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[CYBERMEDIA LETTERHEAD]
August 3, 1998
To Our Stockholders:
On behalf of the Board of Directors of CyberMedia, Inc. (the "Company"), we
are pleased to inform you that on July 28, 1998, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Networks Associates,
Inc. and Cyclone Acquisition Corp., its wholly owned subsidiary, pursuant to
which Cyclone Acquisition Corp. today has commenced a cash tender offer (the
"Offer") to purchase all of the outstanding shares (the "Shares") of the Common
Stock of the Company at $9.50 per share. Under the Merger Agreement, upon
satisfaction of certain conditions, the Offer will be followed by a merger (the
"Merger") in which any remaining Shares will be converted into the right to
receive $9.50 per Share in cash, without interest (except any Shares as to which
the holder has properly exercised dissenter's rights of appraisal). Stockholders
owning approximately 21% of the Company's outstanding Shares have agreed to
tender their Shares in the Offer.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY (A) DETERMINED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF
THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS
OF THE SHARES, (B) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND (C) RESOLVED TO RECOMMEND THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND APPROVE AND ADOPT THE MERGER
AGREEMENT AND APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board of Directors considered the opinion of its financial
advisor, Hambrecht & Quist LLC, that the consideration to be received by the
holders of Shares in the Offer and Merger is fair to such holders from a
financial point of view.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase dated August 3, 1998, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
shares pursuant to the Offer.
On behalf of the Board of Directors,
LOGO
Kanwal Rekhi
Chief Executive Officer and
Chairman of the Board
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
CYBERMEDIA, INC.
(NAME OF SUBJECT COMPANY)
CYBERMEDIA, INC.
(NAMES OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
------------------------
23249P107
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
KANWAL REKHI
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
CYBERMEDIA, INC.
2850 OCEAN PARK BLVD., SUITE 100
SANTA MONICA, CA 90405
(310) 664-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------
WITH A COPY TO:
ARTHUR F. SCHNEIDERMAN, ESQ.
BLAIR W. STEWART, JR., ESQ.
DANIEL R. MITZ, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is CyberMedia, Inc., a Delaware corporation
(the "Company"). The address of the principal executive offices of the Company
is 2850 Ocean Park Boulevard, Suite 100, Santa Monica, California 90405. The
title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9"
or "Statement") relates is the common stock, $0.01 par value, of the Company
(the "Common Stock"). Unless the context otherwise requires, as used herein the
term "Shares" shall mean shares of Common Stock.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated August 3, 1998 (as amended
or supplemented, the "Schedule 14D-1"), filed by Networks Associates, Inc., a
Delaware Corporation ("Parent"), and Cyclone Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Purchaser"), with the
Securities and Exchange Commission (the "SEC"), relating to an offer to purchase
all of the issued and outstanding Shares at $9.50 per Share (such amount, or any
greater amount per Share paid pursuant to the Offer, hereinafter referred to as
the "Offer Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in Purchaser's Offer to Purchase, dated August 3, 1998 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
with any amendments or supplements thereto constitute the "Offer Documents").
The Offer is being made in accordance with an Agreement and Plan of Merger,
dated July 28, 1998 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. Pursuant to the Merger Agreement, as soon as practicable after
completion of the Offer and satisfaction or waiver, if permissible, of certain
conditions, Purchaser will be merged with and into the Company (the "Merger"),
and the Company will become a wholly owned subsidiary of Parent (the "Surviving
Corporation"). At the effective time of the Merger (the "Effective Time"), each
Share issued and outstanding immediately prior to the Effective Time (other than
Shares held by Parent, Purchaser, the Company or any of their wholly-owned
subsidiaries and Shares held by stockholders of the Company who will have
properly perfected their dissenters' rights, if any, under Delaware law) will be
converted into the right to receive the Offer Price without interest. The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
The Offer Documents indicate that the principal executive offices of Parent
and Purchaser are located at 3965 Freedom Circle, Santa Clara, California 95054.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Proxy Statement, dated May 6, 1998,
relating to its June 10, 1998 Annual Meeting of Stockholders (the "Proxy
Statement") under the headings "Security Ownership of Certain Beneficial
Owners," "Directors and Management," "Director Compensation," "Compensation of
Executive Officers," "Stock Option Grants and Exercises -- Option Grants in Last
Fiscal Year," "Employment Agreements," "Certain Relationships and Related
Transactions" and "Report of the Compensation Committee of the Board of
Directors." A copy of the applicable portions of the Proxy Statement has been
filed as an exhibit to this Schedule 14D-9 and is incorporated herein by
reference.
Certain Agreements and Plans
Executive Employment Policy. The Company established an Executive
Employment Policy (the "VP Policy") applicable to each Vice President ("VP") of
the Company. Pursuant to the VP Policy, upon a Termination due to Change of
Control (as defined below) of a VP or upon Termination without Cause of a
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VP (as defined below), such VP is entitled to the following (provided that each
of such severance benefits shall be given to a VP on only one occasion):
Severance Payment. Such VP will receive a lump sum severance payment (the
"Severance Payment") equal to six months annual base salary in effect
immediately prior to the termination, subject to all applicable withholding and
employment taxes. The Severance Payment will be reduced by the amount of pay the
VP receives in lieu of notice under the Worker Adjustment and Retraining Act, if
applicable. The VP Policy provides that the benefits provided under the VP
Policy shall be in lieu of any other severance plan benefits provided by the
Company under any other plan, policy, or agreement, such that the severance
benefits payable under the VP Policy shall be reduced by any severance paid or
payable to the VP by the Company under any other plan, policy or agreement;
provided, however, that if the VP is entitled under any prior written and
executed agreement to severance benefits that are greater than the severance
benefits provided under the VP Policy, the VP shall not forfeit his/her rights
to the difference between the severance benefits provided under such agreement
and the severance benefits provided under the VP Policy.
Coverage Under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"). If such VP elects COBRA continuation coverage pursuant to federal
law, the Company shall pay the VP's COBRA premiums for a six month period after
such VP's termination.
Acceleration of Option Vesting. In addition to any vesting or accelerated
vesting under the Company's Option Plans (as defined below in "Company Stock
Plans"), such VP's unvested stock options shall immediately vest as if the VP
were employed for an additional 12 months. Such VP shall have 90 days following
his or her termination date to exercise vested shares. The period to exercise
shall be extended, but only as long as necessary in order to allow the VP to
exercise such options without violating regulatory trading rules.
Benefits. Such VP shall receive the benefits, if any, under the Company's
401(k) Plan, employee bonus plans, employee stock purchase plans and other
Company benefit plans to which the VP may be entitled pursuant to the terms of
such plans. The VP's participation and rights in other benefit plans as may be
provided by the Company at the time of his or her termination of employment
shall be governed solely by the terms and conditions of such other plans, if
any. All other wages and vacation accrued through the date of termination shall
be paid, but there shall be no proration of incentive bonus unless "earned"
under the provision of the applicable incentive bonus plan.
As used in the VP Policy, (i) a "Termination due to Change of Control"
means a Termination without Cause that occurs within one year after a Change of
Control, as defined below; (ii) "Termination without Cause" means (A) any
termination of a VP initiated by the Company unless Cause (as defined below) is
the grounds for termination; (B) any termination of a VP, initiated by a VP, for
a reason that constitutes a Constructive Termination (as defined below); or (C)
a termination, initiated by a VP, because any successor to the Company fails to
assume the obligations under the VP Policy; provided that notwithstanding the
foregoing, the term "Termination without Cause" shall not mean any termination
of a VP due to a VP's death, retirement, or permanent disability; (iii) "Cause"
means (A) any act of fraud, misappropriation, embezzlement, or other act of
material and unlawful dishonesty taken by a VP against the Company; (B) the
conviction of a felony which the Company reasonably believes had or will have a
material detrimental effect on the Company's reputation or business, (C) any act
by a VP which constitutes gross misconduct and is injurious to the Company and
(D) any act by a VP which the Company determines constitutes a breach of
security and is injurious to the Company; (iv) Change of Control means the
occurrence of any of the following events: (A) a merger or consolidation
involving the Company in which the shareholders of the Company immediately prior
to such merger or consolidation own less than 50% of the voting power of the
surviving corporation, (B) the sale of all or substantially all, of the assets
of the Company or (C) any person, (as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or group (within the meaning of Rule 13d
of the Exchange Act) becoming the beneficial owner (within the meaning of Rule
13d-3 of the Exchange Act) of securities representing more than 50% of the
voting power of the Company then outstanding; and (v) (D) "Constructive
Termination" means the occurrence of any of the following conditions, without
the VP's written consent, which condition(s) remain(s) in effect 20 days after
written
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notice to the Company Board from the VP of such condition(s): (A) a decrease in
the VP's base salary, or material decrease in the VP's annual target bonus,
quarterly bonus, or employee benefits; (B) a material decrease in the VP's
position, authority, duties and responsibilities; or (C) the relocation of the
VP to a facility or location more than thirty (30) miles from the VP's
then-existing facility or location.
The Merger Agreement
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement which is incorporated by reference herein and a copy of
which has been filed as an Exhibit to this Schedule.
Commencement of the Offer. The Merger Agreement provides that as promptly
as practicable but in no event later than five business days after the date of
the Merger Agreement, Purchaser shall, and Parent shall cause Purchaser to,
commence the Offer at the Offer Price.
Merger. The Merger Agreement provides that, as soon as practicable after
expiration of the Offer and the receipt of any required approvals and adoption
of the Merger Agreement by the stockholders of the Company, to the extent
required by the Delaware General Corporation Law (the "DGCL"), and the
satisfaction or waiver, if possible, of certain other conditions contained in
the Merger Agreement, Purchaser will be merged with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") (the "Effective Time").
Vote Required to Approve Merger. In the Merger Agreement, the Company has
agreed, if required by the DGCL in order to consummate the Merger, to take all
action necessary in accordance with the DGCL to convene and hold a special
meeting of its stockholders (the "Special Meeting") for the purpose of
considering and taking action on the Merger Agreement as soon as practicable
following the acceptance for payment of and payment for Shares by Purchaser
pursuant to the Offer. The Company has further agreed that if a Special Meeting
is convened, the Company shall prepare and file with the Commission a
preliminary proxy statement relating to the Merger and the Merger Agreement, and
use its best efforts (i) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond as soon as practicable to any comments made
by the Commission with respect to the preliminary proxy statement and cause a
definitive proxy statement (the "Proxy Statement") to be mailed to its
stockholders and (ii) to obtain the necessary approvals of the Merger and
adoption of the Merger Agreement by its stockholders. Subject to compliance with
applicable fiduciary duties, the Company, acting through its Board of Directors,
shall include in the Proxy Statement the recommendation of its Board of
Directors that stockholders of the Company vote in favor of approval and
adoption of the Merger and the Merger Agreement. In the event that proxies are
to be solicited from the Company's stockholders, the Company shall use its best
efforts to obtain the necessary approvals of the Merger and adoption of the
Merger Agreement by stockholders. At any such Special Meeting, Parent and
Purchaser have agreed that all of the Shares then owned by Parent, Purchaser or
any other subsidiaries of Parent will be voted in favor of the Merger.
Board Representation. If Purchaser purchases Shares pursuant to the Offer,
the Merger Agreement provides that Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Company Board
as is equal to the product of the total number of directors (determined after
giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Shares beneficially owned by Parent
or its affiliates bears to the total number of Shares then outstanding. The
Company has further agreed, upon request of Parent, to promptly take all actions
necessary to cause Parent's designees to be so elected, including, if necessary,
increasing the size of the Company Board (to the extent permitted by the
Company's Certificate of Incorporation and By-Laws) and/or seeking the
resignations of one or more existing directors, provided, however, that prior to
the Effective Time, the Company Board shall at all times have at least two
members who are members of the Company Board on the date of the Merger Agreement
and are neither officers of the Company or any of its subsidiaries, nor officers
or directors of Purchaser or any of its affiliates, or other independent
directors appointed to replace such persons.
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Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Purchaser, the Company or the
stockholders of the Company, each Share issued and outstanding immediately prior
thereto (other than Shares held by Parent, Purchaser, the Company or any of
their wholly-owned subsidiaries and Shares with respect to which appraisal
rights are properly exercised ("Dissenting Shares")) shall be canceled and
extinguished and shall be converted into the right to receive the Offer Price.
Each share of common stock of Purchaser issued and outstanding immediately prior
to the Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of Purchaser, the Company or the holders of
Shares, be converted into and shall thereafter evidence one validly issued and
outstanding share of common stock of the Surviving Corporation.
