities    attributable    to   this
                                        allowance, which amount shall be paid to
                                        the  Employee at such time as the moving
                                        expenses  and the  "gross up" amount has
                                        been   computed   by   the    Employee's
                                        accountant or tax

                                       5
<PAGE>

                                        advisor and verified by the Company.  In
                                        no event will total payments  hereunder,
                                        including "gross up" amounts, exceed 67%
                                        of Employee's annual base salary, and no
                                        payment   will  be  made  for   expenses
                                        incurred after January 31, 2003.

                                              By accepting relocation assistance
                                        as  described  in  this  Section   4(k),
                                        Employee   acknowledges   that   if   he
                                        voluntarily  terminates his  employment,
                                        or if the  Company  terminates  him  for
                                        cause (i) within the first six months of
                                        employment,  he  will  repay  75% of all
                                        amounts  paid to him or a third party on
                                        his behalf by the  Company  pursuant  to
                                        this Section 4(k),  including any "gross
                                        up"  amounts  or (ii)  within the second
                                        six months of his employment  hereunder,
                                        he will repay 50% of all amounts paid to
                                        him or a third  party on his  behalf  by
                                        the  Company  pursuant  to this  Section
                                        4(k),  including any "gross up" amounts.
                                        No amounts need be repaid after one year
                                        of employment.

                                              Amounts due the Company  hereunder
                                        must be repaid within 90 days of written
                                        demand.

            l. Medical Insurance
                Premium Reimbursement:  The Company

                                        6
<PAGE>

                                        will  reimburse the Employee for medical
                                        insurance premium payments he makes, but
                                        only for payments made covering a 90-day
                                        period    starting    with    Employee's
                                        commencement     of    his    employment
                                        hereunder.

      5.  Termination.  The Employee's  employment under this Agreement and this
Agreement may be terminated as follows:

            A. At the  Employee's  Election.  The  Employee  may  terminate  his
employment  at any time by giving one  hundred and twenty  (120)  days'  advance
written  notice to the  Company.  During such one  hundred and twenty  (120) day
period,  the Employee will be available on a full-time  basis for the benefit of
the Company, and the Company will compensate the Employee as long as he complies
with this Agreement,  at his then base salary rate. The Company,  at its option,
may  accelerate  the  Employee's  departure  date and will have no obligation to
provide  compensation  or benefits to the  Employee  after his actual  departure
date,  except to the extent required by law as specifically  set forth elsewhere
in this Agreement.

            B. At the  Election of the Company  Without  Cause.  The Company may
terminate the Employee's employment and this Agreement at any time without Cause
by giving one  hundred  and twenty  (120) days'  advance  written  notice to the
Employee.  During  this  120-day  period the  Employee  will be  available  on a
full-time basis for the benefit of the Company.  However, the Company grants the
Employee the reasonable right to pursue other employment during this period. The
Company  shall pay the Employee  his base salary rate for the entire  portion of
this 120-day period, whether or not the Company requires the Employee to perform
services  during this entire  period.  If,  however,  the  Employee  accepts any
employment  with any other  organization  during any  portion  of the  foregoing
120-day period or breaches his obligations under the Non-Disclosure Agreement as
defined in Section 8 hereof, further payments by the Company

                                       7
<PAGE>

to the Employee  shall cease upon the earlier to occur of (i) the effective date
of such other employment or (ii) a breach of the Non-Disclosure  Agreement.  Any
cessation of payments for breach of the Company's Non-Disclosure Agreement shall
be in addition to, and not as an alternative to, any other remedies in law or in
equity available to the Company,  including the right to specific performance or
any injunction.

            C. At the  Election  of the  Company  for Cause.  The  Company  may,
immediately  and  unilaterally,  terminate the  Employee's  employment  and this
Agreement  for "Cause" upon written  notice to the Employee at any time. As used
herein, "Cause" shall mean (i) the Employee's persistent failure (other than any
such failure  resulting  from  Employee's  incapacity  due to mental or physical
illness) to report to work or  substantially  perform all duties assigned to him
in accordance  with this  Agreement,  which failure of  performance is not cured
within 30 days after  written  notice  hereof has been provided to the Employee;
(ii) the Employee's  willful  misconduct or gross  negligence in connection with
the   performance  of  such  assigned   duties;   (iii)  the  Employee's   gross
insubordination;  (iv)  the  commission  by the  Employee  of an  act of  fraud,
embezzlement  or theft relating to the Company or any of its funds,  properties,
opportunities,  or other assets; (v) the conviction of the Employee, or entry of
a plea of nolo contendere by Employee to any felony or any misdemeanor involving
an act of moral  turpitude or unethical  business  conduct;  (vi) the Employee's
breach of any material  provision of this Agreement  including the breach of the
Company's  Non-Disclosure  Agreement;  (vii) the Employee's  willful  failure to
comply with any applicable  rule,  policy or practice of the Company  (including
his  commission  of any act of moral  turpitude or unethical  business  conduct)
which  failure  or loss  results  in a  material  loss,  damage or injury to the
Company or adversely affects the business  activities,  reputation,  goodwill or
image of the  Company;  and (viii)  the  commission  of an act that  constitutes
unfair  competition  with the Company or such wrongful  conduct that induces any
customer of the Company to breach a relationship with the Company.

