Document:

exv10w4

 

Exhibit 10.4

RETENTION AGREEMENT

     This RETENTION AGREEMENT (this “Agreement”) is made on and as of February 23, 2008, by
and among                      (the “Key Employee”), Proprius, Inc. (doing business in California as
Proprius Pharmaceuticals, Inc.), a Delaware corporation (the “Company”), and Cypress
Bioscience, Inc., a Delaware corporation (“Parent”).

RECITALS

     A. Concurrently with the execution and delivery of this Agreement, Parent and Company are
entering into the Merger Agreement. This Agreement is an inducement to Parent to enter into the
Merger Agreement, and it is a condition precedent to Parent’s obligations to effect the Merger
thereunder that this Agreement shall have been entered into and be in full force and effect.
Capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the
meanings assigned to such terms in the Merger Agreement.

     B. The Board of Directors of the Company has adopted the Management Carve-Out Plan, pursuant
to which a certain portion of the aggregate proceeds to the stockholders of the Company pursuant to
the Merger Agreement may be paid to one or more key employees of the Company as more fully set
forth therein. Key Employee has been designated as a participant in the Management Carve-Out Plan,
but, as of the date hereof, does not currently have a legally binding right to any compensation
thereunder. The aggregate amounts, if any, to which Key Employee would be entitled to receive
pursuant to the Management Carve-Out Plan, to the extent Key Employee continues to be designated as
a participant in such plan at the time of the Merger, [MICHAEL J. WALSH AGREEMENT ONLY- together
with a portion of the aggregate amount of the aggregate Closing Option Payment payable to the
holders of Company Options that Key Employee would be entitled to receive upon the Closing of the
Merger for cancellation of Key Employee’s unvested Company Options outstanding immediately prior to
the Effective Time] are referred to herein as the “Aggregate Bonus Consideration”.

     NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

     1. Definitions. As used in this Agreement, the following terms have the corresponding meanings:

     “Acceleration Event” is defined in Section 3(d).

     “Aggregate Bonus Consideration” is defined in Recital B.

     “Board” means the board of directors of Parent.

     “Business Day” means a day other than a Saturday, Sunday, or other day when banking
institutions in Chicago, Illinois are authorized or required by law or executive order to be
closed.

     “Cause” for the termination of Key Employee’s employment with Parent shall mean the

 

 

Board’s reasonable determination that the following conditions exist; provided, however, that any
termination by Parent due to any of the following conditions shall only be deemed for Cause if: (i)
the Board gives Key Employee written notice of the intent to terminate for Cause within thirty (30)
days following the first occurrence of the condition(s) that the Board believes constitute Cause,
which notice shall describe such condition(s); (ii) the Key Employee fails to remedy such
condition(s) within thirty (30) days following receipt of the written notice (the “Cure Period”) of
such condition(s) from the Board; and (iii) the Board terminates Key Employee’s employment within
thirty-five (35) days after expiration of the Cure Period:

          (a) Key Employee’s continued and willful refusal or failure to follow lawful and reasonable
directions of the Board or the individuals to whom Key Employee reports;

          (b) Key Employee’s conviction of, or nolo contendere plea or guilty plea to, or confession of
guilt to, a felony;

          (c) Key Employee’s material breach of Sections 2.2, 2.3 or 9 of the Employment Agreement or
the Key Employee’s Proprietary Information and Inventions Agreement with Parent; or

          (d) Key Employee’s commission of any fraud against Parent, its Affiliates, employees, agents
or customers or use or appropriation for his or her personal use or benefit of any funds or
properties of Parent not authorized by the Board to be so used or appropriated (other than any
inadvertent use that is not material in amount or significance).

     “Change of Control” means (i) a sale or other disposition of all or substantially all
of the assets of Parent; (ii) a merger or consolidation in which Parent is not the surviving entity
and in which the stockholders of Parent immediately prior to such consolidation or merger own less
than fifty percent (50%) of the surviving entity’s voting power immediately after the transaction;
or (iii) a reverse merger in which Parent is the surviving entity but the shares of Parent common
stock outstanding immediately preceding the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, and in which the stockholders of
Parent immediately prior to such reverse merger own securities representing less than fifty percent
(50%) of Parent’s voting power immediately after the transaction.

     “Company” means Proprius, Inc. (doing business in California as Proprius
Pharmaceuticals, Inc., a Delaware corporation, a Delaware corporation, or another entity as
provided in Section 19(a).

     “Company Successor” is defined in Section 19(a).

     “Company Successor Parent” is defined in Section 19(a).

     “Complete Disability” shall mean Key Employee is prevented from performing his or her
duties under the Employment Agreement by reason of any physical or mental incapacity that results
in Key Employee’s satisfaction of all requirements necessary to receive benefits under Parent’s
long-term disability plan due to a total disability. In the event Parent has no long-term
disability plan in force when Key Employee becomes disabled, the term Complete Disability
shall mean that Key Employee is unable to engage in any substantial gainful activity by reason of

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any medically determinable physical or mental impairment that can be expected to result in death or
can be expected to last for a continuous period of not less than twelve (12) months. Based upon
the medical advice or opinion provided by a licensed physician acceptable to the Board, the
determination of Complete Disability by the Board shall be final and binding.

     “Employment Agreement” means that certain Employment Agreement of even date herewith
by and between Parent and the Key Employee.

     “Escrow Agent” means LaSalle Bank National Association, as escrow agent.