Assumption of Stock Option Plans. The Merger Agreement provides that at the
Effective Time each option outstanding under any of the Option Plans (an
"Option") shall be assumed by Parent and shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Option (including, without limitation, any repurchase rights or vesting
provisions) shares of Common Stock, $0.01 par value, of Parent ("Parent Common
Stock"), except that (i) such Option shall be exercisable for that number of
shares of Parent Common Stock equal to the product of the number of Shares that
were issuable upon exercise of such Option immediately prior to the Effective
Time multiplied by a fraction, the numerator of which is the Offer Price and the
denominator of which is the average of the last reported sale prices of Parent
Common Stock on the five trading days immediately preceding the date of the
Effective Time, rounded down to the nearest whole number of shares of Parent
Common Stock and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Option will be equal to the
aggregate exercise price for the Shares purchasable pursuant to such Option
immediately prior to the Effective Time divided by the number of full shares of
Parent Common Stock purchasable thereafter in accordance with the foregoing,
rounded down to the nearest whole cent.
Cancellation of Warrants. The Merger Agreement provides that Parent shall
not assume or continue any outstanding warrants for Shares ("Warrants"). The
Company, Parent and Purchaser have agreed that all appropriate action will be
taken to provide that, at or following the Effective Time, each holder of an
outstanding Warrant shall be entitled to receive an amount in cash equal to the
product of (i) the excess, if any, of the Offer Price over the per share
exercise price of such Warrant and (ii) the number of Shares subject to such
Warrant which are exercisable immediately prior to the Effective Time.
Employee Benefit Arrangements. The Merger Agreement provides that the
Company shall, and Parent shall cause the Company to, honor and, from and after
the Effective Time, the Surviving Corporation to honor, all obligations under
the employment and severance agreements to which the Company or any of its
subsidiaries is presently a party. Notwithstanding the foregoing, from and after
the Effective Time, the Surviving Corporation shall have the right to amend,
modify, alter or terminate any Company Employee Plan (as defined below),
provided that any such action shall not affect any rights for which the
agreement or consent of the other party or a beneficiary is required; provided
that, except as prohibited by the Company's 401(k) plan or applicable law, the
Company will promptly take any and all actions necessary and appropriate to
terminate the Company's 401(k) plan, including without limitation (i) adoption
of resolutions by the Company Board terminating the 401(k) plan immediately
prior to consummation of the Offer and (ii) timely delivery of any notices
required under the terms of the 401(k) plan. "Company Employee Plan" is defined
as any plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA which is or has been maintained, contributed
to, or required to be contributed to, by the Company or any affiliate of the
Company for the benefit of any employee of the Company.
In addition, employees of the Surviving Corporation immediately following
the Effective Time who immediately prior to the Effective Time were employees of
the Company or any Company subsidiary shall be given credit for purposes of
eligibility and vesting under each employee benefit plan, program, policy or
arrangement of Parent or the Surviving Corporation in which such employees
participate subsequent to the Effective Time for all service with the Company
and any Company subsidiary prior to the Effective Time (to
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the extent such credit was given by the Company or any Company subsidiary) for
purposes of eligibility and vesting.
Conditions to the Offer.
The Merger Agreement provides that, notwithstanding any other provision of
the Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time, Purchaser shall not be required to
accept for payment or pay for, or may terminate or amend the Offer and may
postpone the acceptance of, and payment for, subject to Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (whether or not
any Shares have theretofore been accepted for payment or paid for pursuant to
the Offer), any Shares tendered pursuant to the Offer if at Midnight, New York
City time, on Friday, August 28, 1998 (the "Expiration Date") (i) the Minimum
Condition (as defined below) is not satisfied, (ii) any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvement of 1976 Act, as amended
(the "Hart-Scott-Rodino Act"), shall not have expired or been terminated, or
(iii) any of the following exist:
(a) any statute, rule, regulation, legislation, ruling, judgment,
order or injunction enacted, enforced, promulgated, amended, issued or
deemed applicable to the Offer or the Merger, by any governmental entity of
competent jurisdiction that (1) makes illegal or otherwise prohibits
consummation of the Offer or the Merger, (2) prohibits or materially limits
the ownership or operation by Parent or Purchaser of all or any substantial
portion of the business or assets of the Company (or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as
a whole), or compels Parent or Purchaser to dispose of, divest or hold
separately all or any substantial portion of the business or assets of
Parent, Purchaser or the Company (or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole), or imposes
any material limitation on the ability of Parent or Purchaser to conduct
its business or own such assets, (3) imposes any material limitation on the
ability of Parent or Purchaser effectively to acquire, hold or exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote any Shares acquired or owned by Purchaser or Parent on the
adoption of the Merger Agreement and all other matters properly presented
to the Company's stockholders, (4) requires divestiture by Parent or
Purchaser of any Shares, or (5) results in a Material Adverse Effect on the
Company (for the purposes of the Merger Agreement, the term "Material
Adverse Effect" when used in connection with an entity is defined as any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition or results of operations
of such entity and its subsidiaries, taken as a whole, except for those
changes, events and effects that (i) are directly caused by conditions
affecting the United States economy as a whole or affecting the industry in
which such entity competes as a whole, which conditions do not affect such
entity in a disproportionate manner, or (ii) are related to or result from
the announcement or pendency of the Offer and/or the Merger); or
(b) there shall be instituted and pending any action or proceeding by
any governmental entity that would reasonably be expected to result in any
of the consequences referred to in clauses (1) through (5) of paragraph (a)
above; or
(c) any change shall have occurred that has had, or reasonably would
be expected to have, a Material Adverse Effect on the Company; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement, when read without any exception or qualification
as to materiality or Material Adverse Effect, shall not be true and
correct, as if such representations and warranties were made immediately
prior to the consummation of the Offer (except as to any such
representation or warranty which speaks as of a specific date, which must
be untrue or incorrect as of such specific date), except where the failure
or failures to be so true and correct, individually or in the aggregate, do
not and would not reasonably be expected to have a Material Adverse Effect
on the Company; or
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(f) the Company shall have failed to perform or to comply with any of
its obligations, covenants or agreements under the Merger Agreement in any
material respect.
"Minimum Condition" means that a number of Shares outstanding that would
constitute at least a majority of the Shares then outstanding, on a fully
diluted basis (including for the purpose of such calculation all Shares issuable
upon exercise of all Options and Warrants which are vested or scheduled to vest
on or before October 31, 1998 with an exercise price less than the Offer Price,
and conversion of all convertible securities or other rights to purchase or
acquire Shares with a conversion price less than the Offer Price) shall be
validly tendered and not withdrawn prior to the Expiration Date or shall be held
by Parent, Purchaser or any affiliate thereof or issuable upon the exercise or
conversion of any equity or debt security held by Parent, Purchaser or any
affiliate thereof which is then exercisable or convertible.
The foregoing conditions (including those set forth in clauses (i) and (ii)
of the initial paragraph) are for the benefit of Parent and Purchaser and may be
asserted by Parent or Purchaser regardless of the circumstances giving rise to
any such conditions (except for any action or inaction in material breach of the
Merger Agreement by Parent or Purchaser) and, except for the Minimum Condition,
may be waived by Parent or Purchaser, in whole or in part, at any time and from
time to time in their sole discretion, in each case, subject to the terms of the
Merger Agreement. The failure by Parent or Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
Conditions to Obligations of All Parties to the Merger. The respective
obligations of Parent, Purchaser and the Company to consummate the Merger are
subject to the following conditions: (i) the stockholders of the Company shall
have duly approved and adopted the Merger Agreement if required by the DGCL;
(ii) Purchaser shall have accepted for payment and paid for Shares pursuant to
the Offer in accordance with the terms of the Merger Agreement; and (iii) the
consummation of the Merger shall not be restrained, enjoined or prohibited by
any order, judgment, decree, injunction or ruling and there shall not have been
any statute, rule or regulation enacted, promulgated or issued which prevents
the consummation of the Merger or has the effect of making the purchase of the
Shares illegal.
Schedule 14D-9. In the Merger Agreement, the Company has agreed that
concurrently with the filing by Parent and Purchaser of the Schedule 14D-1, or
promptly thereafter on the same day, it will file with the Commission this
Schedule 14D-9 (the "Schedule 14D-9") containing the recommendation of the
Company Board that the Company's stockholders accept the Offer, and approve and
adopt the Merger Agreement and approve the transactions contemplated thereby and
shall disseminate the Schedule 14D-9 as required by Rule 14d-9 under the
Exchange Act, provided, that such recommendation may be withdrawn, modified or
amended in connection with a Superior Proposal (as defined below).
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser,
including, but not limited to, representations and warranties relating to the
Company's organization and qualification, capitalization, obligations with
respect to capital stock, authority to enter into the Merger Agreement and carry
out the transactions contemplated thereby, Commission filings (including
financial statements), absence of certain changes or events, taxes, title to
properties, absence of liens and encumbrances, intellectual property,
compliance, permits and restrictions, litigation, broker's and finder's fees,
employee benefit plans and employee matters, environmental matters, agreements,
contracts and commitments, change of control payments, customs and information
supplied by the Company. The Company has also represented that the Company Board
has taken or will take all action so that the restrictions contained in Section
203 of the DGCL applicable to a "business combination" (as defined in such
Section 203) will not apply to the execution, delivery or performance of the
Merger Agreement or the Company Option Agreement or to the consummation of the
Offer or the Merger or any of the other transactions contemplated by the Merger
Agreement.
Parent and Purchaser have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating to Parent's and Purchaser's organization and qualification,
their authority to enter into the Merger Agreement and consummate the Offer and
the Merger, required consents and approvals, documents related to the Offer, the
availability of sufficient funds
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necessary to satisfy all of Parent's and Purchaser's obligations to purchase all
outstanding Shares pursuant to the Offer and the Merger and to pay all related
fees and expenses, and the absence of certain litigation.
Conduct of Company's Business Pending Merger. Except as contemplated by the
Merger Agreement, during the period from the date of the Merger Agreement and
continuing until the earlier of the termination of the Merger Agreement pursuant
to its terms, the Effective Time, or such time as Parent's designees shall
constitute a majority of the Company Board, the Company has agreed that the
Company and each of its subsidiaries shall, except to the extent that Parent
shall otherwise consent in writing, carry on its business, in all material
respects, in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations, pay its debts and taxes when due, subject
to good faith disputes over such debts or taxes, pay or perform other material
obligations when due, subject to good faith disputes over such obligations, and
use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees, and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In addition, except as permitted
by the terms of the Merger Agreement, without the prior written consent of
Parent, during such period, the Company has agreed not to do any of the
following and not to permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, or accelerate, amend or change
the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock
plans or authorize cash payments in exchange for any options granted under
any of such plans except pursuant to written agreements outstanding, or
policies existing, on the date of the Merger Agreement;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date of the Merger Agreement, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company's
intellectual property, or enter into grants to future patent, copyright or
other intellectual property rights, other than non-exclusive licenses
granted in the ordinary course of business and consistent with past
practice (it being agreed that Parent shall not unreasonably withhold
consent to any non-exclusive license agreement related to the Company's
enterprise business and that Parent's failure to reasonably object to any
such agreement within five business days of any request for consent shall
constitute such consent);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock; provided that any
of the Company's wholly-owned subsidiaries may declare, set aside or pay
dividends or make other distributions with respect to their capital stock
in the ordinary course of business and consistent with past practices.