                                       8
<PAGE>

            D. Termination Due to Death or Disability. Employee's employment and
this Agreement will terminate  automatically  upon Employee's  death or upon his
physical incapacity or mental incompetence.  For the purposes of this Agreement,
the Employee  shall be deemed to have  suffered  physical  incapacity  or mental
incompetence  upon the earlier of: (i) the 90th  consecutive or 180th cumulative
calendar day in any  twelve-month  period that the Employee is unable to perform
with  reasonable  accommodation  the  essential  functions  of his  job due to a
physical or mental disability (any  accommodation  will not be deemed reasonable
if it imposes an undue  hardship on the  Company);  or (ii) the date a physician
selected by or acceptable to the Employee  determines  that the Employee will by
reason of physical  incapacity or mental  incompetence  be unable to perform the
essential  functions of his job for a period of at least 90  consecutive  or 180
cumulative calendar days in any twelve-month period.

      7. Consequences of Termination.

            A.  Termination  by the Company  Without  Cause,  or Due to Death or
Disability.  In the event of a termination  of Employee's  employment (i) by the
Company  without  Cause,  (ii)  due to death of the  Employee,  or (iii)  due to
physical incapacity or mental incompetence pursuant to Section 6(D), then in any
of such events the employee  shall be entitled to only:  (a) base salary through
date of termination  (including base salary determined under Section 4(a) and an
Annual Incentive Bonus, if any, pro-rated,  based on the performance,  goals and
objectives  achieved during the period of the Employee's  employment during that
year, attributable to said Base Salary through date of termination;  (b) payment
for accrued but unused  vacation  time  through the  termination  date;  and (c)
statutory  benefit  continuation  rights in accordance with COBRA,  provided the
Employee makes the appropriate and timely  voluntary  contribution  payments and
subject to applicable law and the requirements of the Company's health insurance
plans  then in  effect.  Notwithstanding  the  foregoing,  in the  event  of the
termination of the Employee's employment by the Company, without cause,

                                       9
<PAGE>

in addition to the above  entitlements,  the Company  shall provide the Employee
with  severance  in an amount equal to his then monthly base salary for a period
of (i) nine months if the  termination  occurs during the first twelve months of
employment  hereunder and (ii) six months if the  termination  occurs during the
second twelve months of employment hereunder.  Notwithstanding the foregoing, if
Employee  breaches  his  obligations  under the  Non-Disclosure  Agreement,  the
Company may  immediately  cease  payment of this  severance.  Such  cessation of
Employee's  severance shall be in addition to, and not as an alternative to, any
other remedies in law or in equity available to the Company, including the right
to specific performance or an injunction.

            B. Termination at Employee's Election. In the Event of a termination
of the Employee's  employment at his election upon not less than one hundred and
twenty (120) days' advance written notice to the Company,  the Employee shall be
entitled to only: (a) base salary through date of  termination;  (b) payment for
accrued but unused vacation time through the termination date; and (c) statutory
benefit  continuation  rights in  accordance  with COBRA,  provided the Employee
makes the appropriate and timely voluntary  contribution payments and subject to
applicable law and the requirements of the Company's health insurance plans then
in effect.

            C.  Termination  by  the  Company  for  Cause.  In  the  event  of a
termination of the Employee's  employment by the Company for Cause, the Employee
shall be entitled to only:  (a) base salary  through  date of  termination;  (b)
payment for accrued but unused vacation time through the  termination  date; and
(c) statutory benefit continuation rights in accordance with COBRA, provided the
Employee makes the appropriate  voluntary  contribution  payments and subject to
applicable law and the requirements of the Company's health insurance plans then
in effect.

            D. No Further  Obligations.  Except as  expressly  set forth in this
Section 7 of this Agreement,  the Employee  acknowledges  that the Company shall
not

                                       10
<PAGE>

have any further  obligations  to the Employee in the event of a termination  of
Employee's employment and/or this Agreement.

      8.  Confidential  and  Proprietary   Information  Agreement  and  Employee
Invention  Agreement.  As a condition and in consideration of entering into this
Agreement and the  Employee's  initial and continued  employment by the Company,
the Employee will execute, prior to or simultaneously with the execution hereof,
the Confidential and Proprietary  Information  Agreement and Employee  Invention
Agreement (attached hereto as Exhibit 3) (the "Non-Disclosure  Agreement"),  and
will abide by its terms.

      9. Survival of Certain  Provisions.  Sections 7, 8, 10, 11, 12, 15, 17 and
18 hereof, as well as the terms and conditions of the Non-Disclosure  Agreement,
expressly  survive  any  termination  of  employment  and  termination  of  this
Agreement.