     “Escrow Agreement” means the Special Escrow Agreement by and among Parent, Key
Employee and the Escrow Agent, substantially in the form attached hereto as Exhibit A.

     “Forfeiture Event” means the occurrence of either (i) a Separation From Service for
Cause, or (ii) a Separation From Service initiated by Key Employee without Good Reason.

     “Good Reason” for Key Employee to terminate Key Employee’s employment with Parent
shall mean the occurrence of any of the following events without Key Employee’s consent; provided
however, that any resignation by Key Employee due to any of the following conditions shall only be
deemed for Good Reason if: (i) Key Employee gives Parent written notice of the intent to terminate
for Good Reason within ninety (90) days following the first occurrence of the condition(s) that Key
Employee believes constitutes Good Reason, which notice shall describe such condition(s); (ii)
Parent fails to remedy, if remediable, such condition(s) within thirty (30) days following receipt
of the written notice (the “Cure Period”) of such condition(s) from Key Employee; and (iii)
Key Employee actually resigns his or her employment within the first fifteen (15) days after
expiration of the Cure Period:

          (a) a material diminution in Key Employee’s duties, authority or responsibilities as they are
formally developed and confirmed in writing following the date of this Agreement and following the
full integration of the Company into Parent;

          (b) a material diminution in the authority, duties or responsibilities [AGREEMENTS FOR THREE
EMPLOYEES OTHER THAN MICHAEL J. WALSH (as they are formally developed and confirmed in writing
following the date of this Agreement and following the full integration of the Company into
Parent,)] of the supervisor to whom Key Employee is required to report;

          (c) the relocation of Parent’s executive offices or principal business location to a point
more than sixty (60) miles from the San Diego County, California area, which relocation requires an
increase in Parent’s one-way driving distance by more than thirty-five (35) miles;

          (d) a material reduction by Parent of Key Employee’s Base Salary (as defined in the Employment
Agreement) as initially set forth in the Employment Agreement or as the same may be increased from
time to time other than as the result of a company-wide compensation reduction or in connection
with similar decreases for the management team of Parent, provided the reduction of Key Employee’s
Base Salary is of similar proportion; or

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          (e) any other action or inaction that constitutes a material breach by Parent of its
obligations to Key Employee under the Employment Agreement.

     “Merger Agreement” means the Agreement and Plan of Merger dated as of the date hereof,
among the Company, Parent, Propel Acquisition Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Parent and the Company Stockholders’ Representative, as such agreement may be amended
or supplemented from time to time prior to the Effective Time.

     “Parent” means Cypress Bioscience, Inc., a Delaware corporation, or another entity as
provided in Section 19.

     “Parent Successor” is defined in Section 19(b).

     “Parent Successor Parent” is defined in Section 19(b).

     “Restriction” is defined in Section 3(a).

     “Retention Amount” means ___percent (___%) of the Aggregate Bonus Consideration
payable to Key Employee at the Closing pursuant to the Management Carve-Out Plan, which amount
equals $___, as such amount may be adjusted from time to time pursuant to Section
2(c).1

     “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as it may be
amended from time to time, and the Treasury Regulations and other guidance issued thereunder.

     “Separation From Service” (and variations on the form of such term) means any
separation from service within the meaning of Section 409A.

     “Unvested Retention Amount” is defined in Section 3(a).

     “Vested Retention Amount” is defined in Section 3(a).

     2. Payment of Retention Amount into Escrow.

          (a) Key Employee hereby agrees that his or her right to receive the Aggregate Bonus
Consideration shall be subject to the restrictions imposed by this Agreement and the
Escrow Agreement, and agrees that, notwithstanding anything in the Merger Agreement to the

 

			
	1	 	This percentage will vary among the Key
Employees, as the Management Carve-Out Plan Closing Payments they will be
entitled to receive will vary, and because with respect to Michael Walsh, the
Retention Amount will include a portion of his aggregate Closing Option
Payment. For Mr. Walsh, the Management Carve-Out Plan Closing Payments he will
be entitled to receive will first be used to satisfy the Retention Amount, with
a portion of his aggregate Closing Option Payments for unvested Company Options
making up the remainder. The total dollar value of the Retention Amount for
each Key Employee will equal 25% of the aggregate Closing Consideration,
Closing Option Payments and Management Carve-Out Plan Closing Payments to which
each Key Employee is entitled. The total dollar amount of the Retention Amount
will be based upon the calcuation described in the preceding sentence and will
be determined as of the Closing based upon the information included in the
Merger Consideration Spreadsheet, and this Agreement will be revised
accordingly by Parent with the consent of Key Employee, which consent shall not
be unreasonably withheld.

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contrary, in connection with and subject to the Closing (i) the Aggregate Bonus Consideration shall
be reduced by an amount equal to the Retention Amount as set forth in Section 2(b) below and (ii)
Parent shall pay the Retention Amount to the Escrow Agent for deposit in the Escrow Fund (as such
term is defined in the Escrow Agreement). Key Employee acknowledges and agrees that his rights and
interests in the Escrow Fund shall be non-transferable and subject to a risk of forfeiture as
provided in this Agreement and the Escrow Agreement.

          (b) Immediately following the Effective Time, subject to and in accordance with the terms and
conditions of the Merger Agreement, this Agreement and the Escrow Agreement, Parent shall pay the
Retention Amount to the Escrow Agent, and shall have no obligation under the Merger Agreement or
the Management Carve-Out Plan or otherwise to pay such portion of the Aggregate Bonus Consideration
to Key Employee (or to cause such amount to be so paid).