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination
of the service relationship with any employee, director or consultant
pursuant to stock option or purchase agreements in effect on the date of
the Merger Agreement (which repurchases the Company shall be obligated to
effectuate if the repurchase price is less than the Offer Price);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of the capital stock of the Company or any of its subsidiaries, or
any securities convertible into shares of such capital stock, or
subscriptions, rights, warrants or options to acquire any shares of such
capital stock or any securities convertible into shares of capital stock,
or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than (i) the
issuance, delivery and/or sale of Shares pursuant to the exercise of
Options therefor outstanding as of the date of the Merger
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<PAGE> 10
Agreement, and (ii) the grant of employee stock options, consistent with
the Company's established past practice for similarly situated employees,
to non-officer employees who are hired in accordance with the Merger
Agreement;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or, except
as permitted by the Merger Agreement, otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of the Company or enter into any joint venture, strategic
partnership or alliance;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets that are material, individually or in the aggregate,
to the business of the Company, except sales of inventory and used
equipment, or the license of the Company's products in the ordinary course
of business consistent with past practice (it being agreed that Parent
shall not unreasonably withhold consent to any non-exclusive license
agreement related to the Company's enterprise business and that Parent's
failure to reasonably object to any such agreement within five business
days of any request for consent shall constitute such consent);
(j) Incur, assume or pre-pay any indebtedness for borrowed money,
guarantee any indebtedness or obligation of another person, issue or sell
any debt securities or options, warrants, calls or other rights to acquire
any debt securities, enter into any "keep well" or other agreement to
maintain any financial statement condition or enter into any arrangement
having the economic effect of any of the foregoing other than (i) in
connection with the financing of ordinary course trade payables consistent
with past practice, (ii) pursuant to existing credit facilities in the
ordinary course of business, or (iii) as contemplated by the Merger
Agreement;
(k) Hire any employee, except replacements for former non-officer
employees, hired in the ordinary course of business consistent with past
practice;
(l) Adopt or amend any employee stock purchase or employee stock
option plan, or adopt or amend any material employee benefit plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable
"at will"), pay any special bonus or special remuneration to any director,
employee or consultant except pursuant to written agreements outstanding on
the date of the Merger Agreement and previously disclosed in writing to
Parent, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of any of its directors,
officers, employees or consultants other than normal periodic salary
increases for non-officer employees made in the ordinary course of
business, consistent with past practice, or change in any material respect
any management policies or procedures;
(m) Make any payments outside of the ordinary course of business in an
aggregate amount in excess of $250,000;
(n) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary thereof is a party or waive, release or assign any material
rights or claims thereunder;
(o) Enter into, amend or extend any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by
third parties of the Company's products or products licensed by the
Company, other than agreements, extensions or amendments that grant
non-exclusive rights to such third parties and provide for termination by
the Company for convenience on not more than 60 days' notice;
(p) Materially revalue any of its assets (other than the booking of
reserves in the ordinary course of business and consistent with past
practices) or, except as required by a change in law or in GAAP or the
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<PAGE> 11
rules of the SEC, make any change in accounting methods, principles or
practices, including inventory accounting practices;
(q) Make any loans, advances or capital contributions to, or
investments in, any other person or entity, except for loans, advances,
capital contributions or investments between any wholly-owned subsidiary of
the Company and the Company or another wholly-owned subsidiary of the
Company and advances of business related expenses (including expenses
related to business travel) to employees in the ordinary course and
consistent with past practice;
(r) Authorize or make capital expenditures beyond those provided in
the Company's existing capital expenditure budget, or that are individually
in excess of $100,000 or in the aggregate in excess of $500,000 in any
calendar quarter;
(s) Materially accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates or the dates
when the same would have been collected in the ordinary course of business;
(t) Materially delay or accelerate payment of any account payable
beyond or in advance of its due date or the date such liability would have
been paid in the ordinary course of business;
(u) Settle or compromise any suits or claims or threatened suits or
claims for payments in an aggregate amount in excess of $500,000;
(v) Make any tax election not required by law or settle or compromise
any material tax liability;
(w) Cancel or terminate any material insurance policy naming it as a
beneficiary or a loss payable payee or permit any such policy to lapse (it
being understood that the Company may renew any insurance policy in effect
as of the date of the Merger Agreement);
(x) Increase the aggregate dollar value of inventory owned by
distributors in the first and second tiers of its distribution channel
(which has not been "sold through" to end-user customers and which such
distributors have the right to return) above the aggregate value of such
inventory at June 30, 1998;
(y) Begin shipment of any new products to customers, except for alpha
versions and not more than 50 beta versions of any product delivered to
customers solely for evaluation purposes; or
(z) Agree in writing or otherwise to take any of the actions described
in (a) through (y) above.
Source Code Escrow. Under the terms of the Merger Agreement, the Company
agreed to deposit into escrow (the "Source Code Escrow") with Brambles NSD,
Inc., or such other entity as is reasonably satisfactory to Parent and the
Company (the "Escrow Agent"), CDROMs containing true, correct and complete
copies of the source code, together with all relevant documentation, build
instructions, and any tools or libraries used in the build process that are not
commercially available in off-the-shelf or shrink wrap form, for each of its
currently shipping versions of products (including but not limited to versions
of products in the following product families: First Aid, UnInstaller, Oil
Change, Guard Dog and CSS Repair Engine for Workgroups) and versions of all
products currently under development (collectively, the "CyberMedia Source
Code"). Prior to the Expiration Date, the Source Code Escrow will be
periodically updated to include a complete and updated copy of all CyberMedia
Source Code. The CyberMedia Source Code shall be held in the Source Code Escrow
at the offices of the Escrow Agent until the date on which Purchaser has
accepted for payment and paid for Shares pursuant to the Offer (the "Release
Date"), at which time it shall be released to Parent or its representative
promptly upon request. In the event that, prior to the Release Date, the Merger
Agreement shall be terminated pursuant to its terms, the Source Code Escrow
shall terminate and the CyberMedia Source Code shall be returned to the Company.
Non-Solicitation. The Company has agreed in the Merger Agreement that from
and after the date of the Merger Agreement until the earlier of the Effective
Time or termination of the Merger Agreement pursuant its terms, the Company and
its subsidiaries will not, and they will direct their respective Representatives
(as defined below) not to, directly or indirectly, (A) solicit, initiate or
encourage the submission of any Alternative Proposal (as defined below) or (B)
participate in any discussions or negotiations regarding, or
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<PAGE> 12
furnish to any person any non-public information with respect to, or take any
other action to facilitate the making of any proposal that constitutes or may
reasonably be expected to lead to, an Alternative Proposal. The Company has
agreed that it and its subsidiaries will immediately cease, and instruct their
respective Representatives to immediately cease, any and all activities,
discussions or negotiations with any parties conducted previously with respect
to any Alternative Proposal. The Company also agreed as promptly as practicable,
and in any event within 24 hours, to advise Parent orally and in writing of (i)
any Alternative Proposal or any request for non-public information which the
Company reasonably believes may lead to an Alternative Proposal, (ii) the
material terms and conditions of such information, request or Alternative
Proposal, and (iii) the identity of the person making any such information,
request or Alternative Proposal. The Company will keep Parent informed in all
material respects of the status and details (including material amendments) of
any such request or Alternative Proposal. For the purposes of the Merger
Agreement, an "Alternative Proposal" is defined as any inquiry, proposal or
offer from any person or Group (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) relating to any direct or indirect
acquisition or purchase of any product line or other material portion of the
assets of the Company and its subsidiaries taken as a whole (but excluding the
purchase from the Company of its products or used equipment in the ordinary
course of business), or more than a 20% interest in the total outstanding voting
securities of the Company or any of its subsidiaries, or any tender offer or
exchange offer that if consummated would result in any person or Group
beneficially owning 10% or more of the total outstanding voting securities of
the Company or any of its subsidiaries, or any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated by the Merger
Agreement. For the purposes of the Merger Agreement, "Representative" is defined
as the officers, directors or employees or any investment banker, attorney,
accountant or other advisor or representative retained by the Company or its
subsidiaries.
Subject to the other provisions of the Merger Agreement, from and after the
date of the Merger Agreement until the earlier of the Effective Time and
termination of the Merger Agreement pursuant to its terms, the Company has
agreed that neither the Company Board nor any committee thereof will (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent or Purchaser, their approval or recommendation to the
Company's stockholders of the Offer, the Merger Agreement or the Merger or (ii)
cause the Company to enter into any letter of intent, agreement in principal,
acquisition agreement or other similar agreement (an "Acquisition Agreement")
with respect to any Alternative Proposal. In addition, subject to the other
provisions of the Merger Agreement, from and after the date of the Merger
Agreement until the earlier of the Effective Time and termination of the Merger
Agreement pursuant to its terms, the Company has agreed that the Company and its
subsidiaries will not, and they will direct their Representatives not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Alternative Proposal; provided, however, that
nothing in the Merger Agreement shall prohibit the Company Board from taking and
disclosing to the Company's stockholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, if at any time prior to consummation of the
Offer, the Company Board reasonably determines in good faith, after consultation
with outside legal counsel, that it is necessary to do so in order to comply
with its fiduciary duties to the Company's stockholders under applicable law,
the Company Board may withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal (as defined below), or enter into an Acquisition Agreement with respect
to a Superior Proposal, provided that the Company shall have given Parent
written notice (a "Notice of Superior Proposal") at least two business days
prior to entering into any such Acquisition Agreement and at least two business
days prior to public disclosure by the Company Board of such withdrawal,
modification, approval or recommendation, advising Parent that the Company Board
has received a Superior Proposal, specifying the material terms and conditions
of the Superior Proposal and identifying the person making such Superior
Proposal. Any amendment to the price or material terms of a Superior Proposal
shall require an additional Notice of Superior Proposal and an additional two
business day period thereafter, to the extent permitted under applicable law,
prior to public disclosure by the Company Board of its recommendation with
respect thereto. For the purposes of the Merger Agreement, "Superior Proposal"
is
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defined as a bona fide offer made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the total outstanding voting securities of the Company or all
or substantially all the assets of the Company, which offer is otherwise on
terms which the Company Board determines in its good faith judgment (after
consultation with a financial advisor of nationally recognized reputation) to be
more favorable to the Company's stockholders from a financial point of view than
the Offer and the Merger, and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Company Board is
capable of being obtained by such third party.
The Company also has agreed not to provide any non-public information to a
third party unless: (i) the Company provides such non-public information
pursuant to a nondisclosure agreement with terms regarding the protection of
confidential information at least as restrictive as such terms in the
Confidentiality Agreement; and (ii) such non-public information has been
previously or is contemporaneously delivered to Parent.
Public Announcements. Pursuant to the Merger Agreement, the Company, on the
one hand, and Parent and Purchaser, on the other hand, have agreed to attempt in
good faith to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the Merger Agreement, the
Offer, the Merger or the other transactions contemplated hereby, to provide to
the other party for review a copy of any such press release or statement, and
not to issue any such press release or make any such public statement prior to
attempting in good faith such consultation and review, unless required by
applicable law or any listing agreement with a securities exchange.
Indemnification. Pursuant to the terms of the Merger Agreement, all rights
to indemnification now existing in favor of any of the current or former
directors and officers of the Company (the "Indemnified Parties") as provided in
its Certificate of Incorporation or By-Laws, in each case as of the date of the
Merger Agreement, and in indemnification agreements between the Company and the
Indemnified Parties shall survive the Merger and shall continue in full force
and effect from and after consummation of the Offer in accordance with their
terms, as such terms exist on the date hereof. After the Effective Time, Parent
has agreed to cause the Surviving Corporation to honor all rights to
indemnification referred to in the preceding sentence.
Pursuant to the Merger Agreement, Parent has agreed to cause the Company,
and from and after the Effective Time, the Surviving Corporation, to maintain in
effect for not less than six years from the Effective Time the current policies
of directors' and officers' liability insurance maintained by the Company;
provided that the Surviving Corporation may substitute therefor other policies
not less advantageous (other than to a de minimus extent) to the beneficiaries
of the current policies, provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 150% of the last annual
premium paid by the Company prior to the date of the Merger Agreement. If the
Surviving Corporation is unable to obtain the insurance required by the Merger
Agreement for such maximum amount it is required to obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
Termination of Merger Agreement. The Merger Agreement provides grounds for
which it may be terminated, and the Merger abandoned, at any time prior to the
Effective Time, whether before or after approval by the stockholders of the
Company (with any termination by Parent also being an effective termination by
Purchaser). The Merger Agreement may be so terminated:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company, subject, following the consummation of
the Offer, to the concurrence of certain members of the Company Board who
are independent of Parent;
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<PAGE> 14
(b) by either Parent or the Company if:
(i) the Offer is terminated, withdrawn or expires pursuant to its
terms without any Shares having been purchased thereunder; provided,
however, that neither Parent nor the Company may terminate the Merger
Agreement if such party is in material breach of the Merger Agreement,
including, in the case of Parent, if Parent or Purchaser is in material
violation of the terms of the Offer;
(ii) any court, administrative agency, commission, or other
governmental authority or instrumentality ("Governmental Entity") shall
have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Offer or the Merger, which order, decree,
ruling or other action is final and nonappealable; or
(iii) prior to the purchase of Shares pursuant to the Offer, the
Company Board has recommended, or the Company has entered into an
Acquisition Agreement with respect to, a Superior Proposal; provided,
however, that termination by the Company pursuant to this provision of
the Merger Agreement is conditioned upon concurrent payment by the
Company of the Termination Fee (as defined below) in accordance with the
terms of the Merger Agreement.
(c) by Parent prior to the purchase of Shares pursuant to the Offer
if:
(i) the Company shall have failed to include in the Schedule 14D-9
the recommendation of the Company Board that the stockholders of the
Company accept the Offer;
(ii) the Company Board or any committee thereof shall have (A)
withdrawn or modified (including but not limited to by amendment of the
Schedule 14D-9) in a manner adverse to Parent or Purchaser its approval
or recommendation of the Offer, the Merger Agreement or the Merger, (B)
approved or recommended, taken no position with respect to, or failed to
recommend against any Alternative Proposal, or (C) resolved to do any of
the foregoing;
(iii) the Company or any of its subsidiaries or any of their
respective Representatives participate in any discussions or
negotiations with or provide any non-public information to any third
party in breach of the non-solicitation provisions of the Merger
Agreement; or
(iv) the Company is in material breach of any of its covenants or
obligations under the Merger Agreement; provided that if such breach is
curable through the exercise of the Company's commercially reasonable
efforts, Parent may not terminate the Merger Agreement under this
provision of the Merger Agreement unless such breach is not cured prior
to September 30, 1998.
(d) by the Company prior to the purchase of Shares pursuant to the
Offer if:
(i) the Offer shall not have been commenced in accordance with its
terms or Parent or Purchaser shall have failed to purchase validly
tendered Shares in violation of the terms of the Offer within 10
business days after the expiration of the Offer; provided, however, that
the Company shall not be entitled to terminate the Merger Agreement
pursuant to this provision of the Merger Agreement if it is in material
breach of the Merger Agreement; or
(ii) Parent or Purchaser is in material breach of any of its
covenants or obligations under the Merger Agreement; provided that if
such breach is curable through exercise of Parent's or Purchaser's
commercially reasonable efforts, the Company may not terminate the
Merger Agreement under this provision of the Merger Agreement unless
such breach is not cured within 20 days after giving notice to Parent.