      10. Consent and Waiver by Third Parties.  The Employee  hereby  represents
and warrants that he has obtained all waivers and/or consents from third parties
that are  necessary  to enable him to enjoy  employment  with the Company on the
terms and  conditions set forth herein and to execute and perform this Agreement
and the  Non-Disclosure  Agreement  without  being in  conflict  with any  other
agreement,  obligation or understanding  with any such third party. The Employee
represents  that he is not  bound by any  agreement  or any  other  existing  or
previous  business  relationship  that conflicts with, or may conflict with, the
performance of his duties and obligations  hereunder.  The Employee shall defend
and  indemnify  the Company  against all costs and  expenses,  including but not
limited to reasonable  attorneys'  fees, in the event any third part asserts any
claim  against  the  Company  arising  out of or  relating  to its hiring of the
Employee.

      11.   Governing  Law.  This   Agreement,   the   employment   relationship
contemplated herein and any claim arising from or relating to such relationship,
whether or not arising under this Agreement,  shall be governed by and construed
in accordance

                                       11
<PAGE>

with the internal laws of the State of New Jersey,  without giving effect to the
principles of choice of law or conflicts of laws of New Jersey.

      12.  Severability.  In  case  anyone  or more  of the  provisions  in this
Agreement,  the Non-Disclosure  Agreement,  or any other agreements  executed in
connection  with the  transactions  contemplated  hereby for any reason shall be
held to be invalid,  illegal or unenforceable  in any respect,  such invalidity,
illegality  or  unenforceability  shall not affect any other  provision  of this
Agreement,  the  Non-Disclosure  Agreement,  or such other agreements,  and this
Agreement, the Non-Disclosure  Agreement, or such other agreements,  as the case
may be, shall be construed and reformed to the maximum extent permitted by law.

      13. Waivers and  Modifications.  This  Agreement may be modified,  and the
rights,  remedies  and  obligations  contained  in any  provision  hereof may be
waived,  only in  accordance  with this Section 13. No waiver by either party of
any breach by the other or any  provision  hereof shall be deemed to be a waiver
of any later or other  breach  thereof or as a waiver of any other  provision of
this  Agreement.  This  Agreement  and its  terms  may not be  waived,  changed,
discharged or terminated orally or by any course of dealing between the parties,
but only by an  instrument  in  writing  signed  by the party  against  whom any
waiver, change, discharge or termination is sought. No modification or waiver by
the  Company  shall  become  effective  without the consent of the Board then in
office at the time of such modification or waiver.

      14. Assignment. The Employee acknowledges that the services to be rendered
by him  hereunder are unique and personal in nature.  Accordingly,  the Employee
may not assign any of his rights or  delegate  any of his duties or  obligations
under this Agreement,  but the rights and  obligations  hereunder will insure to
the  benefit  of  and  be  binding  upon  the  Employee's   heirs,   estate  and
administrators.  Any attempted  assignment or delegation shall be null and void.
The rights and obligations of the Company under this Agreement

                                       12
<PAGE>

may be assigned by the Company and shall  insure to the benefit of, and shall be
binding upon, the successors and assigns of the Company.

      15.  Acknowledgment of Non-Disclosure  Agreement.  The Employee recognizes
and agrees that due to the  proprietary  nature of the Company's  business,  the
restrictions set forth in the Non-Disclosure Agreement are reasonable,  and that
enforcement  of  the  Non-Disclosure   Agreement  is  necessary  to  ensure  the
preservation,  protection  and  continuity  of the  business,  trade secrets and
goodwill of the Company. The Employee further recognizes that the Non-Disclosure
Agreement is an integral  part of the  Agreement  and that the Company would not
have entered into this Agreement without the Non-Disclosure Agreement.

      16.  Entire  Agreement.   This  Agreement  (and  its  attached   Exhibits)
constitutes  the entire  understanding  of the  parties  relating to the subject
matter hereof and supersedes and cancels all offers,  agreements,  negotiations,
representations and discussions, whether written or oral, made by or between the
parties prior to the date hereof.

      17. Arbitration.  Any controversy,  dispute, claim or breach by or between
the parties,  including without limitation,  those arising out of or relating to
this Agreement,  shall be submitted to arbitration with the American Arbitration
Association (the "AAA"); provided, however, that this arbitration provision will
not apply in any manner to the Company's enforcement of Sections _____ and _____
of this Agreement,  and the Non-Disclosure  Agreement.  The arbitration shall be
heard by a panel of three (3) arbitrators appointed by the AAA. Such arbitration
shall be held in Newark,  New Jersey in accordance  with the rules and practices
of the AAA. The decision of such  arbitrators  shall be final and binding on the
parties  and  judgment  upon  the  award  may be  entered  in any  court  having
jurisdiction.

      18.  Notices.  All  notices  hereunder  shall be in  writing  and shall be
delivered in person, by first class mail, by overnight delivery or by facsimile,
addressed as follows: If to the Company, to:

                                       13
<PAGE>

            PERSONAL AND CONFIDENTIAL
            -------------------------
            Mr. Harold K. Fletcher
            President
            Tel-Instrument Electronics Corp.
            728 Garden Street
            Carlstadt, New Jersey  07072

            With a copy to:

            Donald Stuart Bab, Esq.
            Jackson & Nash, LLP
            330 Madison Avenue
            New York, New York  10017

If to the Employee,  at the  Employee's  address set forth on the signature page
hereto, or at such other address as Employee shall designate in writing,  with a
copy to:

      Notices  shall be  deemed  to be given  when  delivered  in  person,  upon
confirmation  of a facsimile  transmission,  the day after delivery by overnight
mail, or three days after deposit in the mail as set forth above.