          (c) The Retention Amount paid to the Escrow Agent pursuant to this Agreement shall be adjusted
from time to time for any gains, interest, other income, losses and expenses attributable to such
Retention Amount during the period such Retention Amount (or portion thereof) is held in escrow by
the Escrow Agent in accordance with the Escrow Agreement.

     3. Forfeiture and Vesting of Retention Amount.

          (a) All rights and interests of Key Employee in and to the Retention Amount shall be subject
to forfeiture by Key Employee in the event of any Forfeiture Event, as provided in this Section 3.
The risk of forfeiture imposed upon such rights and interests under this Agreement, together with
the restrictions on transferability provided for in this Agreement and the Escrow Agreement, are
referred to collectively as the “Restriction.” As of the Effective Time, the Restriction
shall apply with respect to 100% of the Retention Amount. The Restriction shall lapse with respect
to all or a portion of the Retention Amount, if at all, in accordance with this Section 3. The
portion of the Retention Amount that is subject to the Restriction is referred to as the
“Unvested Retention Amount,” and the portion of the Retention Amount that is no longer
subject to the Restriction is referred to as the “Vested Retention Amount.”

          (b) Except as provided in Sections 3(c) and 3(d), Key Employee shall forfeit the entire
Unvested Retention Amount, and all rights and interests of Key Employee in the Escrow Fund with
respect thereto, immediately upon a Forfeiture Event.

          (c) If no Forfeiture Event or Acceleration Event shall have previously occurred, the
Restriction shall lapse with respect to 100% of the Retention Amount on the second anniversary of
the Effective Time.

          (d) If no Forfeiture Event or Acceleration Event shall have previously occurred, the
Restriction shall lapse with respect to 100% of the Retention Amount upon the first to occur of (i)
Key Employee’s death or Complete Disability, (ii) a Separation From Service by Key Employee for
Good Reason, (iii) a Separation From Service of Key Employee effected by Company, Parent or any of
their Affiliates without Cause, or (iv) a Change of Control (each, an “Acceleration Event”).

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     4. Escrow.

          (a) Parent and Key Employee each agree to enter into the Escrow Agreement at or before the
Effective Time.

          (b) On the second anniversary of the Effective Time (or, if that day is not a Business Day, on
the first Business Day thereafter), unless the Escrow Agent shall theretofore have received a
written notice from Parent pursuant to Section 4(c) or 4(d) of this Agreement, the Escrow Agent
shall pay 100% of the Retention Amount to Key Employee, without any further need for instruction
from Parent, and Parent shall cease to have any further claims to, or rights or interests in, such
portion of the Retention Amount so paid to Key Employee, effective upon such payment.

          (c) Upon any lapse of the Restriction pursuant to Section 3(d) of this Agreement, Parent shall
deliver a written notice to the Escrow Agent, with a copy thereof to Key Employee, instructing the
Escrow Agent to pay the Retention Amount to Key Employee (or, in the case of Key Employee’s death,
to his estate) in accordance with the Escrow Agreement, and Parent shall immediately cease to have
any further claims to, or rights or interests in, the Retention Amount.

          (d) Upon any forfeiture by Key Employee with respect to the Unvested Retention Amount as
provided in Section 3(b), Parent shall deliver a written notice to the Escrow Agent, with a copy
thereof to Key Employee, instructing the Escrow Agent to pay the Unvested Retention Amount to
Parent in accordance with the Escrow Agreement, and Key Employee shall immediately cease to have
any further claims to, or rights or interests in, the Unvested Retention Amount.

          (e) Neither party shall give any instructions to the Escrow Agent except as expressly provided
in Sections 4(b), 4(c) and 4(d) (other than any joint instructions as to which both parties may
agree in writing).

          (f) Neither the Retention Amount held in escrow nor any interest or right therein or part
thereof shall be liable for the debts, contracts, or engagements of Key Employee or his successors
in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or
by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void
and without effect, ab initio; provided, however, that this Section 4(f) shall not
prohibit any transfer of Key Employee’s rights and interests hereunder by will or the laws of
descent and distribution.

     5. Notices. All notices, requests, demands, claims and other communications required or permitted
hereunder shall be duly given only if made in writing and personally delivered, mailed by first
class, certified or registered mail, postage prepaid, sent by a major national delivery service, or
sent by telecopier or facsimile (if confirmation of successful transmission is obtained). Any such
communications shall be effective (i) upon receipt, if personally delivered, (ii) on the fifth day
following the date of mailing, postage prepaid, if

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mailed, (iii) on the day of delivery if sent by
major national delivery service, or (iv) at the time transmission to the recipient’s telecopier or
facsimile machine is completed (as shown by such confirmation of transmission), if sent by
telecopier or facsimile. Any such communication shall be addressed to the parties at the following
addresses (or at such other address for a party as such party shall specify by like notice):

          (a) if to Parent or the Company:

Cypress Bioscience, Inc.

4350 Executive Drive, Suite 325

San Diego, CA 92121

Attn: Denise Wheeler, Vice President of Legal Affairs

Fax: (858) 452-1222

          (b) if to Key Employee, as set forth on Key Employee’s signature page hereto.

     6. Survival of Terms. This Agreement shall apply to and bind Key Employee, Parent and the Company, and their
respective permitted assignees and transferees, heirs, legatees, executors, administrators and
legal successors.