Fees and Expenses. The Merger Agreement provides that, except as described
below, whether or not the transactions contemplated by the Offer and the Merger
Agreement are consummated, all costs and expenses incurred in connection with
the transactions contemplated by the Offer and the Merger Agreement shall be
paid by the party incurring such expenses.
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The Merger Agreement also provides that the Company shall pay Parent a
termination fee of $4,000,000 (the "Termination Fee") under various
circumstances as follows.
The Company is required to pay Parent the Termination Fee concurrently with
termination of the Merger Agreement if the Company exercises its right to
terminate the Merger Agreement because the Company Board is recommending, or the
Company is entering into an Acquisition Agreement with respect to, a Superior
Proposal.
The Company is required to pay Parent the Termination Fee within one
business day following termination of the Merger Agreement, if Parent exercises
its right to terminate the Merger Agreement as a result of any of the following:
(i) the Company Board has recommended, or the Company has entered into
an Acquisition Agreement with respect to, a Superior Proposal;
(ii) the Company fails to include in the Schedule 14D-9 the
recommendation of the Company Board that the stockholders of the Company
accept the Offer;
(iii) the Company Board or any committee thereof (A) withdraws or
modifies (including but not limited to by amendment of the Schedule 14D-9)
in a manner adverse to Parent or Purchaser its approval or recommendation
of the Offer, the Merger Agreement or the Merger, (B) approves or
recommends, takes no position with respect to, or fails to recommend
against any Alternative Proposal, or (C) resolves to do any of the
foregoing; or
(iv) the Company or any of its subsidiaries or any of their respective
Representatives participate in any discussions or negotiations with or
provide any non-public information to any third party in breach of the
non-solicitation provisions of the Merger Agreement.
The Company is required to pay Parent the Termination Fee if the Merger
Agreement is terminated as a result of the mutual consent of the Company and
Parent, or if the Offer is terminated, withdrawn or expires pursuant to its
terms without any Shares having been purchased thereunder, or is terminated by
Parent due to material breach by the Company of any of its covenants or
obligations under the Merger Agreement which, if curable through the exercise of
the Company's commercially reasonable efforts, has not been cured prior to
September 30, 1998, and if at the time of any such termination there is pending
any offer by any person other than Parent or any affiliate of Parent to effect
an Acquisition (as defined below) and, within 12 months following such
termination, any person other than Parent or any affiliate of Parent effects an
Acquisition, or enters into an Acquisition Agreement with the Company or
commences a tender offer for an Acquisition and the transactions contemplated
thereby are subsequently consummated at any time. In such event, the Termination
Fee must be paid to Parent at or prior to the consummation of such Acquisition.
Finally, if the Merger Agreement is terminated as a result of the mutual
consent of the Company and Parent, or if the Offer is terminated, withdrawn or
expires pursuant to its terms without any Shares having been purchased
thereunder (other than a termination solely as a result of a failure to satisfy
the Minimum Condition, or a failure to satisfy the conditions specified in
section (iii)(a) or (b) above under "Conditions to the Offer"), or is terminated
by Parent due to material breach by the Company of any of its covenants or
obligations under the Merger Agreement which, if curable through the exercise of
the Company's commercially reasonable efforts, has not been cured prior to
September 30, 1998, and if at the time of any such termination no offer by any
person other than Parent or any affiliate of Parent to effect an Acquisition is
pending and, within six months following such termination, any person other than
Parent or any affiliate of Parent effects an Acquisition, or enters into an
Acquisition Agreement with the Company or commences a tender offer for an
Acquisition and the transactions contemplated thereby are subsequently
consummated at any time, the Company shall pay Parent at or prior to the
consummation of such Acquisition an amount equal to the lesser of (A) the
Termination Fee or (B) the amount, if any, by which the aggregate consideration
paid to the Company and/or its stockholders in such Acquisition exceeds
$126,944,000.
For the purposes of the Merger Agreement, an "Acquisition" is defined as
any merger, consolidation or other reorganization, any tender offer or other
transaction or series of related transactions involving the acquisition of
securities of the Company, or any sale or license of all or substantially all
the business or assets
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of the Company, unless the stockholders of the Company prior to such transaction
or series of related transactions retain following such transaction or series of
related transactions (in respect of their equity interest in the Company prior
thereto) more than 50% of the voting equity securities of the surviving or
successor corporation to the business of the Company.
If the Company fails promptly to pay the Termination Fee or other amount
due under these provisions, and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for such
amounts, the Company shall pay to Parent its reasonable costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on such amounts at the prime rate of Bank of America, NT&SA, in
effect on the date such payment was required to be made.
The Termination Fee shall not be deemed to be liquidated damages, and the
right to the payment of the Termination Fee shall be in addition to (and not a
maximum payment in respect of) any other damages or remedies at law or in equity
to which Parent or Purchaser may be entitled as a result of the willful
violation or willful breach of any term or provision of the Merger Agreement or
any Support Agreement, as described below.
The Support Agreements.
Concurrently with the execution of the Merger Agreement, Parent entered
into the Support Agreements with Kanwal Rekhi, James R. Tolonen, Suhas Patil,
Ronald Posner, Robert Davis and Kenneth Kucera. In the aggregate, such
stockholders owned approximately 2,787,116 Shares representing approximately
18.0% of the outstanding Shares on a fully diluted basis (approximately 20.9% of
the currently outstanding Shares) as of July 28, 1998. The following is a
summary of the material terms of the Support Agreements. This summary is not a
complete description of the terms and conditions of the Support Agreements and
is qualified in its entirety by reference to the full text of the Support
Agreements which is incorporated herein by reference and a copy of which has
been filed as an exhibit to this Schedule 14D-9.
Pursuant to the Support Agreements, each of these stockholders agreed to
tender and not withdraw his Shares pursuant to the Offer. Each of such
stockholders has also agreed, for so long as the Support Agreement is in effect,
at any meeting of the stockholders of the Company, however called, to vote his
Shares in favor of the Merger, against any action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement, and against any action
or agreement that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer. Each of such stockholders also granted
representatives of Parent an irrevocable proxy to vote his Shares in favor of
the Merger and other transactions contemplated by the Merger Agreement, against
any Acquisition Proposal.
In addition, each of such stockholders agreed not to (i) transfer any or
all of his Shares, (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of his Shares, (iii)
grant any proxy, power-of-attorney or other authorization in or with respect to
his Shares, (iv) deposit his Shares into a voting trust or enter into a voting
agreement or arrangement with respect to his Shares or (v) take any other action
that would in any way restrict, limit or interfere with the performance of his
obligations under the Support Agreements or the Merger Agreement or which would
make any representation or warranty of such stockholder under the Support
Agreement untrue or incorrect.
The agreements and proxy contained in each Support Agreement will terminate
on the earlier of payment for the Shares pursuant to the Offer and the
termination of the Merger Agreement in accordance with its terms.
The Company Option Agreement
Concurrently with the execution of the Merger Agreement, the Company and
Parent entered into the Company Option Agreement. The following is a summary of
the material terms of the Company Option Agreement. This summary is not a
complete description of the terms and conditions of the Company Option Agreement
and is qualified in its entirety by reference to the full text of the Company
Option Agreement,
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which is incorporated herein by reference, and a copy of which has been filed as
an exhibit to this Schedule 14D-9.
Pursuant to the Company Option Agreement, the Company granted Parent the
option (the "Company Option")to acquire, under certain circumstances, a number
of Shares equal to 19.9% of the total number of Shares issued and outstanding as
of July 28, 1998 less the number of Shares issuable upon full conversion of the
Convertible Note, and adjusted thereafter to reflect changes in the Company's
capitalization occurring after the date of the Merger Agreement (provided that
the number of Shares issuable upon exercise of the Company Option shall be
reduced to the extent necessary so that the aggregate number of Shares issuable
under the Company Option and upon conversion of the Convertible Note shall not,
upon such issuance, constitute more than 19.9% of the total number of Shares
issued and outstanding). The per share purchase price of Shares purchased
pursuant to exercise of the Company Option is the Offer Price, payable in cash.
The Company Option is exercisable, in whole or in part, at any time or from
time to time after the occurrence of an event (a "Trigger Event") which causes
the Termination Fee to become payable to Parent by the Company under the Merger
Agreement. The Company Option terminates upon the earlier of the following: (i)
the Effective Time of the Merger, (ii) the termination of the Merger Agreement
under circumstances which do not constitute a Trigger Event and following which
a Trigger Event cannot occur, (iii) six months after Parent receives written
notice from the Company of the occurrence of a Trigger Event, (iv) 12 months
following the termination of the Merger Agreement if during such 12-month period
no Trigger Event has occurred, and no transaction the consummation of which
would give rise to a Trigger Event, is pending, and (v) the date following 12
months after the termination of the Merger Agreement when no transaction entered
into or commenced prior to that date that, if consummated, would have given rise
to a Trigger Event, remains pending. The exercise period is automatically
extended if exercise of the Company Option is prohibited or restrained for
certain legal reasons. In addition, the Company Option cannot be exercised by
Parent if Parent is in material breach of its material representations,
warranties, covenants or agreements in the Company Option Agreement or the
Merger Agreement.
The Company's obligation to issue Shares under the Company Option is
subject to a number of conditions, including expiration of all applicable
waiting periods under the Hart-Scott-Rodino Act, the absence of any injunction
or order, receipt of any required governmental consents, approvals, orders,
authorizations and permits.
At any time when the Company Option is exercisable, Parent has the right
(the "Put Option") to require the Company to repurchase the Company Option,
either in whole or in part, at a price equal to (i) the difference between the
Market Price (as defined below) and the exercise price, multiplied by (ii) the
number of Shares subject to purchase under the Company Option or the portion
thereof specified in the repurchase notice. "Market Price" is defined as the
average per share closing sale price of the Shares on the Nasdaq National Market
for the 10 trading days immediately preceding the date of the repurchase notice.
In the event that Parent (and/or any of its affiliates) receives Net
Proceeds (as defined below) which, combined with any Termination Fee paid to
Parent pursuant to the Merger Agreement and any payment made to Parent (and/or
any of its affiliates) pursuant to Parent's exercise of the Put Option (or upon
any other sale of the Company Option) exceed $5,500,000, Parent is required to
promptly remit to the Company an amount equal to all Net Proceeds in excess of
such amount. "Net Proceeds" is defined as the aggregate proceeds from the sale
or other disposition of Shares acquired by Parent (and/or any of its affiliates)
upon exercise of the Company Option (plus any securities or other assets issued
to Parent (and/or any of its affiliates) in exchange for or as dividends upon
such Shares and any cash dividends received by Parent (and/or any of its
affiliates) with respect to such Shares) less the exercise price multiplied by
the number of Shares included in such disposition.
Prior to July 28, 2003, the Company Option Agreement requires Parent to
vote all Shares acquired upon exercise of the Company Option in the same manner
and in the same proportion as all other Shares are voted on each matter
submitted to a stockholder vote. In addition, the Company Option Agreement
requires Parent to execute written consents with respect to such Shares in the
same proportion as written consents are executed by other holders of Shares.
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Under the Company Option Agreement, Parent's right to sell, assign, pledge
or otherwise dispose of or transfer Shares acquired upon exercise of the Company
Option is subject to certain restrictions and first-refusal rights in favor of
the Company.
In addition, the Company Option Agreement gives Parent certain rights to
have the Shares acquired upon exercise of the Company Option registered under
the Securities Act for sale in a public offering. The registration rights take
effect after the termination of the Merger Agreement and are subject to certain
conditions and limitations. In lieu of registration, the Company Option
Agreement gives the Company the option to agree to purchase, for cash, all or
part of the Shares covered by the registration request, at a price equal to at
least 80% of the average per share closing sale price of the Shares on the
Nasdaq National Market for the 20 trading days immediately preceding the date
Parent gives notice. The Company Option Agreement allows Parent to demand a
total of two registrations, and allows the Company to defer the requested
registrations for prescribed periods of time under certain circumstances.
The Loan Agreement
On July 28, 1998, immediately prior to the execution of the Merger
Agreement, the Company and Parent entered into a Note Purchase and Security
Agreement (the "Loan Agreement") pursuant to which Parent agreed to loan the
Company $10,000,000 in principal amount (the outstanding principal balance and
any accrued but unpaid interest constituting the "Loan Amount"). The Loan Amount
is evidenced by a Secured Subordinated Convertible Promissory Note (the
"Convertible Note") issued concurrently with the execution of the Loan
Agreement. The following is a summary of the material terms of the Loan
Agreement and the Convertible Note. This summary is not a complete description
of the terms and conditions of the Loan Agreement or Convertible Note, and is
qualified in its entirety by reference to the full text of such agreements,
which are incorporated herein by reference and copies of which have been filed
as an exhibit to this Schedule 14D-9.