      19.  Interpretation.  The language of all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning and not strictly
for or against either of the parties.  The descriptive  section  hearings herein
have been  inserted  for  convenience  only and  shall not be deemed to  define,
limit, or otherwise affect the construction of any provision hereof.

                                       14
<PAGE>

      20.  Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

      IN WITNESS  WHEREOF,  the parties  hereunto have executed this  Employment
Agreement as of the date first above written as an instrument under seal.

Tel-Instrument Electronics Corporation         Charles R. Palanzo
"Company"                                      "Employee"

By: _____________________________              _________________________________
    Harold K. Fletcher                             (Signature)
    President and
    Chief Executive Officer                    _________________________________
                                                   (Street Address)

                                               _________________________________
                                                   (City, State and Zip Code)

                                       15
<PAGE>

                                    Exhibits
                                    --------

1.    Outline  of  additions  to the  Employee's  responsibilities,  leading  to
      possible  becoming Chief Executive  Officer of the Company  (listing stock
      options).

1.    Company's Declaration of Corporate Policy.

1.    Confidential and Proprietary  Information Agreement and Employee Invention
      Agreement (the "Non-Disclosure Agreement").

                                       16
<PAGE>

                                                                       Exhibit 1

                     CRP TRANSITION SCHEDULE - PRELIMINARY

                                                                       31 Jul 02
--------------------------------------------------------------------------------
Steps      Job        Responsibilities                   Term           Option
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 1         COO        Eng/Mfg                        6 to 9 months      35,000
                      (new products/shipments)
                      budgets/schedules
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 2      VP/COO        BD/Eng/Mfg                     6 to 9 months      15,000
                      AvTE P&L/cash
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 3   President/COO    Corporate P&L/cash             9 to 12 months     15,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                    21 to 30 months
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 4   CEO/Director     Corporate Future                                  35,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                       100,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                   Attachment

                                       to

                            Non-Disclosure Agreement
                            ------------------------

Exhibit A:  Described below are  "inventions"  created by the Employee which are
            not associated with his employment by the Company within the meaning
            of Paragraph 3 of the  Non-Disclosure  Agreement,  and therefore not
            within the restrictions set forth in Paragraph 3.

<PAGE>

                                                                       Exhibit A

                                   Attachment
                                       to
                            Non-Disclosure Agreement

Exhibit A:        Described below are "inventions" created by the Employee which
                  are not associated with his employment by the Company within
                  the meaning of Paragraph 3 of the Non-Disclosure Agreement,
                  and therefore not within the restrictions set forth in
                  Paragraph 3.

                        1.    Internet and web system that provides online
                              capability to modify and update web content using
                              only a brower.

                        2.    U.S. Patent Application #20020042815 "Automated
                              system and method for routing undeliverable e-mail
                              messages and otherwise managing e-mail"

                        3.    Web based system of selecting individual search
                              results from a large group of search results and
                              automatically retrieving associated contact
                              information from the web.

<PAGE>

                                                                       Exhibit 1

                       TEL-INSTRUMENTS ELECTRONICS CORP.

                        DECLARATION OF CORPORATE POLICY

                          (Adopted December 13, 2000)

      1. General Policy. It shall be the policy of the Company that, unless
fully disclosed to and authorized or approved by the Board of Directors, no
Director or Employee shall engage in any activity or acquire any business
investment or financial interest, either directly or indirectly, which conflicts
in any manner with the best interests of the Company or which interferes with or
impedes the Director's or Employee's ability to perform his or her duties in
good faith and in the best interests of the Company. The entering into any
agreement or transaction which contemplates any such activity or acquisition
shall likewise be deemed to constitute a violation of this policy.

      2. Specific Guidelines. For the purpose of implementing this policy, the
Company hereby adopts the following specific guidelines to be applied in
determining whether or not this policy has been violated in any given instance.
The following guidelines shall not be deemed to constitute a comprehensive
listing of all such violations, and compliance with all the foregoing shall not
be determinative of the absence of any particular violation. Unless fully
disclosed to and authorized or approved by the Board of Directors, the following
shall be deemed to constitute a violation of the policy.

                              Page -1- of 4 Pages
<PAGE>

      2.1. The ownership or acquisition, either directly or indirectly, of any
business investment or financial interest in any entity in which the Company
holds an interest, or which has current or known prospective business dealings
with the Company. The foregoing notwithstanding, the ownership or acquisition of
any business investment or financial interest in an entity whose securities are
listed on a national stock exchange or are customarily traded on the
over-the-counter market shall not constitute a violation of this guideline;
provided, however, that such business investment or financial interest does not
represent more than five (5%) of the issued and outstanding securities of the
entity of the same class as those so owned or acquired, and the aggregate
estimated value thereof does not exceed the sum of $50,000.