     7. Tax Matters. Key Employee has reviewed with his own tax advisors the federal, state, local and foreign
tax consequences of the transactions contemplated by the Merger Agreement, this Agreement, and the
Escrow Agreement and any receipt of funds and/or forfeiture hereunder and thereunder. Key Employee
is relying solely on such advisors and not on any statements or representations of Parent, the
Company or any of their agents. Key Employee understands that he or she (and not Parent) shall be
responsible for his or her own tax liability that may arise as a result of the transactions
contemplated by the Merger Agreement, this Agreement, and the Escrow Agreement and any receipt of
funds hereunder and thereunder.

     8. Withholding. The Escrow Agent shall be instructed by Parent or the Company to withhold from any
distributions of the Retention Amount pursuant to the Escrow Agreement any amounts required to be
withheld from such distributions under applicable federal, state, local or foreign law, including
without limitation any and all applicable withholding taxes.

     9. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the
State of California applicable to contracts executed and to be performed entirely within that
State.

     10. Amendments. This Agreement may not be amended or modified except by an instrument in writing signed by
Parent and Key Employee.

     11. No Right to Continued Employment. Subject to the Employment Agreement, and notwithstanding anything to the contrary, the
Company and Key Employee each have an absolute and unrestricted right to terminate Key Employee’s
employment with the Company at any time for any reason whatsoever, with or without Cause, and
nothing in this Agreement shall entitle Key Employee to any continued employment with the Company,
or to any employment with Parent.

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     12. Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and legal substance of
the transactions contemplated by this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.

     13. Entire Agreement; No Third-Party Beneficiaries. This Agreement, the Merger Agreement, the Escrow Agreement and the Employment Agreement
constitute the entire agreement, and supersede all prior representations, warranties, agreements
and understandings, both written and oral, among the parties with respect to the subject matter
hereof and thereof. This Agreement does not confer upon any Person other than the parties any
rights or remedies.

     14. Counterparts. This Agreement may be executed in one or more counterparts, all of which constitute a
single agreement, and shall become effective when one or more counterparts has been signed by each
of the parties and delivered to the other parties.

     15. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation
and execution of this Agreement and therefore waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or document.

     16. KEY EMPLOYEE REVIEW. KEY EMPLOYEE REPRESENTS THAT HE OR SHE HAS READ THIS AGREEMENT AND HAS BEEN REPRESENTED BY
COUNSEL IN CONNECTION WITH THE PREPARATION OF THIS AGREEMENT AND IS FAMILIAR WITH ITS TERMS AND
PROVISIONS.

     17. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to this Agreement
shall be settled by final and binding arbitration in accordance with the arbitration procedures and
the terms and conditions related thereto set forth in the Employment Agreement.

     18. Section 409A.

          (a) Payment of the Retention Amount is intended to be a short-term deferral within the meaning
of Section 409A of the Code, and this Agreement shall be interpreted, construed and administered in
a manner that satisfies such intention.

          (b) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge and
agree that any payment to be made, or benefit provided, to Key Employee pursuant to this Agreement
shall be delayed to the extent necessary for this Agreement and such payment or benefit to comply
with Section 409A.

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     19. Successors.

          (a) Successors to the Company. In the event of any merger, consolidation,
reorganization, statutory share exchange, conversion of the Company from a corporation to a limited
liability company or other legal entity or other transaction affecting the Company, that results in
the exchange or conversion of the common stock of the Company (other than the Merger) for or into
equity securities of (a) the successor to the Company in such transaction (a “Company
Successor”) or (b) any Person of which the Company or such successor is a wholly owned
subsidiary after giving effect to such transaction (a “Company Successor Parent”), then (i)
all references herein to the Company shall mean and refer to such Company Successor or Company
Successor Parent, as applicable and (ii) such Company Successor or Company Successor Parent, as
applicable, shall become a party to this Agreement, and be bound hereby, to the same extent as the
Company, as if such Person were a signatory hereto (whether or not such Person signs a counterpart
of this Agreement or enters into a joinder agreement or similar instrument with respect hereto).

          (b) Successors to Parent. In the event of any merger, consolidation, reorganization,
statutory share exchange, conversion of Parent from a corporation to a limited
liability company or other legal entity or other transaction affecting Parent, that results in
the exchange or conversion of any class of common stock of Parent for or into equity securities of
(a) the successor to Parent in such transaction (a “Parent Successor”) or (b) any Person of
which Parent or such successor is a wholly owned subsidiary after giving effect to such transaction
(a “Parent Successor Parent”), then, if (but only if) such transaction constitutes a Change
of Control, all references in this Agreement to Parent shall thereafter mean and refer to such
Parent Successor or Parent Successor Parent, as applicable.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, and intending to be legally hound hereby, the parties hereby execute and
deliver this Agreement, on and as of the date first set forth above.

	 	 	 	 	 
	 	CYPRESS BIOSCIENCE, INC.
 	 
	 	By:  	/s/ Sabrina Martucci Johnson 	 
	 	 	Name:  	Sabrina Martucci Johnson 	 
	 	 	Title:  	EVP, COO and CFO 	 
	 
	 	PROPRIUS, INC.
 	 