Conversion Right. Parent has the right, in its sole discretion, at any time
and from time to time to elect to convert all or any part of the Loan Amount
into the number of Shares (the "Conversion Shares") determined by dividing the
total Loan Amount being converted by the Conversion Price. The Conversion Price
means $6.66 per Share, subject to adjustment for stock splits, subdivisions and
reverse stock splits.
Interest. The Convertible Note bears interest at an annual rate equal to
LIBOR (3-month) in effect on the first day of each calendar quarter, plus two
percent. Upon an "Event of Default" (as defined in the Convertible Note and
described below), interest will accrue at an annual rate equal to two percent
plus the rate otherwise in effect. Interest payments are due on the first day of
each calendar quarter, beginning on October 1, 1998, and upon maturity or any
prepayment of the outstanding principal amount.
Repayment; Acquisition. The Loan Amount is payable in full on July 28,
2000. Unless and until the Merger Agreement shall have been terminated in
accordance with its terms, the Company may not prepay any principal or interest
under the Convertible Note without the prior written consent of Parent.
Thereafter, the Company shall have the right at any time and from time to time,
upon 10 business days' prior written notice to Parent (during which notice
period Parent will remain entitled to elect to convert all or part of the Loan
Amount), to prepay the Loan Amount, in whole or in part, without payment of any
premium or penalty. The Loan Amount is due and payable (without any prepayment
penalty), upon either (i) the closing of the sale or transfer of all or
substantially all of the Company's assets; or (ii) the closing of a merger or
consolidation of the Company or other transaction or series of related
transactions in which the stockholders immediately prior to such transaction or
transactions do not own a majority of the voting securities of the Company or
the surviving corporation as applicable.
Subordination. The Convertible Note is subordinated, as to both security
interest and right of payment, to up to $6 million of senior debt which the
Company may obtain from banks, insurance companies, lease financing
institutions, or other institutional lenders (the "Senior Debt").
Security Interests. As collateral security for the prompt and complete
payment and performance of the Company's obligations under the Convertible Note,
the Company granted Parent a continuing security
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interest in all of presently existing and hereafter acquired or arising assets
of the Company, including the Company's intangible property and intellectual
property rights (the "Collateral").
Covenants. In connection with the Loan Agreement, the Company covenanted
that it:
(a) will not transfer or otherwise encumber any interest in the
Collateral, except for certain permitted liens and liens that may be
granted in favor of the holders of Senior Debt and except for non-
exclusive licenses under its patents, copyrights and other intellectual
property rights granted by the Company in the ordinary course of business;
(b) will deliver to Parent a quarterly report listing any applications
or registrations that it has made, filed or acquired in respect of any
patents, copyrights or trademarks and the status of any outstanding
applications or registrations;
(c) will protect, defend and maintain the validity and enforceability
of its material patents and copyrights, use its best efforts to detect
infringements of its patents and copyrights and promptly advise Parent of
infringements detected, and not allow any material patents or copyrights to
be abandoned, forfeited or dedicated to the public without the written
consent of Parent, which shall not be unreasonably withheld;
(d) will within 30 days of the date of the Loan Agreement register or
cause to be registered (to the extent not already registered) with the
United States Copyright Office, the copyrights associated with the
currently shipping versions of its "First Aid" software products, and
register with the United States Copyright Office once each calendar quarter
those additional copyrights developed, authored or acquired by the Company
from time to time for new releases and of each then shipping version of its
First Aid and Uninstaller software; and
(e) will not create, incur, assume or suffer to exist any lien with
respect to any of its property or assign or otherwise convey any right to
receive income therefrom, or enter into any agreement that would impair or
conflict with its obligations under the Loan Agreement and Convertible Note
without Parent's prior written consent, which consent shall not be
unreasonably withheld, and will not permit the inclusion in any contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in the Company's rights and
interests in any property included within the definition of the Collateral
acquired under such contracts, except for permitted liens and the granting
of liens in favor of the holders of Senior Debt, and except that certain
contracts may contain anti-assignment provisions that could in effect
prohibit the creation of a security interest in such contracts if the
Company is required, in its commercially reasonable judgment, to accept
such provisions.
Events of Default. The occurrence of any of the following would constitute
an event of default under the Loan Agreement and Convertible Note:
(a) The Company's breach of the obligation to pay any amount due
within 10 days of the date of written notice from Purchaser to the Company
of such breach;
(b) The Company's failure to perform, keep or observe any of its
covenants, conditions, promises, agreements or obligations under any
agreement with any third person or entity, after the expiration of any
applicable grace period under such agreement, or after any period of
forbearance acknowledged in writing by the other party to such agreement,
if such failure has a material adverse effect on the Company's assets,
operations or financial condition;
(c) The Company's institution of proceedings against itself, or the
Company's filing of a petition or answer or consent seeking reorganization
or release, under the federal Bankruptcy Code, or any other applicable
federal or state law relating to creditors' rights and remedies, or the
Company's consent to the filing of any such petition or the appointment of
a receiver, liquidation, assignee, trustee or other similar official of the
Company or of any substantial part of its property, or the Company's making
of an assignment for the benefit of creditors, or the taking of corporate
action in furtherance of such action;
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<PAGE> 20
(d) the creation (whether voluntary or involuntary) of, or any attempt
to create, any lien or encumbrance upon any of the Collateral, other than
permitted liens and liens in favor of the holders of Senior Debt, or the
making or any attempt to make any levy, seizure or attachment thereof and
such lien, encumbrance, levy, seizure or attachment has not been removed,
discharged or rescinded within 10 days after the Company is notified of or
learns of such lien, encumbrance, levy, seizure or attachment;
(e) the occurrence and continuance of any default under any lease or
agreement for borrowed money that gives the lessor or the creditor of such
indebtedness, as applicable, the right to accelerate the lease payments or
the indebtedness, as applicable, in an amount in excess of $1,000,000 or
the right to exercise any rights or remedies with respect to any of the
Collateral;
(f) the entry of any judgment or order against the Company in an
amount in excess of $1,000,000 which remains unsatisfied or undischarged
and in effect for 30 days without a stay of enforcement or execution; or
(g) The Company's breach of any warranty or agreement made by the
Company in the Loan Agreement and, as to any breach that is capable of
cure, the Company fails to cure such breach within 20 days of notice from
Purchaser of the occurrence of such breach.
Remedies upon Event of Default. Upon an Event of Default, Parent will have
all the rights and remedies of a secured creditor under California law,
including the right to foreclose on the Collateral, to require the Company to
assemble the Collateral and any tangible property in which Parent has a security
interest and to make it available to Parent at a place designated by Parent.
Parent will have a nonexclusive, royalty-free license to use the copyrights,
patents and trademarks of the Company to the extent reasonably necessary to
permit Parent to exercise its rights and remedies upon the occurrence of an
Event of Default. The Company has agreed to pay any expenses (including
reasonable attorneys' fees) incurred by Parent in connection with the exercise
of any of Parent's rights upon default, including without limitation any expense
incurred in disposing of the Collateral.
Registration Rights. Parent has the right to demand that the Company
register Conversion Shares under the Securities Act. Parent may demand up to
four registrations, at the Company's expense, for resale in a public offering if
the Company is eligible to register shares on Form S-3 (or two registrations if
it is not so eligible). The right to demand registration is subject to various
conditions and limitations, including the right of the Company to defer such
registration for prescribed periods of time under certain circumstances.
Confidentiality. In connection with the Company granting Parent and its
representatives access to certain confidential information for purposes of
evaluating the contemplated transaction, Parent and the Company executed a
Confidentiality Agreement, dated as of June 9, 1998 (the "Confidentiality
Agreement"). Among other things, Parent has agreed to keep confidential all
confidential proprietary information furnished to it by the Company relating to
the Company (the "Confidential Information"), subject to certain exceptions and
to use the Confidential Information solely in evaluating possible participation
certain transactions relating to the Company. Additionally, Parent has agreed
not to solicit or offer employment to any employees of the Company for a period
of 18 months from the date of the Confidentiality Agreement. In the event that
the contemplated transaction is not consummated, Parent has agreed to destroy or
return all Confidential Information of the Company upon the Company's request.
Indemnification
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such
exemption from liability is not permitted by the DGCL.
The Company's Bylaws provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director or officer of the
Company, or that such director or officer is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
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<PAGE> 21
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company has previously entered into indemnification agreements with
each of its directors and officers. The indemnification agreements generally
provide: (i) for indemnification to the fullest extent permitted by law if an
indemnitee was or is or becomes a participant in, or is threatened to be made a
participant in, any threatened, pending or completed action, suit, proceeding or
alternative dispute resolution mechanism, or any hearing, inquiry or
investigation that the indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other by reason of (or arising in part out of) any event or occurrence related
to the fact that the indemnitee is or was a director or officer of the Company,
or any subsidiary of the Company, or is or was serving at the request of the
Company as a director or officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of the indemnitee while serving in such
capacity against any and all expenses (including attorneys' fees and all other
costs, expenses and obligations incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any such action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation, judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of the claim and (ii) for advancement of all expenses
incurred by the indemnitee.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board.
The Company Board has unanimously (a) determined that the Merger Agreement
and the transactions contemplated thereby, including each of the Offer and the
Merger, are fair to and in the best interests of the holders of the Shares, (b)
approved and adopted the Merger Agreement and the transactions contemplated
thereby, and (c) resolved to recommend that the stockholders of the Company
accept the Offer and approve and adopt the Merger Agreement and approve the
transactions contemplated thereby.
(b) Background of the Offer; Reasons for the Recommendation.
Background. On February 20, 1998, William L. Larson, the Chief Executive
Officer and Chairman of the Board of Parent contacted Kanwal Rekhi, currently
the Chief Executive Officer and Chairman of the Board of the Company, to learn
about the Company generally. During the course of the discussion, Mr. Larson
expressed interest in exploring a possible relationship between Parent and the
Company. Mr. Rekhi indicated to Mr. Larson that although the Company was focused
on executing on its business plan, Mr. Rekhi would discuss the matter with the
Company Board.
On March 2, 1998, at a meeting of the Company Board, the Company Board
discussed the Company's capital needs. The Company Board determined that the
Company should initiate discussions with investment bankers regarding
alternatives available for raising capital, pursuing corporate partnerships or
identifying appropriate parties with whom a business combination would be
mutually beneficial. The Company Board authorized management and Mr. Rekhi to
initiate such discussions. Mr. Rekhi also informed the Company Board of his
February 20 discussion with Mr. Larson regarding interest by Parent in exploring
a possible relationship with the Company. The Company Board authorized Mr. Rekhi
to pursue discussions further and to determine the extent of Parent's interest.
On March 5, 1998, Mr. Larson met with Mr. Rekhi again to further discuss a
possible relationship between Parent and the Company.
On March 31, 1998, the Company signed an engagement letter with Hambrecht &
Quist LLC ("H&Q") to provide assistance in securing a private placement of the
Company's securities or to advise the Company with respect to opportunities
involving the sale of all or part of the Company.
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On April 22, 1998, a meeting of the Company Board was held during which the
Company Board discussed the need to seek investment in the Company. H&Q gave a
presentation to the Company Board regarding potential investors interested in
participating in a preferred stock financing of the Company and discussed
various transaction structures. After the H&Q presentation, the Company Board
discussed its investment needs and alternatives.
On May 15, 1998, H&Q provided an update to the Company Board regarding
potential equity private placement transactions.
On June 9, 1998, Mr. Larson and Mr. Rekhi again discussed the possibility
of a relationship between Parent and the Company, and Parent and Company entered
into the Confidentiality Agreement under which Parent was furnished with certain
financial and business information concerning the Company.
On June 10, 1998, a meeting of the Company Board was held during which the
Company Board discussed various strategic alternatives for the Company.
Representatives from H&Q were present and discussed with the Company Board
several private placement transaction structures and their advantages and
disadvantages. Also at this meeting, the Company Board authorized and directed
H&Q to investigate the interest of other third parties in acquiring the Company.
During the period from June 9 until June 21, 1998, representatives of the
Company and Parent held various discussions and meetings concerning their
respective businesses and the potential framework of an acquisition of the
Company by Parent.
In the morning of July 10, 1998, representatives of Parent, the Company and
H&Q held a meeting to discuss a time frame for a potential acquisition of the
Company by Parent, the need for completing an acquisition quickly, the Company's
capital needs, the status of litigation involving the Company, possible
valuations of the Company, and the extent of legal financial and technical
review of the Company that would be required by Parent. Mr. Rekhi indicated to
Mr. Larson that the Company was then currently pursuing a potential private
placement financing of the Company, and because the Company would be required to
suspend its financing activities if an acquisition proposal from Parent were to
be approved by the Company Board, the Company would require a financing
arrangement with Parent.
On July 10, 1998, Mr. Rekhi informed the Company Board of the discussions
with Parent's representatives earlier that day. The Company Board discussed the
framework of Parent's proposals concerning a possible transaction. The Company
Board indicated that a substantial risk would be involved if attempts to secure
financing were suspended while pursuing a possible acquisition with Parent, and
that therefore, prior to accepting any acquisition proposal, the Company would
require Parent to provide financing to the Company. The Company Board instructed
management to continue negotiations with Parent.