      2.2. The ownership or acquisition, either directly or indirectly, of any
interest in real property or personal property in which the Company holds an
interest;

      2.3. The solicitation or acceptance, either directly or indirectly, of any
payment, loan, gift, gratuity, discount or other thing of value from any entity
in which the Company holds an interest, or from any person or entity which has
current or known prospective business dealings with the Company. The foregoing
notwithstanding, the solicitation or acceptance of any payment, loan, gift,
gratuity, discount or other thing of value from any person or entity which is of
nominal value and within the limits of common courtesy generally associated with
accepted business practices shall not constitute a violation of this guideline.

                              Page -2- of 4 Pages

<PAGE>

Likewise except for the solicitation or acceptance of any loan in the amount of
$50,000 or more, from Summit Bank, or from any other bank which may hereafter
serve as the primary commercial bank of the Company the solicitation or
acceptance of any loan from any bank or other recognized lending institution
which engages in the lending of money as a regular part of its business
operations shall not constitute a violation of this guideline.

      2.4. The diversion of any business opportunity of the Company, or the
participation in any business opportunity with knowledge of the fact that such
business opportunity has been or will be submitted or presented to the Company,
whether or not the same is ultimately rejected by the Company;

      2.5. The engaging in any outside activities or pursuits, which, because of
the time required to be devoted thereto, materially interfere with or impede the
ability of any Director or Employee to perform his or her duties in good faith
and in the best interests of the Company. The foregoing notwithstanding, the
Board of Directors recognizes the advantages of responsible participation in
civic and charitable endeavors and encourages Employees to devote their time and
effort thereto. Accordingly, subject to the approval of the President, the
devotion of a reasonable amount of time during normal business hours to service
by an Employee in representing the Company on boards of directors, committees,
associations, chambers of commerce, civic leagues, and other organizations of
which the Company is a member, or which directly relate to the properties,
business activities or financial interests of the Company, or to the conduct of
any of the Company's operations, shall not constitute a violation of this
guideline; or

                              Page -3- of 4 Pages

<PAGE>

      2.6. The disclosure or use, for personal benefit, of any confidential or
non-public information concerning any properties, business activities or
financial interest of the Company, or the conduct of any of the Company's
operations, including but not limited to the purchase or sale of any real
property in reliance upon or based upon such confidential or non-public
information.

      2.7. All future transactions between the Company and its officers,
directors or 5% shareholders, and their respective affiliates will be on terms
no less favorable than could be obtained from unaffiliated third parties and
will be approved by a majority of the independent, disinterested directors of
the Company.

                              Page -4- of 4 Pages

<PAGE>

                     TEL-INSTRUMENT ELECTRONICS CORPORATION

               CONFIDENTIAL AND PROPRIETARY INFORMATION AGREEMENT
                                       and
                          EMPLOYEE INVENTION AGREEMENT

            This  Agreement,  made on this  19th  day of  August,  2002,  by and
between  Tel-Instrument  Electronics  Corp.,  hereinafter  referred  to  as  the
"Company", and Charles R. Palanzo, hereinafter referred to as the "Employee."

      1. Employment  Agreement.  This  Confidential and Proprietary  Information
Agreement  and Employee  Invention  Agreement  ("Non-Disclosure  Agreement")  is
entered  into by the  Employee in  consideration  of and as a condition  for the
Company  employing  the  Employee,  is  deemed  incorporated  in,  and  is to be
construed and enforced as part of the Employment Agreement with Employee of even
date herewith.

      2.  Proprietary  Information  and Trade Secrets.  The Company has invested
substantial  resources in developing its unique  technology,  its  relationships
with its customers and suppliers and its reputation  for its products,  services
and business ethics,  all of which are critical to the continued  success of the
Company.  As a result,  the Company has substantial and unique  confidential and
proprietary  information  and trade  secrets,  including but not limited to, (i)
customer  and vendor,  and  contact  lists,  and  information  concerning  their
business,  needs,  employment  records  and  policies;  (ii)  Company  business,
technologies,  products,  services and methods, and marketing plans,  strategies
and data;  (iii)  personnel,  technical  and trade  "know  how";  (iv)  specific
software,  object and source codes,  user manuals,  designs and design projects,
pending patents;  (v) computer systems,  including but not limited to passwords,
computer hardware, computer software, computer firmware and any other similar or
related

                                       1
<PAGE>

confidential or proprietary  information or concept relating thereto; (vi) joint
venture and subcontract or out-sourcing agreements;  and (vii) costs, prices and
other  financial data and information  not made generally  public  (hereinafter,
"Proprietary Information and Trade Secrets").

      Although the Company keeps the  Proprietary  Information and Trade Secrets
confidential,  the Employee will of necessity  during his employment have access
to the Company's Proprietary Information and Trade Secrets. Therefore:

            A. Non-Competition Clause.

            In consideration of his employment  hereunder and the receipt by him
of the various  forms of  compensation  described in his  Employment  Agreement,
Employee hereby agrees that during the term of his employment by the Company and
for two years  after the  termination  of said  employment,  Employee  will not,
directly or indirectly,  (i) own, have a proprietary  interest  (except for less
than 5% of any listed company or company traded in the over-the-counter  market)
of any kind in, be employed by, be a partner in, or serve as a consultant  to or
in  any  other  capacity  with  any  firm,  partnership,  corporation,  business
enterprise  or  individual,   other  than  the  Company,  which  is  engaged  in
competition  with  any  business  conducted,  or  to  the  Employee's  knowledge
contemplated, by the Company in any of the geographic areas in which the Company
does or proposes to do business;  and (ii) provide or offer to provide on behalf
of a competitor of the Company,  products,  services or technology  that compete
with the  business of the  Company,  to any  customer  or client or  prospective
customer or client of the Company.  Specifically  excluded from the restrictions
set forth in this Section are companies, business enterprises or entities of any
type  engaged in  telecommunications,  networking  technologies  or data storage
industries, in which the Company is not presently engaged.