	 	By:  	/s/ Michael J. Walsh 	 
	 	 	Name:  	Michael J. Walsh 	 
	 	 	Title:  	President and CEO 	 
	 
	 	[KEY EMPLOYEE]

 	 
	 	 	 
	 	Address:

 	 
	 	Fax: 	 
	 

CONSENT OF SPOUSE

     I, __________________, spouse of ________________________ have read and approve the
foregoing Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to the
exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement
insofar as I may have any rights in said Agreement or any shares of common stock of the Company,
options to purchase shares of common stock of the Company, cash payments in exchange therefor or
any portion of the Retention Amount under the community property laws or similar laws relating to
marital property in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.

	 	 	 	 	 	 	 
	Dated:
	 	 	 	By:	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	Name:	 	 
	 
	 	 	 	 	 	 

[SIGNATURE PAGE TO RETENTION AGREEMENT]exv10w1

 

EXHIBIT
10.1

MCAFEE, INC.

PERFORMANCE STOCK UNIT ISSUANCE AGREEMENT

     RECITALS

          A. The Board has adopted the Plan for the purpose of retaining the services of selected
Employees who provide services to the Corporation (or any Parent or Subsidiary).

          B. The Participant is to render valuable services to the Corporation (or a Parent or
Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes
of, the Plan in connection with the Corporation’s issuance of shares of Common Stock to the
Participant under the Plan.

          C. All capitalized terms in this Agreement shall have the meaning assigned to them in the
attached Appendix A.

     NOW, THEREFORE, it is hereby agreed as follows:

          1. Grant of Performance Stock Units. The Corporation hereby awards to the
Participant, as of the Award Date, Performance Stock Units under the Plan. Each Performance Stock
Unit represents the right to receive one share of Common Stock on the vesting date of that unit.
Past services are deemed to be full consideration equal to the Performance Stock Unit par value.
The number of shares of Common Stock subject to the awarded Performance Stock Units, the applicable
vesting schedule for the Performance Stock Units and the underlying shares, the dates on which
those vested shares shall be issued to the Participant and the remaining terms and conditions
governing the award (the “Award”) shall be as set forth in this Agreement.

AWARD SUMMARY

	 	 	 
	Award
Date:

	 	                                        , 200___
	 
	 	 
	Number of Shares
Subject to Award:

	 	

                    
shares of Common Stock (the “Shares”)
	 
	 	 
	Performance Period(s):

	 
	 	 
	Performance Criteria:

	
                     of the Performance Stock Units will be
allocated to each of the                      Performance
Periods. With respect to each Performance Period,
the Participant will vest in the Performance
Stock Units allocated thereto in accordance with
the Vesting Schedule subject to achievement of
certain performance criteria, determined by the
Committee and set forth in the attached Appendix
B.
	 
	 	 
	Vesting Schedule:

	 	The Shares shall vest as follows, provided that
the performance criteria set forth in the
attached Appendix B for the applicable
Performance Period have been achieved:

 

 

	 	 	 
	 
	 	 
	 

	 	[VESTING SCHEDULE]
	 
	 	 
	 

	 	Such dates are herein designated the “Vesting
Dates.” In no event shall any Shares vest after
the date of the Participant’s termination of
Service. Notwithstanding the foregoing, if the
Participant’s termination occurs after the end of
a Performance Period, the Participant shall vest
in the Shares allocated to such completed
Performance Period on the applicable Vesting
Date, provided that the performance criteria for
such Performance Period have been achieved.
	 
	 	 
	Issuance Schedule:

	 	The Shares in which the Participant vests in
accordance with the foregoing Vesting Schedule
will be issuable immediately upon vesting.
	 
	 	 
	 

	 	However, the actual number of vested Shares to be
issued will be subject to the automatic Share
withholding provisions of Paragraph 7 pursuant to
which the applicable Withholding Taxes are to be
collected.

          2. Limited Transferability. Prior to actual receipt of the Shares which vest
hereunder, the Participant may not sell, pledge, assign, hypothecate, transfer or dispose of in any
way (whether by operation of law or otherwise) any interest in the Award or the underlying Shares,
except pursuant to a domestic relations order governing the division of marital property. Upon any
attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this Award, or any
right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or
similar process, this Award and the rights and privileges conferred hereby immediately will become
null and void. Any Shares which vest hereunder but which otherwise remain unissued at the time of
the Participant’s death may be transferred pursuant to the provisions of the Participant’s will or
the laws of inheritance or to the Participant’s designated beneficiary or beneficiaries of this
Award. The Participant may make such a beneficiary designation at any time by filing the
appropriate form with the Plan Administrator or its designate.

          3. Cessation of Service. Except as otherwise provided herein, should the Participant
cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the
Award will be immediately cancelled with respect to those unvested Shares, and the number of
Performance Stock Units will be reduced accordingly. The Participant shall thereupon cease to have
any right or entitlement to receive any Shares under those cancelled units.

          4. Transfer of Control.

               (a) Any Performance Stock Units subject to this Award at the time of a Transfer of Control may
be assumed by the successor entity or otherwise continued in full force and effect or may be
replaced with a cash incentive program of the successor entity which preserves the Fair Market
Value of any unvested shares of Common Stock subject to the Award

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at the time of the Transfer of Control and provides for subsequent payout of that value in
accordance with the vesting schedule applicable to the Award.