On July 13, 1998, Parent's legal counsel delivered to the Company's legal
counsel an outline of a potential transaction proposing (a) an all cash tender
offer by a subsidiary of Parent for all of the outstanding shares of the Company
with a subsequent cash-out merger, and (b) a convertible debt financing pursuant
to which Parent would loan $10 million to the Company under to a convertible
promissory note. Representatives of Parent and the Company, together with their
respective legal counsel and H&Q, held telephonic meetings on July 13, 1998, to
discuss the proposal.
On July 14, 1998, the Company Board held a meeting to discuss Parent's
acquisition and financing proposals. Participating in the meeting were
representatives of H&Q, as well as the Company's legal counsel. The principal
terms of the proposed transaction were reviewed and discussed. The Company Board
also discussed the possibility of a business combination with other third
parties, and representatives of H&Q discussed their efforts in investigating
interest by potential investors and acquirors. The Company Board instructed
management to discuss concerns the Company Board had regarding the proposals
with representatives of Parent.
On July 15, 1998, representatives of Parent and the Company, together with
their respective legal advisors and H&Q held a further telephonic meeting to
discuss Parent's proposals.
On July 16, 1998, Parent's legal counsel delivered a revised proposal
reflecting certain changes discussed during the July 13 meeting.
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From July 15 to July 28, representatives of the Company, H&Q, and the
Company's legal counsel held discussions with representatives of Parent and
Parent's legal counsel to negotiate various aspects of the acquisition and
financing proposals. During this period the Company's management kept members of
the Company Board informed as to these discussions. In addition, from time to
time from July 18th through July 23rd, Parent's legal counsel, accountants and
representatives of Parent conducted legal, financial and technical reviews of
the Company.
On July 22, 1998, the Company Board held a meeting during which the
Company's legal counsel reviewed for the Company Board its fiduciary duties in
the context of a sale of the Company and reviewed with management the status of
negotiations of the terms of the proposed transaction. Representatives of H&Q
provided an analysis of the proposed transaction including an overview of the
financial condition of the Company, recent stock price performance and various
analyses for determining Company's valuation. The Company's management also
reviewed for the Company Board the Company's financial and operating history
(including the decline in revenues over the past quarter and management's
estimates for future periods), discussions relating to potential strategic
partnerships, discussions regarding potential private placements of the
Company's securities, the nature and strength of competing companies, industry
developments and comparable transactions. The Company Board discussed the
continuing need for financing. The Company Board then discussed the open issues
remaining to be resolved with respect to the proposed acquisition and financing
proposals from Parent and directed management to continue negotiations with
Parent.
On July 24, 1998, representatives of the Company met with potential
investors interested in a private placement financing of the Company.
On July 27, 1998, the Company Board met and reviewed and discussed the
proposed acquisition and financing transactions with Parent. At the meeting, the
Company's legal counsel gave a presentation to the Board on the terms of the
Merger Agreement and related documents, the structure of the Offer and the
Merger, the terms of the Loan Agreement and Note and the Board's fiduciary
duties to stockholders. The Company Board received an oral opinion from H&Q at
the meeting that, as of such date, the consideration to be received by the
holders of Shares pursuant to the Offer and the Merger as contemplated in the
Merger Agreement was fair from a financial point of view to such holders. This
oral opinion was subsequently confirmed by delivery of the written opinion of
H&Q, dated July 28, 1998. The Company Board members discussed the terms of the
proposed acquisition and financing transactions with its advisors and among
themselves. Following this discussion, the Company Board unanimously (a)
determined that the Merger Agreement and the transactions contemplated thereby,
including each of the Offer and the Merger, are fair to and in the best
interests of the holders of the Shares, (b) approved and adopted the Merger
Agreement and the transactions contemplated thereby, and (c) resolved to
recommend that the stockholders of the Company accept the Offer and approve and
adopt the Merger Agreement and approve the transactions contemplated thereby.
On the morning of July 28, 1998, Parent and Company executed the Loan
Agreement and the Company executed the Convertible Note. Subsequently, Parent
and the Company executed the Merger Agreement and the Stock Option Agreement and
simultaneously, Parent and certain stockholders of the Company executed the
Support Agreements.
Factors Considered by the Board of Directors. In approving the Merger
Agreement and the transactions contemplated thereby, and recommending that all
stockholders tender their Shares pursuant to the Offer, the Company Board
considered a number of factors, including:
(1) the financial and other terms of the Offer, the Merger Agreement,
the Loan Agreement, the Convertible Note and the related transaction
agreements;
(2) the presentation of H&Q and H&Q's opinion to the effect that, as
of the date of its opinion and based upon and subject to certain matters
stated therein, the $9.50 per Share cash consideration to be received by
the holders of Shares pursuant to the Offer and the Merger was fair to the
stockholders of the
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Company, from a financial point of view (the "Fairness Opinion"). THE FULL
TEXT OF H&Q'S WRITTEN FAIRNESS OPINION IS FILED AS EXHIBIT 14 TO THIS
SCHEDULE 14D-9 AND IS ALSO ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY.
(3) that Parent was willing to enter into a financing arrangement with
the Company, which financing was not contingent upon the successful
consummation of the Offer or the Merger;
(4) that the $9.50 per share tender offer price represents a premium
of approximately 20% over the closing price of the Company's Common Stock
on the Nasdaq National Market System ("Nasdaq") on July 27, 1998, the last
full trading day prior to the public announcement of the execution of the
Merger Agreement;
(5) the history of the price of the Shares on Nasdaq over the last 12
months;
(6) the view of the Company Board, based in part upon the
presentations of management and H&Q, regarding the likelihood of a superior
offer arising;
(7) the Company's existing competitive and market position, including
the Company's ability to effectively compete with companies having
significantly greater financial resources than the Company;
(8) the Company's long-term and short-term capital needs, especially
in light of the Company's competitive and market position as described
above;
(9) the provisions of the Merger Agreement and the Company Option
Agreement, including the provisions allowing the Company to respond to
certain unsolicited inquiries concerning an acquisition of the Company, and
the provisions which permit the Company to terminate the Merger Agreement
upon payment to Parent of a break-up fee under certain circumstances;
(10) the fact that Parent's and Purchaser's obligations under the
Offer were not subject to any financing condition;
(11) Parent's financial condition and ability to cause Purchaser to
meet its obligations under the Merger Agreement;
(12) the alternatives available to the Company in light of the
consideration proposed to be paid for the Shares pursuant to the Offer and
the Merger Agreement, including continuing to maintain the Company as an
independent company and not engaging in any extraordinary transaction;
(13) the failure of any other potential bidder to submit a proposal
having terms more favorable than the terms proposed by Parent;
(14) legal matters relating to the Offer and the Merger Agreement,
including the review provided for under the Hart-Scott-Rodino Anti-Trust
Improvements Act with respect to the antitrust implications of the Offer
and the terms of the Offer and the Merger Agreement related thereto;
(15) the willingness of the directors and members of management of the
Company to enter into the Support Agreements, pursuant to which, among
other things, such persons agreed to tender the Shares owned by them for
purchase by the Purchaser pursuant to the Offer;
(16) the familiarity of the Company Board with the business, results
of operations, properties and financial condition of the Company and the
nature of the industry in which it operates; and
(17) the discussions held by the Company with other companies
regarding potential business combination transactions or financings with
the Company.
The foregoing discussion of the information and factors considered and
given weight by the Company Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
Merger Agreement and the Offer, the Company Board did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Company Board may have given different weights to different
factors.
22
<PAGE> 25
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained H&Q in connection with the Offer and the Merger.
Pursuant to a letter agreement, dated March 31, 1998, the Company is required to
pay H&Q, upon delivery of the Fairness Opinion, a fee, payable in cash, of
$250,000, which amount will be credited against any compensation otherwise
payable by the Company to H&Q upon the consummation of a sale of the Company.
Upon consummation of a sale of the Company, including a sale pursuant to the
transactions contemplated by the Merger Agreement, the Company has agreed to pay
H&Q a fee, payable in cash on closing, of 1.375% of all consideration received
by the Company. In addition to the foregoing compensation, the Company has
agreed to indemnify H&Q against certain liabilities and expenses arising out of
the engagement and the transactions in connection therewith, including certain
liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Purchaser pursuant to the Offer. See "Item 3 -- Support
Agreements."
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Company Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Short Form Merger. Under the DGCL, if Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the outstanding shares of Common Stock,
Purchaser will be able to effect the Merger after consummation of the Offer
without a vote of the Company's stockholders. However, if Purchaser does not
acquire at least 90% of the outstanding Shares of Common Stock pursuant to the
Offer or otherwise and a vote of the Company's stockholders is required under
Delaware Law, a significantly longer period of time will be required to effect
the Merger.
Pending Litigation. On or about July 28, 1998, an individual claiming to be
a stockholder of the Company filed a Class Action Complaint alleging, among
other things, a breach of fiduciary duties by the Company Board in approving the
Merger Agreement and naming the members of the Company Board, the Company and
Parent as defendants. The Complaint seeks an injunction restraining the
consummation of the Offer and the Merger and unspecified compensatory damages.
The Company believes the Complaint is without merit and intends to vigorously
defend against it. A copy of the Complaint is filed as Exhibit 17 to this
Schedule.
23
<PAGE> 26
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Agreement and Plan of Merger, dated July 28, 1998, by and
among Networks Associates, Inc., Cyclone Acquisition Corp.
and CyberMedia, Inc., including Conditions to the Offer.
2 Stock Option Agreement, dated July 28, 1998, by and between
Networks Associates, Inc., and CyberMedia, Inc.
3 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kanwal Rekhi.
4 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and James R. Tolonen.
5 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Suhas Patil.
6 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Ronald S. Posner.
7 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Robert Davis.
8 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kenneth Kucera.
9 Note Purchase and Security Agreement, made as of July 28,
1998, by and among CyberMedia, Inc. and Networks Associates,
Inc.
10 Secured Subordinated Convertible Promissory Note, dated July
28, 1998, made by CyberMedia, Inc. for the benefit of
Networks Associates, Inc.
11 Executive Employment Policy
12 Letter to Stockholders of CyberMedia, Inc., dated August 3,
1998.
13 Fairness Opinion of Hambrecht & Quist LLC, dated July 28,
1998.
14 Confidentiality Agreement, dated June 9, 1998, by and
between Networks Associates, Inc. and CyberMedia, Inc.
15 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws.
16 Pages 6-11 of the Proxy Statement, dated May 6, 1998, for
the Annual Stockholder meeting on June 10, 1998.
17 Class Action Complaint filed by Stanley Schneider in the
Court of Chancery in the State of Delaware, dated July 28,
1998.
</TABLE>
24
<PAGE> 27
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
By: /s/ Kanwal Rekhi
--------------------------------------
Kanwal Rekhi
Chief Executive Officer and
Chairman of the Board
Dated: August 3, 1998
25
<PAGE> 28
ANNEX A
[HAMBRECHT & QUIST LLC LETTERHEAD]
July 28, 1998
Confidential
The Board of Directors
CyberMedia, Inc.
2850 Ocean Park Blvd.
Santa Monica, CA 90405
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of CyberMedia, Inc. ("CyberMedia" or the "Company") of the consideration
to be received by such shareholders in connection with a proposed transaction as
set forth below.
We understand that CyberMedia, Network Associates, Inc. ("Network
Associates") and Cyclone Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of Network Associates, propose to enter into an Agreement and Plan of
Merger (the "Agreement") dated as of July 28, 1998. The terms of the Agreement
provide, among other things, that (i) Merger Sub will promptly commence a tender
offer (the "Offer") to purchase for cash all of the outstanding shares of Common
Stock at a purchase price of $9.50 per share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Agreement and certain
ancillary documents to be filed with the Securities and Exchange Commission; and
(ii) the Merger Sub will subsequently be merged (the "Merger") with and into the
Company in a transaction which will provide the remaining holders of shares of
Common Stock (other than Network Associates, CyberMedia, the Merger Sub or their
respective subsidiaries, and holders who have perfected their appraisal rights,
if any, under Delaware law) with $9.50 per share in cash. The Offer and the
Merger constitute the "Proposed Transaction".