                                       2
<PAGE>

            A. Confidentiality Covenant.

            Employee  agrees that while  employed by the Company and  thereafter
for a period of two years, he will not, directly or indirectly,  disclose or use
to the detriment of the Company or any of its affiliates (the term  "affiliates"
as used in this  Agreement is  understood to mean  subsidiaries,  and parent and
brother/sister  corporations of the Company) or for the benefit of himself or of
any other person,  firm or entity, any Proprietary  Information or Trade Secrets
of the Company or any of its affiliates,  which are not readily available in the
public  domain.  Employee shall not, while employed by the Company or thereafter
for a period of two years, directly or indirectly, induce, advise, recommend to,
or participate  in any effort to induce,  any officer or employee of the Company
or any of its  affiliates to leave the Company's  employment or to do any of the
things which  Employee is prohibited  from doing.  Furthermore,  Employee  shall
deliver promptly to the Company upon  termination of employment,  or at any time
the Company may so request, all memoranda,  notes,  records,  reports,  manuals,
drawings,  blueprints,  formulas,  computer disks, hardware,  software and other
documents  and  things  (and all copies  thereof)  relating  to the  Proprietary
Information or Trade Secrets, as well as all cellular telephones, Company credit
cards,  keys to Company property and all other items which are Company property.

            A. Remedies for Breach.

            Employee  acknowledges  that the legal  remedies  for  breach of the
covenants  contained  in Section  2A or 2B, as well as in  Section 3 below,  are
inadequate,  and therefore agrees that, in addition to any or all other remedies
available  to the  Company  and its  affiliates  in the  event of a breach  or a
threatened  breach of any covenant  contained in Section 2A or 2B, or Section 3,
the Company or any of its affiliates may:

                  i. Obtain  preliminary and permanent  injunctions  against any
and all such actions, and

                  ii.  Seek to recover  from  Employee  monetary  damages to the
Company or its affiliates  arising from such breach or threatened breach and all
costs and

                                       3
<PAGE>

expenses (including  reasonable  attorneys' fees) incurred by the Company or any
of its affiliates in enforcement of such covenants.

            The Company  may seek the relief  stated in  Paragraphs  2(C)(i) and
(ii) in any  federal or state  court  sitting in New  Jersey,  and the  Employee
admits personal and subject matter  jurisdiction in any such court in any action
brought by the Company pursuant to this Paragraph 2(C).

      3. Inventions. During his employment,  Employee shall devote full time and
best efforts to the performance of all  responsibilities  to the Company and its
affiliates  and to further the  businesses  and interests of the Company and its
affiliates.   Employee  agrees  that  all  processes,   discoveries,   formulas,
improvements, technologies, designs and inventions ("Inventions"), including new
contributions,  improvements,  ideas and discoveries, whether patentable or not,
conceived,  developed,  invented or made  solely by  Employee,  or jointly  with
others,  during his  employment,  shall belong to the Company or its affiliates.
Employee shall further:  (a) promptly  disclose such  Inventions to the Company;
(b) assign to the Company, without additional compensation, all patent and other
rights to such Inventions,  whether  patentable or  unpatentable,  including all
substitute,  continuation-in-part and reissue applications,  patents of addition
and confirmation  relative thereto, for the United States of America and foreign
countries;  (c) sign all papers  necessary to carry out the foregoing;  and, (d)
give  testimony  in  support  of  inventorship.  Furthermore,  if any  Invention
associated  with the  Employee's  employment  at the Company is  described  in a
patent application or is disclosed to third parties,  directly or indirectly, by
Employee within two years after  termination of employment with the Company,  it
is to be presumed  that the Invention was conceived or made during the period of
Employee's  employment by the Company.  Employee agrees not to assert any rights
to any  Invention  as  having  been made or  acquired  prior to the date of this

                                       4
<PAGE>

Agreement,  except for Inventions,  if any,  disclosed to the Company in writing
prior to the date hereof.

            The  attached  Exhibit A  describes  an  "invention"  created by the
Employee which is not  associated  with his employment by the Company within the
meaning of this Paragraph 3, and therefore not within the restrictions set forth
in this Paragraph 3.

      4.  Incorporation and Severability.  This Agreement is to be construed and
enforced as part of the Employment Agreement, of even date, between the Employee
and the Company,  and all  provisions  in the  Employment  Agreement,  including
specifically,  without  limitation,  Sections  8, 11,  12 and 15, as well as all
other  sections  not  contradicted  by  this  Agreement,  shall  apply  to  this
Agreement.

      IN WITNESS  WHEREOF,  the parties have executed  this  Agreement as of the
date first above written.