               (b) In the event the Award is assumed or otherwise continued in effect, the Performance Stock
Units subject to the Award will be adjusted immediately after the consummation of the Transfer of
Control so as to apply to the number and class of securities into which the Shares subject to those
units immediately prior to the Transfer of Control would have been converted in consummation of
that Transfer of Control had those Shares actually been issued and outstanding at that time. To
the extent the actual holders of the outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Transfer of Control, the successor corporation may, in
connection with the assumption or continuation of the Performance Stock Units subject to the Award
at that time, substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in the Transfer of Control
transaction, provided such common stock is readily tradable on an established U.S. securities
market.

               (c) If the Performance Stock Units subject to this Award at the time of the Transfer of
Control are not so assumed or otherwise continued in effect or replaced with a cash incentive
program in accordance with the foregoing provisions of this Paragraph 4, then those Performance
Stock Units shall terminate immediately upon the consummation of that Transfer of Control, and the
Participant shall cease to have any right or entitlement to receive any shares of Common Stock or
other securities, property or consideration with respect to the terminated Performance Stock Units.

               (d) This Agreement shall not in any way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

          5. Adjustment in Shares. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to the total number and/or class of securities
issuable pursuant to this Award in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.

          6. Issuance of Shares of Common Stock.

               (a) At such time as is set forth in the Issuance Schedule described in Paragraph 1 of this
Award (but in no event later than the date that is two-and-one-half months from the end of the
applicable Performance Period), the Corporation shall issue to or on behalf of the Participant a
certificate (which may be in electronic form) for the applicable number of underlying shares of
Common Stock, subject, however, to the Share withholding provisions of Paragraph 6(b) pursuant to
which the applicable Withholding Taxes are to be collected. Prior to actual payment of any vested
Shares, the Performance Stock Units shall represent an unsecured obligation. Notwithstanding
anything in the Plan or this Agreement to the contrary, if the

3

 

vesting of the balance, or some lesser portion of the balance, of the Performance Stock Units
is accelerated in connection with the Participant’s termination of Service (provided that such
termination is a “separation from service” within the meaning of Section 409A, as determined by the
Corporation), other than due to death, and if (x) the Participant is a “specified employee” within
the meaning of Section 409A at the time of such termination and (y) the payment of such accelerated
Performance Stock Units will result in the imposition of additional tax under Section 409A if paid
to the Participant on or within the six (6) month period following the Participant’s termination of
Service, then the payment of such accelerated Performance Stock Units will not be made until the
date six (6) months and one (1) day following the date of such termination, unless the Participant
dies during such six (6) month period, in which case, the Performance Stock Units will be paid to
the Participant’s estate as soon as practicable following his or her death, subject to Paragraph
6(b). It is the intent of this Agreement to comply with the requirements of Section 409A so that
none of the Performance Stock Units provided under this Agreement or Shares issuable thereunder
will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will
be interpreted to so comply. For purposes of this Agreement, “Section 409A” means Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), and any proposed, temporary or final
Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from
time to time.

               (b) On the date the vested Shares are to be issued hereunder to the Participant, the
Corporation shall automatically withhold a portion of those vested Shares with a Fair Market Value
(measured as of the vesting date) equal to the amount of the applicable Withholding Taxes;
provided, however, that the amount of the Shares so withheld shall not exceed the amount necessary
to satisfy the Corporation‘s required tax withholding obligations using the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes, that are applicable
to supplemental taxable income. No fractional share of Common Stock shall be so withheld, and the
Participant shall pay that portion of the Withholding Taxes in cash to the Corporation, either
directly or through withholding from his or her other wages.

               (c) In no event will any fractional shares be issued.

               (d) The holder of this Award shall not have any stockholder rights, including voting or
dividend rights, with respect to the Shares subject to the Award until the Participant becomes the
record holder of those Shares following their actual issuance after the satisfaction of the
applicable Withholding Taxes.

          7. Compliance with Laws and Regulations.

               (a) The issuance of shares of Common Stock pursuant to the Award shall be subject to
compliance by the Corporation and the Participant with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq Stock Market, if
applicable) on which the Common Stock may be listed for trading at the time of such issuance.

4

 

               (b) The inability of the Corporation to obtain approval from any regulatory body having
authority deemed by the Corporation to be necessary to the lawful issuance of any Common Stock
hereby shall relieve the Corporation of any liability with respect to the non-issuance of the
Common Stock as to which such approval shall not have been obtained. The Corporation, however,
shall use its best efforts to obtain all such approvals.

          8. Successors and Assigns. Except to the extent otherwise provided in this Agreement,
the provisions of this Agreement shall inure to the benefit of, and be binding upon, (i) the
Corporation and its successors and assigns and (ii) the Participant, the Participant’s assigns, the
legal representatives, heirs and legatees of the Participant’s estate and any beneficiaries of the
Award designated by the Participant.

          9. Notices. Any notice required to be given or delivered to the Corporation under the
terms of this Agreement shall be in writing and addressed to the Corporation at its principal
corporate offices. Any notice required to be given or delivered to the Participant shall be in
writing and addressed to the Participant at the address indicated below the Participant’s signature
line on this Agreement. All notices shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

          10. Construction. This Agreement and the Award evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All
decisions of the Plan Administrator with respect to any question or issue arising under the Plan or
this Agreement shall be conclusive and binding on all persons having an interest in the Award.

          11. Governing Law. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to that State’s
conflict-of-laws rules.

          12. Employment at Will. Nothing in this Agreement or in the Plan shall confer upon
the Participant any right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Participant) or of the Participant, which rights are hereby expressly
reserved by each, to terminate the Participant’s Service at any time for any reason, with or
without cause.