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of CyberMedia in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial
advisory services to CyberMedia and have received fees for rendering these
services. In particular, Hambrecht & Quist acted as lead managing underwriter in
the Company's initial public offering in 1996. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of CyberMedia and receives customary compensation in
connection therewith, and also provides research coverage for CyberMedia. In the
ordinary course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of CyberMedia for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Network Associates.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
of Network Associates for recent years and interim periods to date and
certain other relevant financial and operating data of Network Associates
made available to us from published sources;
(ii) reviewed the publicly available consolidated financial statements
of CyberMedia for recent years and interim periods to date and certain
other relevant financial and operating data of CyberMedia made available to
us from published sources and from the internal records of CyberMedia;
A-1
<PAGE> 29
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to CyberMedia prepared by the
management of CyberMedia;
(iv) discussed the business, financial condition and prospects of
CyberMedia with certain of its officers;
(v) reviewed the recent reported prices and trading activity for the
common stocks of CyberMedia and compared such information and certain
financial information for CyberMedia with similar information for certain
other companies engaged in businesses we consider comparable;
(vi) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(vii) reviewed the Agreement; and
(viii) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Network Associates or
CyberMedia considered in connection with our review of the Proposed Transaction,
and we have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of Network Associates or CyberMedia; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections made available
to us and used in our analysis, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of Network Associates and CyberMedia. For purposes of this opinion,
we have assumed that neither Network Associates nor CyberMedia is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board of
Directors in connection with its review of the Proposed Transaction and may not
be used for any other purpose without our prior written consent; provided,
however, that this letter may be reproduced in full in any filings with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934. This letter does not constitute a recommendation to any stockholder as
to whether such stockholder should accept the Offer.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view. We
express no opinion, however, as to the adequacy or financial fairness of any
consideration received in the Proposed Transaction by Network Associates or its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ DAVID G. GOLDEN
------------------------------------
David G. Golden
Managing Director
A-2
<PAGE> 30
SCHEDULE I
CYBERMEDIA, INC.
2850 OCEAN PARK BLVD., SUITE 100
SANTA MONICA, CA 94045
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 3, 1998 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of shares (the "Shares") of common stock, $0.01 par
value (the "Common Stock"), of CyberMedia, Inc., a Delaware corporation (the
"Company"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of persons
designated by Cyclone Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Networks Associates, Inc. ("Parent"), to the board of directors of the
Company (the "Company Board"). Such designation is to be made pursuant to an
Agreement and Plan of Merger, dated July 28, 1998 (the "Merger Agreement"), by
and among Parent, Purchaser and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer
to acquire all of the Shares (the "Offer"). The Offer is scheduled to expire at
12:00 Midnight, New York City time, on August 28, 1998, unless the Offer is
extended. Following the successful completion of the Offer, upon approval by a
stockholder vote, if required, and subject to certain other conditions,
Purchaser will be merged with and into the Company (the "Merger").
The information contained in this Information Statement concerning
Purchaser has been furnished to the Company by Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each Share entitles its record holder to one vote. As of July 27,
1998, there were 13,362,540 Shares outstanding.
THE COMPANY'S BOARD OF DIRECTORS
If Purchaser purchases Shares pursuant to the Offer, the Merger Agreement
provides that Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of the total number of directors (determined after giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Parent or its affiliates
bears to the total number of Shares then outstanding. The Company has further
agreed, upon request of Parent, to promptly take all actions necessary to cause
Parent's designees to be so elected, including, if necessary, increasing the
size of the Company Board (to the extent permitted by the Company's Certificate
of Incorporation and By-Laws) and/or seeking the resignations of one or more
existing directors, provided, however, that prior to the effective time of the
Merger, the Company Board shall at all times have at least two members who are
members of the Company Board on the date of the
I-1
<PAGE> 31
Merger Agreement and are neither officers of the Company or any of its
subsidiaries, nor officers or directors of Purchaser or any of its affiliates,
or other independent directors appointed to replace such persons.
Parent has informed the Company that Parent will choose Parent's designees
from the list of persons set forth in the following table. With respect to
Parent's designees, the following table, prepared from information furnished to
the Company by Parent, sets forth the name, age, citizenship, present principal
occupation or employment and five-year employment history for each of the
persons who may be designated by Parent as Parent's designees. Each occupation
set forth opposite a person's name, unless otherwise indicated, refers to
employment with Parent. If necessary, Parent may choose additional or other
Parent's designees, subject to the requirements of Rule 14f-1. Unless otherwise
indicated below, the business address of each person is Network Associates,
Inc., 3965 Freedom Circle, Santa Clara, CA 95054.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AND CITIZENSHIP AGE POSITIONS HELD DURING THE PAST FIVE YEARS
-------------------- --- ---------------------------------------------------------
<S> <C> <C>
William L. Larson.............. 42 Chief Executive Officer since September 1993. Chairman of
the Board of Directors since April 1995. Director since
October 1993. President from October 1993 to December
1997. Vice President of SunSoft, Inc., a system software
subsidiary of Sun Microsystems, Inc., ("SunSoft"), from
August 1988 to September 1993.
Prabhat K. Goyal............... 43 Chief Financial Officer, Vice President of Finance and
Administration, Treasurer and Secretary since October
1996. Vice President of Finance, Corporate Controller and
Treasurer from April 1996 to October 1996. Director,
Finance and OEM Development, Solaris Products Group for
SunSoft from July 1994 to March 1996. Director, Finance
and Sales Operations of SunSoft from November 1991 to
June 1994.
Zachary A. Nelson.............. 36 General Manager of Total Service Desk Division since
January 1998. Vice President and General Manager of
Network Management from March 1997 to January 1998. From
February 1993 to March 1997, Mr. Nelson was employed in
various capacities, most recently as Vice President of
Marketing, for Oracle Corporation.
Richard A. Hornstein........... 36 Vice President of Legal Affairs and Corporate Development
since January 1998. Director of Legal Affairs from June
1997 to January 1998. Director of Tax from April 1997 to
June 1997. International Tax Manager for Coopers &
Lybrand from October 1995 to April 1997. Tax manager for
KPMG Peat Marwick from August 1993 to September 1995.
Gregory P.G. Wharton........... 28 Manager of Legal Affairs since June 1998. Associate at
Wilson Sonsini Goodrich & Rosati, PC from May 1997 to May
1998. Associate at Sullivan & Worcester LLP from May 1995
to April 1997. Law student at Yale University from August
1993 to May 1995.
</TABLE>
Parent has advised the Company that to the best knowledge of Parent, none
of Parent's designees currently is a director of, or holds any position with,
the Company, and except as disclosed in the Offer to Purchase, none of Parent's
designees beneficially owns any securities (or rights to acquire any securities)
of the Company or has been involved in any transactions with the Company or any
of its directors, executive officers or affiliates that are required to be
disclosed pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), except as may be disclosed in the Offer to Purchase. None of Parent's
designees has any family relationship with any director or executive officer of
the Company.
I-2
<PAGE> 32
Parent has advised the Company that each of the persons listed in the table
above has consented to act as a director, and that none of such persons has
during the last five years been convicted in a criminal proceeding (excluding
traffic violations and similar misdemeanors) or was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was, or is, subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws or is
involved in any other legal proceeding which is required to be disclosed under
Item 401(f) of Regulation S-K promulgated by the SEC.
It is expected that Parent's designees may assume office at any time
following the purchase by Parent of a majority of outstanding Shares pursuant to
the Offer, which purchase cannot be earlier than August 28, 1998, and that, upon
assuming office, Parent's designees will thereafter constitute at least a
majority of the Company Board.
I-3
<PAGE> 33
DIRECTORS AND EXECUTIVE OFFICERS
THE CURRENT MEMBERS OF THE BOARD
The names of the current directors, their ages as of July 27, 1998 and
certain other information about them are set forth below. Some of the current
directors may resign effective immediately following the purchase of Shares by
Purchaser pursuant to the Offer.
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED A POSITION WITH THE COMPANY OR PRINCIPAL
NAME OF DIRECTOR AGE DIRECTOR OCCUPATION DURING THE PAST FIVE YEARS
---------------- --- --------- --------------------------------------------
<S> <C> <C> <C>
Suhas Patil(1)(2)......... 54 1995 Dr. Patil has served as a director of the
Company since September 1995. Since February
1984, Mr. Patil has served as Chairman of
the Board of Cirrus Logic, Inc., which he
founded.
Ronald S. Posner(1)(2).... 56 1995 Mr. Posner has served as a director of the
Company since September 1995. Since June
1997, he has served as Chairman of PS
Capital, a venture capital fund. From 1994
to 1996, he was Chairman of StarPress
Multimedia, Inc. From September 1990 to
October 1993, he served as Chairman of the
Board and Chief Executive Officer of
WordStar International, Inc.
Kanwal Rekhi.............. 51 1995 Mr. Rekhi has served as a director of the
Company since September 1995 and has served
as Chairman of the Board since February
1998. From March 1998 to April 1998, Mr.
Rekhi served as Acting President, and in
April 1998, Mr. Rekhi became Chief Executive
Officer of the Company. From June 1989 to
January 1995, Mr. Rekhi served as an
Executive Vice President and Chief
Technology Officer of Novell, Inc.
("Novell"). Mr. Rekhi also served as a
director of Novell from June 1989 to
September 1995. Mr. Rekhi currently serves
as a director of Exodus Communications Inc.
James R. Tolonen.......... 49 1996 Mr. Tolonen has served as a director of the
Company since August 1996. Effective May 1,
Mr. Tolonen became President and Chief
Operating Officer of the Company. From June
1989 to April 1998, he served as a Senior
Vice President and Chief Financial Officer
of Novell. Mr. Tolonen also served as Chief
Financial Officer of Excelan, Inc. from July
1983 through June 1989 before it was
acquired by Novell. Mr. Tolonen is a
Certified Public Accountant. Mr. Tolonen is
a member and two-term past Chair of the
Issuer Affairs Committee of the Nasdaq.
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Each of the directors has been engaged in the principal occupation(s)
described above during the past five years. There are no family relationships
among any of the directors or executive officers of the Company.
INFORMATION CONCERNING THE BOARD; DIRECTOR COMPENSATION
The Company Board held nine meetings, and took a total of four actions by
unanimous written consent during the fiscal year ended December 31, 1997. Each
of the directors attended at least 75% of the aggregate number of meetings of
the Company Board and each Company Board committee on which he served. The
I-4
<PAGE> 34
Company Board has standing Executive, Audit and Compensation Committees, but
does not have a Nominating Committee. The entire Company Board performs the
function of a Nominating Committee.
The Audit Committee of the Company Board, which in 1997 consisted of
Messrs. Posner, Rekhi and Tolonen, and currently consists of Mr. Posner and Mr.
Patil held four meetings during the last fiscal year. The Audit Committee
reviews and advises the Company Board regarding the Company's accounting matters
and is responsible for reviewing and recommending the annual appointment of the
independent public accountants, recommending the engagement of the Company's
independent public accountants and the services to be performed by them, and
reviewing and evaluating the accounting principles being applied to the
Company's financial reports.
The Compensation Committee of the Company Board, which consists of Messrs.
Patil and Posner, held one meeting during the last fiscal year. The Compensation
Committee reviews and advises the Company Board regarding all forms of
compensation to be provided to the officers, employees, directors and
consultants of the Company.
The Company reimburses its directors for the out-of-pocket expenses
incurred in the performance of their duties as directors of the Company. The
Company has not previously paid fees to its directors for attendance at board
meetings. Effective in April 1998, the Company pays an annual board fee of
$10,000 to each outside board member. This fee is initially payable for current
outside Company Board members on May 1, 1998, and then on each anniversary
thereof, subject to continued service as a director of the Company. New outside
Company Board members will be paid their board fee upon first joining the
Company Board, and then on each anniversary thereof while they remain on the
Company Board. Outside Company Board members will also receive a $1,500 per day
stipend for in person attendance at board meetings or committee meetings, with
no more than one stipend per day per member to be paid. Stipends will be paid
within 30 days following the applicable meeting.
The Company's 1996 Director Option Plan (the "Director Plan") which was
approved by the Company Board in June 1996 and the stockholders in August 1996,
and amended by the Company Board and Stockholders in April 1998 and June 1998,
respectively, provides for the automatic and nondiscretionary grant of
nonstatutory stock options to nonemployee directors ("Outside Directors") of the
Company who are first elected to the Board after August 1996. A total of 150,000
shares of Common Stock are reserved for issuance thereunder. Each eligible
Outside Director automatically will be granted an option to purchase 15,000
shares on the date on which such person first becomes an Outside Director
("First Option") at the fair market value of the Company's Common Stock on the
date of grant. Each First Option will become exercisable as to 33% of the shares
subject to the option on the first anniversary of the date of grant and as to
one-third of the shares subject to the option each year thereafter, subject to
continued service as an Outside Director. In addition, each eligible Outside
Director will automatically be granted an option to purchase 5,000 shares on
December 1 of each year, provided he or she has served on the Company Board for
at least six months and was appointed to the Company Board after April 30, 1998
("Subsequent Option"). Each Subsequent Option shall have an exercise price equal
to the fair market value of the Company's Common Stock as of the date of grant
and shall become exercisable as to one-twelfth of the shares subject to the
Subsequent Option two years and one month after the date of grant and as to
one-twelfth of the shares on the last day of each month thereafter, subject to
continued service as an Outside Director. As of July 27, 1998, no shares of
Common Stock subject to options have been granted under the Director Plan and
150,000 shares of Common Stock remain available for future issuance.