Tel-Instrument Electronics Corporation         Charles R. Palanzo
"Company"                                      "Employee"

By: _________________________                  _________________________________
    Harold K. Fletcher                            (Signature)
    President and
    Chief Executive Officer                    _________________________________
                                                  (Street Address)

                                               _________________________________
                                                  (City, State and Zip Code)

                                       5<PAGE>
                                                                   EXHIBIT 10.18

                   FORM OF NONSTATUTORY STOCK OPTION AGREEMENT

                           TRIDENT MICROSYSTEMS, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT

     Trident Microsystems, Inc., a Delaware corporation (the "Company"), has
granted _____________________ (the "Optionee") an option (the "Option") to
purchase a total of ______________ shares of Common Stock (the "Shares") subject
to the terms, definitions and provisions of this Agreement.

     1.   Definitions. As used herein the following definitions shall apply:

          (a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.

          (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

          (c) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 5 of this Agreement, if
one is appointed.

          (d) "Common Stock" shall mean the Common Stock of the Company.

          (e) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not.

          (f) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shah not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.

          (g) "Date of Option Grant" shall mean __________________.

          (h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.

          (i) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

          (j) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.

          (k) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.

          (l) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     2.   Nature of the Option. This Option is intended by the Company and the
Optionee to be a Nonstatutory Stock Option, and does not qualify for any special
tax benefits to the Optionee. This Option is not an Incentive Stock Option.

     3.   Exercise  Price.  The exercise  price is  $________  for each share of
Common  Stock,  which price is

<PAGE>

not less than the fair market value per share of the Common Stock on the date of
grant.

     4.  Exercise of Option. This Option shall be exercisable during the term
specified in Section 13 below as follows, subject to the other terms of the
Option:

          (a)  Right to Exercise.

               (i)   This Option shall be exercisable according to the following
vesting schedule:

                     (A) no Shares prior to _______________;

                     (B) on and after _______________, for 100% of the Shares.

               (ii)  This Option may not be exercised for a fraction of a Share.

               (iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Section 9, 10 and 11 below.

               (iv)  In no event may the Option be exercised after the date of
expiration of the term of the Option as set forth in Section 13 below.

          (b) Method of Exercise. This Option shall be exercisable by written
notice, in the form attached hereto signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company,
accompanied by payment of the exercise price.

     No shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, the Shares shall be considered transferred to the
Optionee on the date on which the Option is exercised with respect to such
Shares. The certificate or certificates for the Shares as to which the Option is
exercised shall be registered in the name of the Optionee, or, if applicable,
the heirs of the Optionee.

     5.   Administration of the Agreement.

          (a) Procedure. This Agreement shall be administered by the Board of
Directors of the Company. The Board may appoint a Committee consisting of not
less than two members of the Board to administer the Agreement on behalf of the
Board and to exercise any or all of the powers set forth in paragraph (b),
subject to such terms and conditions as the Board may prescribe. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, till vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Agreement. Members of
the Board who are either eligible for options or have been granted options may
vote on any matters affecting the administration of the Agreement or the grant
of the Option pursuant to the Agreement, except that no such member shall act
upon the granting of an option to himself, but any such member may to counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting of options to him.

          (b) Powers of the Board. Subject to the provisions of the Agreement,
the Board shall have the authority, in its discretion: (i) to interpret the
Agreement; (ii) to prescribe, amend and rescind rules and regulations relating
to the Agreement; (iii) with the consent of the holder thereof modify or amend
the Option including the exercise price thereof; (iv) to accelerate or defer
(with the consent of the Optionee) the exercise date of the Option; and (v) to
make all other determinations deemed necessary or advisable for the
administration of the Agreement.

          (c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on the Optionee.

     6.   Method of Payment. Payment of the purchase price shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
the Company's common stock owned by the Optionee having a value not less than
the option price, which either have been owned by the Optionee for more than six
(6) months or were not acquired, directly or indirectly, from the Company, (iii)
by Immediate Sales Proceeds, as defined below, or

<PAGE>

(iv) by any combination of the foregoing. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of the Company's
common stock the extent to such tender of stock would constitute a violation of
the provisions of any law, regulation and/or agreement restricting the
redemption of the Company's common stock. "Immediate Sales Proceeds" shall mean
the assignment in form acceptable to the Company of the proceeds of a sale of
some or all of the shares acquired upon the exercise of the Option pursuant to a
program and/or procedure approved by the Company (including, without limitation,
through an exercise complying with the provisions of Regulation T as promulgated
from time to time by the Board of Governors of the Federal Reserve System). The
Company reserves, at any and all times, the right, in the Company's sole and
absolute discretion, to decline to approve any such program and/or procedure.

     7.   Withholding. At the time the Option is exercised, in whole or in part,
or at any time thereafter as requested by the Company, the Optionee hereby
authorizes payroll withholding and otherwise agrees to make adequate provision
for foreign, federal and state tax withholding obligations, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon the (i) exercise, in whole or in part, of the Option. (ii) the
transfer, in whole or in part, of any Shares acquired on exercise of the Option,
(iii) the operation of any law or regulation providing for the imputation of
interest, or (iv) the lapsing of any restriction with respect to any shares
acquired on exercise of the Option.