[***SECTIONS 13, 14 & 15 TO BE USED ONLY FOR GRANTS TO NON-U.S. EMPLOYEES

          13. Nature of Grant; No Entitlement; No claim for Compensation. In accepting the
grant of this Award for the number of Shares as specified above, the Participant acknowledges the
following:

               (a) The Plan is established voluntarily by the Corporation; it is discretionary in nature and
may be modified, amended, suspended or terminated by the

5

 

Corporation at any time. The grant of this Award is voluntary and occasional and does not
create any contractual or other right to receive future grants of awards, or benefits in lieu of
awards, even if awards have been granted repeatedly in the past. All decisions with respect to
future awards, if any, will be at the sole discretion of the Plan Administrator.

               (b) This Award is an extraordinary item that does not constitute compensation of any kind for
services of any kind rendered to the Corporation or its Parent or Subsidiaries (including, as
applicable, the Participant’s employer) and which is outside the scope of the Participant’s
employment contract, if any. This Award is not part of normal or expected compensation or salary
for any purpose, including, but not limited to, calculating any severance, resignation,
termination, redundancy, end of service payments, bonuses, long-service awards, pension or
retirement benefits or similar payments.

               (c) In the event that the Participant’s employer is not the Corporation, the grant of the
Award will not be interpreted to form an employment contract or relationship with the Corporation
and, furthermore, the grant of the Award will not be interpreted to form an employment contract
with the Participant’s employer or any Subsidiary.

               (d) In consideration of the grant of this Award, no claim or entitlement to compensation or
damages shall arise from termination of the Award or diminution in value of the Award or any of the
Shares issuable under the Award from termination of the Participant’s employment by the Corporation
or the Participant’s employer, as applicable (and for any reason whatsoever and whether or not in
breach of contract or local labor laws), and the Participant irrevocably releases the Participant’s
employer, the Corporation and its Parent and Subsidiaries, as applicable, from any such claim that
may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent
jurisdiction to have arisen, then, by signing this Agreement, the Participant shall be deemed to
have irrevocably waived his or her entitlement to pursue such claim.

          14. Data Privacy.

               (a) The Participant hereby explicitly and unambiguously consents to the collection, use and
transfer, in electronic or other form, of the Participant’s personal data as described in this
Agreement by and among, as applicable, the Participant’s employer, the Corporation and its Parent
and Subsidiaries for the exclusive purpose of implementing, administering and managing the
Participant’s participation in the Plan.

               (b) The Participant understands that the Participant’s employer, the Corporation and its
Parent and Subsidiaries, as applicable, hold certain personal information about the Participant
regarding the Participant’s employment, the nature and amount of the Participant’s compensation and
the fact and conditions of the Participant’s participation in the Plan, including, but not limited
to, the Participant’s name, home address and telephone number, date of birth, social insurance
number or other identification number, salary, nationality, job title, any shares of stock or
directorships held in the Corporation and its Parent and Subsidiaries, details of all options,
awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested
or outstanding in the Participant’s favor, for the purpose of

6

 

implementing, administering and managing the Plan (the “Data”). The Participant understands
that the Data may be transferred to any third parties assisting in the implementation,
administration and management of the Plan, including but not limited to outside auditors, that
these recipients may be located in the Participant’s country, or elsewhere, and that the
recipient’s country may have different data privacy laws and protections than the Participant’s
country. The Participant understands that the Participant may request a list with the names and
addresses of any potential recipients of the Data by contacting the Participant’s local human
resources representative. The Participant authorizes the recipients to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the purposes of implementing,
administering and managing the Participant’s participation in the Plan, including any requisite
transfer of such Data as may be required to a broker or other third party. The Participant
understands that the Data will be held only as long as is necessary to implement, administer and
manage the Participant’s participation in the Plan. The Participant understands that the
Participant may, at any time, view the Data, request additional information about the storage and
processing of the Data, require any necessary amendments to the Data or refuse or withdraw the
consents herein, in any case without cost, by contacting in writing the Participant’s local human
resources representative. The Participant understands, however, that refusing or withdrawing the
Participant’s consent may affect the Participant’s ability to participate in the Plan. For more
information on the consequences of the Participant’s refusal to consent or withdrawal of consent,
the Participant understands that the Participant may contact Participant’s local human resources
representative.

          15. Electronic Delivery. The Corporation may, in its sole discretion, decide to
deliver any document related to the Award, the Plan or future awards that may be granted under the
Plan by electronic means, and the Participant hereby consents to receive such documents by
electronic delivery.]

          16. Restrictions on Sale of Securities. The Shares issued as payment for vested
Performance Stock Units under this Agreement will be registered under U.S. federal securities laws
and will be freely tradable upon receipt. However, a Participant’s subsequent sale of the Shares
may be subject to any market blackout-period that may be imposed by the Corporation and must comply
with the Corporation’s insider trading policies, and any other applicable securities laws.

          17. Captions. Captions provided herein are for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.

          18. Agreement Severable. In the event that any provision in this Agreement will be
held invalid or unenforceable, such provision will be severable from, and such invalidity or
unenforceability will not be construed to have any effect on, the remaining provisions of this
Agreement.

          19. Modifications to the Agreement. This Agreement constitutes the entire
understanding of the parties on the subjects covered. The Participant expressly warrants that he
or she is not accepting this Agreement in reliance on any promises, representations, or inducements
other than those contained herein. Modifications to this Agreement or the Plan can

7

 

be made only in an express written contract executed by a duly authorized officer of the
Corporation. Notwithstanding anything to the contrary in the Plan or this Agreement, the
Corporation reserves the right to revise this Agreement as it deems necessary or advisable, in its
sole discretion and without the consent of the Participant, to comply with Section 409A or to
otherwise avoid imposition of any additional tax or income recognition under Section 409A prior to
the actual payment of Shares pursuant to this Award.

          20. Amendment, Suspension or Termination of the Plan. By accepting this Award, the
Participant expressly warrants that he or she has received a right to receive stock under the Plan,
and has received, read and understood a description of the Plan. The Participant understands that
the Plan is discretionary in nature and may be amended, suspended or terminated by the Corporation
at any time.

          IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first
indicated above.

	 	 	 	 	 
	 

	 	MCAFEE, INC.	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	PARTICIPANT	 	 
	 
	 	 	 	 
	 

	 	Signature:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 

8

 

APPENDIX A

DEFINITIONS

          The following definitions shall be in effect under the Agreement:

          A. Agreement shall mean this Performance Stock Unit Issuance Agreement.

          B. Award shall mean the award of Performance Stock Units made to the
Participant pursuant to the terms of this Agreement.

          C. Award Date shall mean the date the Performance Stock Units are awarded to
the Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of
the Agreement.

          D. Board shall mean the Corporation’s Board of Directors.

          E. Code shall mean the Internal Revenue Code of 1986, as amended.

          F. Common Stock shall mean shares of the Corporation’s common stock.

          G. Corporation shall mean McAfee, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock of McAfee,
Inc. which shall by appropriate action adopt the Plan.

          H. Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the employer entity
as to both the work to be performed and the manner and method of performance.

          I. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

          (i) If the Common Stock is at the time traded on the Nasdaq Stock Market, then
the Fair Market Value shall be the closing selling price per share of Common Stock
on the Nasdaq National Market on the date in question, as such price is reported by
the National Association of Securities Dealers and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

A-1

 

          (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair
Market Value shall be the closing selling price per share of Common Stock on the
date in question on the Stock Exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

          J. Participant shall mean the person to whom the Award is made pursuant to the
Agreement.

          K. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

          L. Plan shall mean the Corporation’s 1997 Stock Incentive Plan, as amended
from time to time.

          M. Plan Administrator shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.

          N. Performance Stock Unit is defined as the right to receive one share of
common stock with a par value of $0.01 upon vesting in accordance with the terms of the
Agreement.

          O. Service shall mean the Participant’s performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor. For purposes of
this Agreement, the Participant shall be deemed to cease Service immediately upon the
occurrence of the either of the following events: (i) the Participant no longer performs
services in any of the foregoing capacities for the Corporation (or any Parent or
Subsidiary) or (ii) the entity for which the Participant performs such services ceases to
remain a Parent or Subsidiary of the Corporation, even though the Participant may
subsequently continue to perform services for that entity. Service shall not be deemed to
cease during a personal leave approved by the Corporation.

          P. Stock Exchange shall mean the American Stock Exchange or the New York Stock
Exchange.

          Q. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each corporation
(other than the last corporation) in the unbroken chain owns, at

A-2

 

the time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other corporations in
such chain.

          R. Transfer of Control shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

          (i) the direct or indirect sale or exchange by the stockholders of the Corporation of
all or substantially all of the voting stock of the Corporation wherein the stockholders of
the Corporation immediately before such sale or exchange do not retain in substantially the
same proportions as their ownership of shares of the Corporation’s voting stock immediately
before such event, directly or indirectly (including, without limitation, through their
ownership of shares of the voting stock of a corporation which, as a result of such sale or
exchange, owns the Corporation either directly or indirectly through one or more
subsidiaries), at least a majority of the beneficial interest in the voting stock of the
Corporation immediately after such sale or exchange;

          (ii) a merger or consolidation where the stockholders of the Corporation immediately
before such merger or consolidation do not retain in substantially the same proportions as
their ownership of shares of the Corporation’s voting stock immediately before such event,
directly or indirectly (including, without limitation, through their ownership of shares of
the voting stock of a corporation which, as a result of such merger or consolidation, owns
the Corporation either directly or through one or more subsidiaries), at least a majority of
the beneficial interest in the voting stock of the Corporation immediately after such merger
or consolidation;

          (iii) the sale, exchange, or transfer of all or substantially all of the assets of the
Corporation (other than a sale, exchange, or transfer to one or more corporations (the
“Transferee Corporation(s)”) wherein the stockholders of the Corporation immediately before
such sale, exchange or transfer retain in substantially the same proportions as their
ownership of shares of the Corporation’s voting stock immediately before such event,
directly or indirectly (including, without limitation, through their ownership of shares of
the voting stock of a corporation which owns the Transferee Corporation(s) either directly
or through one or more subsidiaries), at least a majority of the beneficial interest of the
voting stock of the Transferee Corporation(s) immediately after such event; or

          (iv) a liquidation or dissolution of the Corporation.

          S. Withholding Taxes shall mean the federal, state and local income taxes and
the employee portion of the federal, state and local employment taxes required to be
withheld by the Corporation in connection with the issuance of the shares of Common Stock
which vest under of the Award.

A-3

 

APPENDIX B

PERFORMANCE CRITERIA

The Performance Criteria applicable to the Performance Stock Units allocated to each Performance
Period is as follows:

B-1

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