     The grant of the Option and the issuance of the Shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. In addition, no Option may be exercised unless (i) a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
shall at the time of exercise of the Option be in effect with respect to the
Shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the Shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. As a condition to the exercise
of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.

     9.   Termination of Status as an Employee or Consultant. If the Optionee
ceases to serve as an Employee or Consultant for any reason, except death or
permanent and total disability (as defined in Section 22(t)(3)of the Code), the
Optionee may, but only within three (3) months after the date the Optionee
ceases to be an Employee or Consultant of the Company (and in no event later
than the date of expiration of the term of the Option as set forth in Section 13
below), exercise the Option to the extent that the Optionee was entitled to
exercise it at the date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise the Option within the time specified herein, the
Option shall terminate.

     10.  Disability of Optionee. Notwithstanding the provisions of Section 9
above, if the Optionee is unable to continue his or her employment or consulting
relationship with the Company as a result of permanent and total disability (as
defined in Section 22(e)(3)of the Code), the Optionee may, but only within
twelve (12) months from the date of termination of the employment or consulting
relationship (and in no event later than the date of expiration of the term of
the Option as set forth in Section 13 below), exercise the Option to the extent
the Optionee was entitled to exercise it at the date of such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise the Option (which the Optionee
was entitled to exercise) within the time specified herein, the Option shall
terminate.

     11.  Death of Optionee. In the event of the death of the Optionee:

          (a) during the term of the Option while an Employee or Consultant of
the Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, the Option may be exercised, at any time
within twelve (12) months following the date of death (but in no event later
than the date of expiration of the term of the Option as set forth in Section 13
below), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had Optionee continued living and remained in
Continuous Status as an Employee or Consultant twelve (12) months after the date
of death; or within three (3) months after the termination of the Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within (6) months

<PAGE>

following the date of death (but in no event later than the date of expiration
of the term of the Option as set forth in Section 13 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that had accrued
at the date of termination.

     To the extent that an Option subject to this Section 11 is not exercisable
or is not exercised, the Option shall terminate.

     12.  Non-Transferability of Option. The Option may not be transferred in
any manner otherwise than by will or by the laws of descent and distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.

     13.  Term of Option. The Option may not be exercised more than ten (10)
years from the date of grant of the Option, and may be exercised during such
term only in accordance with the Plan and the terms of the Option.

     14.  Rights as a Stockholder, Employee or Consultant. The Optionee shall
have no rights as a stockholder with respect to any Shares covered by the Option
until the date of issuance of a certificate or certificates for the Shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in Section 15
below. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of the Company or interfere in any way with any right of
the Company to terminate the Optionee's employee's employment or consulting
relationship at any time.

     15.  Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by the Option., as well as the price per share of Common
Stock covered by the Option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination, recapitalization
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to the Option.

     In the event of the proposed dissolution or liquidation of the Company, the
Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of a merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the Option
or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Shares, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes the option fully
exercisable in lieu of assumption or substitution in the event of a merger, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.

     16.  Legends. Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing Shares subject to the provisions of this Option Agreement. The
Optionee shall, at the request of the Company, promptly present to the Company
any and all certificates representing Shares acquired pursuant to the Option in
the possession of the Optionee in order to effectuate the provisions of this
paragraph. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to any legend required to be
placed thereon by the Commissioner of corporations of the state of California.

<PAGE>

     17.  Information to Optionee. The Company shall provide to the Optionee,
during the period for which the Option is outstanding, copies of all annual
reports and other information which are provided to all shareholders of the
Company.

     18.  Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Option at any time; provided,
however, that no such termination or amendment may adversely affect the Option
or any unexercised portion hereof without the consent of the Optionee.

     19.  Integrated Agreement. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Company with respect to the
subject matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the Company
other than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.

     20.  Applicable Law. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.

 DATE OF GRANT:
                --------------------

                                           TRIDENT MICROSYSTEMS INC.,
                                           a Delaware corporation

                                           By:
                                              ----------------------------------
                                               President

     The Optionee acknowledges receipt of a copy of this Agreement and
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee understands that the Option does not confer any right to continued
employment. The Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board upon any questions arising
under this Option Agreement.

       Dated:
             -------------------------

                                           -----------------------------------
                                           Optionee

<PAGE>

                               NOTICE OF EXERCISE

 To:    Secretary
        Trident Microsystems, Inc

     I hereby exercise my option to purchase the number of shares (the "Shares")
of Common Stock of Trident Microsystems, Inc., set opposite my signature below.
Full payment for the Shares accompanies this notice.

     I understand that the Shares are being purchased pursuant to the terms of
the Stock Option Agreement. a copy which 1 have received and carefully read and
understand,

Date of Exercise:
                  ---------------------------

 Date of Option Agreement:
                          -------------------

 Shares Being Purchased:
                         --------------------

 Price per Share: $
                   --------------------------

                                        ----------------------------------------
                                        Signature

                                       -----------------------------------------
                                       Print Name

                                       -----------------------------------------
                                       Social Security Number

                                       -----------------------------------------
                                       Address

                                       -----------------------------------------

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