I-5
<PAGE> 35
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals currently serve as executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Kanwal Rekhi......... 51 Chief Executive Officer and Chairman
James R. Tolonen..... 49 President and Chief Operating Officer
Robert Davis......... 40 Vice President and General Manager, Enterprise Products Group
Ken Kucera........... 54 Vice President, Worldwide Sales and Marketing
Srikanth Chari....... 46 Vice President, Marketing
</TABLE>
See "The Current Members of the Board" above for background information on
Messrs. Rekhi and Tolonen.
Mr. Davis has served as Vice President and General Manager, Enterprise
Products Group, of the Company since December 1997. From June 1997 until
December 1997, Mr. Davis served as Vice President, Marketing of the Company.
From April 1995 to May 1997 he served as Vice President of Marketing and
Business Development at Iterated Systems, Inc., a software company. From June
1991 to December 1994 he held the position of Vice President and general manager
of the Connectivity Products Division and Senior Vice President of Corporate
Marketing at Novell, Inc., a software company. Mr. Davis holds a B.S. in
Electrical Engineering from Purdue University and an M.B.A. in marketing from
Santa Clara University.
Mr. Kucera has served as Vice President, Worldwide Sales and Marketing
since January 1998. From October 1994 to January 1998, he served as President
and Chief Executive Officer of First Byte, Inc., a software company. From April
1986 to October 1994, he served as Chairman and Chief Executive Officer of
Swallowtail Systems, Inc., a software company. Mr. Kucera holds a B.S. in
Humanities and a B.A. in Philosophy from Loyola University Chicago.
Dr. Chari has served as Vice President, Marketing, since co-founding the
Company in November 1991. From November 1991 to August 1996, Dr. Chari also
served as a director of the Company. From July 1990 to October 1991, he served
as Director of Marketing for NetLabs, Inc. Dr. Chari holds a B.Tech in
Electrical Engineering from the Indian Institute of Technology of Delhi, India,
an M.B.A. from the Indian Institute of Management of Ahmedabad, India and a
Ph.D. in Business from the University of California, Los Angeles.
I-6
<PAGE> 36
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of
the other most highly compensated executive officers who earned in excess of
$100,000 in annual salary or bonus during the fiscal year ended December 31,
1997 (the "Named Officers"), information concerning compensation awarded to,
earned by or paid for services to the Company in all capacities during 1997,
1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) (#) ($)
------------------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unni S. Warrier...................... 1997 150,000 169,228 229,000 --
President and Chief Executive
Officer 1996 203,461 -- 150,050 2,053
1995 123,461 500 1,623
Leonard L. Backus.................... 1997 120,000 44,944 -- --
Vice-President, International Sales 1996 76,154 33,120 50,000 2,851
and Marketing 1995 -- -- -- --
Jeffrey W. Beaumont.................. 1997 120,000 5,373 16,000 --
Chief Financial Officer 1996 100,000 -- -- --
1995 4,046 -- 75,000 --
Robert Davis......................... 1997 76,033 34,447 100,000 --
Vice-President, Marketing 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ---------------
(1) In January, February and March 1998, Mr. Backus, Mr. Beaumont and Mr.
Warrier resigned, respectively.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to the Company's Named Officers during the fiscal year ended
December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Unni S. Warrier............... 20,000 1.5% 9.00 3/13/07 113,201 286,874
209,000 15.5% 14.75 7/30/07 1,938,725 4,913,110
Leonard L. Backus............. -- -- -- -- -- --
Jeffrey W. Beaumont........... 16,000 1.2% 9.00 3/13/07 90,561 229,499
Robert Davis.................. 100,000 7.4% 14.75 7/30/97 927,620 2,350,770
</TABLE>
- ---------------
(1) Under rules promulgated by the Securities and Exchange Commission, the
amounts in these two columns represent the hypothetical gain or "option
spread" that would exist for the options in this table based on assumed
stock price appreciation from the date of grant until the end of such
options' ten-year term at assumed annual rates of 5% and 10%. The 5% and 10%
rates of appreciation are specified by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The Company does not necessarily
agree that this method properly values an option. Actual gains, if any, on
option exercises are dependent on the future performance of the Company's
Common Stock and overall market conditions and the timing of option
exercises, if any.
I-7
<PAGE> 37
The following table provides information concerning option exercises by the
Named Officers during the fiscal year ended December 31, 1997 and the value of
unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#)(2) (#)(3)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Unni S. Warrier................ -- -- 116,975 262,125 1,126,181 1,140,639
Leonard L. Backus.............. -- -- 20,833 29,167 240,892 337,258
Jeffrey W. Beaumont............ -- -- 53,500 37,500 656,621 551,613
Robert Davis................... -- -- -- 100,000 -- 31,300
</TABLE>
- ---------------
(1) Calculated by determining the difference between the estimated fair market
value of the security underlying the options on the date of exercise and the
exercise price of the options.
(2) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the options at year end ($15.063 per share as of
December 31, 1997) and the exercise price of the options.
I-8
<PAGE> 38
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 20, 1998 for (i) each person known to
the Company to be the beneficial owner of more than 5% percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) the Named
Officers, and (iv) all directors and executive officers of the Company as a
group. Except as may be indicated in the footnotes to the table, each such
person has the sole voting and investment power with respect to the Shares
owned, subject to applicable community property laws.
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
BENEFICIALLY
OWNED
NAME SHARES BENEFICIALLY OWNED (1)
---- ------------------------- -------------
<S> <C> <C>
Suhas Patil(2)............................................ 1,948,729 15.3%
c/o Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538
Pilgrim Baxter & Associates, Ltd.(3)...................... 1,358,200 10.6%
825 Duportail Rd
Wayne, PA 19087
Unni S. Warrier(4)........................................ 831,964 6.2%
c/o CyberMedia, Inc.
3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
Leonard L. Backus(5)...................................... 4,281 *
Jeffrey W. Beaumont(6).................................... 78,167 *
Robert Davis.............................................. -- *
Kanwal Rekhi(7)........................................... 291,375 2.3%
Ronald S. Posner(8)....................................... 264,200 2.1%
James R. Tolonen(9)....................................... 32,812 *
All Directors and Executive Officers as a group (8
persons)(10)............................................ 3,406,362 26.7%
</TABLE>
- ---------------
* Less than 1%
(1) Percent Ownership is based on 12,773,348 Shares outstanding as of April 20,
1998. Unless otherwise indicated below, the persons and entities named in
the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998 are deemed to be outstanding
and to be beneficially owned by the person holding such options or warrants
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 75,000 shares of Common Stock registered to Personal Urban
Transport Corporation of which Mr. Patil is one of two directors. Mr. Patil
disclaims beneficial ownership as to these shares. Mr. Patil is the
individual owner of 1,723,968 shares subject to the community property laws
of the State of California with respect to the Reporting Persons' spouse,
Jayshree Patil. Additionally, 149,761 shares of Common Stock are held
jointly with Mayashree Patil. Includes 28,125 shares subject to the
Company's repurchase option which lapses over time.
(3) This information was obtained from filings made with the Securities and
Exchange Commission pursuant to Section 13(g) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"). Of such 1,358,200, shares,
Pilgrim Baxter & Associates, Ltd. has sole voting power over 1,333,500
shares, shared voting power over 1,358,200 shares and sole dispositive
power over 1,358,200 shares.
(4) Includes 80,000 shares held by Unnikrishnan S. Warrier, Trustee of the Anne
Lam 1996 Children's Trust UTA dated August 26, 1996, of which Mr. Warrier
disclaims beneficial ownership. Includes
I-9
<PAGE> 39
156,508 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(5) Includes 4,167 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(6) Includes 75,375 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(7) Represents 37,836 shares held by Kanwal Rekhi, Ann Holt Rekhi and Navinder
Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89, 37,837 shares
held by Kanwal Rekhi, Ann Holt Rekhi and Navinder Jain, Trustees of the
Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 208,559 shares held by Kanwal
Rekhi as Trustee of the Rekhi Family Trust dated 12/15/89 and 7,143 shares
held by Mr. Rekhi. Includes 28,125 shares subject to the Company's
repurchase option which lapses over time.
(8) Includes 28,125 shares subject to the Company's repurchase option which
lapses over time.
(9) Includes 32,812 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(10) Includes 268,862 shares subject to outstanding options which are currently
exercisable or exercisable within 60 days of April 20, 1998 as referenced
in footnotes (2) through (9).
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Patil and Mr. Posner. During
1997 Mr. Warrier also participated in discussions regarding salaries and
incentive compensation for all employees (including officers) and consultants to
the Company, except that Mr. Warrier was excluded from discussions regarding his
own salary and incentive compensation.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT;
AND CHANGE-IN-CONTROL ARRANGEMENTS; CERTAIN TRANSACTIONS
EMPLOYMENT CONTRACTS
In April 1998, the Company entered into employment agreements with each of
Mr. Rekhi and Mr. Tolonen in connection with their appointments as Chief
Executive Officer, and President and Chief Operating Officer, respectively. In
April 1998, in connection with these employment agreements, the Company entered
into both stock option agreements and restricted stock purchase agreement with
each of Mr. Rekhi and Mr. Tolonen.
The agreements provide, among other things, for annual base salaries of
$275,000 and $250,000 for Messrs. Rekhi and Tolonen, respectively, with bonus
targets of 100% of base salary based upon achievement of performance objectives
and additional sign-on and two subsequent annual bonuses of $356,000, $300,000
and $300,000 for Mr. Rekhi, and $227,500, $200,000 and $200,000 for Mr. Tolonen,
based upon continued employment.
The agreements also provide for the fair market value purchase of 150,000
and 100,000 restricted shares of the Company's Common Stock by Messrs. Rekhi and
Tolonen respectively, in exchange for full-recourse, interest-bearing notes. The
aggregate principal amount of each note is $956,250 and $637,500, respectively.
The interest rate for both of these notes is 5.43% per annum, compounded
semiannually. The shares are subject to a thirty-six month declining repurchase
right by the Company that lapses in the event of certain share price attainment,
change of control or certain revenue and profitability achievement. As of July
27, 1998, $745,628 and $502,907 were outstanding under each of these notes.
The agreements also provide for the grant to Mr. Rekhi of an option to
acquire 528,000 shares of the Company's Common Stock at a $10 per share price (a
57% premium over the fair market value on the date of grant); and for the grant
to Mr. Tolonen of an option to acquire 100,000 shares of the Company's Common
I-10
<PAGE> 40
Stock at fair market value on the date of grant, and an option to acquire
306,000 shares at a $10 per share price (a 57% premium over the fair market
value on the date of grant), all such options vesting over four years.
Mr. Robert Davis currently serves as Vice President and General Manager of
the Enterprise Products Group. Mr. Davis' annual compensation consists of (i)
base compensation of $190,000 per year, (ii) performance-oriented bonus
compensation of up to an aggregate of $70,000 in 1998, payable quarterly based
upon achieving quarterly revenue and budget targets, (iii) an option to purchase
100,000 shares of Common Stock of the Company, subject to four year vesting and
(iv) an option to purchase 50,000 shares of Common Stock of the Company, subject
to two year vesting.
Mr. Kenneth Kucera currently serves as Vice President, Worldwide Retail
Sales. Mr. Kucera's annual compensation consists of (i) base compensation of
$170,000 per year, (ii) performance-oriented bonus compensation of up to $22,500
per quarter based upon achieving quarterly revenue and budget targets allowing
bonuses, (iii) an option to purchase 100,000 shares of Common Stock of the
Company, subject to four year vesting and (iv) an option to purchase 50,000
shares of Common Stock of the Company, subject to two year vesting.
Mr. Srikanth Chari currently serves as Vice President, Marketing. Mr.
Chari's annual compensation includes (i) base compensation of $200,000 per year,
(ii) performance-oriented bonus compensation of up to $15,000 per quarter based
upon achieving quarterly targets allowing bonuses, (iii) an option to purchase
16,667 shares of Common Stock of the Company, which are fully vested and (iv) an
option to purchase 100,000 shares of Common Stock of the Company, subject to two
year vesting.
Certain elements of the salary, bonus, notes, stock option vesting and
lapsing of the Company's repurchase rights, accelerate in the event of
termination either following a change of control or not for cause.
CERTAIN AGREEMENTS AND PLANS
Executive Employment Policy. The Company established an Executive
Employment Policy (the "VP Policy") applicable to each Vice President ("VP") of
the Company. Pursuant to the VP Policy, upon a Termination due to Change of
Control (as defined below) of a VP or upon a Termination without Cause of a VP
without Cause (as defined below), such VP is entitled to the following. Only one
instance of each of the severance benefits below shall be given to such VP
qualified to receive such benefits.
Severance Payment. Such VP will receive a lump sum severance payment (the
"Severance Payment") equal to six (6) months annual base salary in effect
immediately prior to the termination, subject to all applicable withholding and
employment taxes. The Severance Payment will be reduced by the amount of pay the
VP receives in lieu of notice under the Worker Adjustment and Retraining Act, if
applicable. The VP Policy provides that the benefits provided under the VP
Policy shall be in lieu of any other severance plan benefits provided by the
Company under any other plan, policy, or agreement, such that the severance
benefits payable under the VP Policy shall be reduced by any severance paid or
payable to the VP by the Company under any other plan, policy or agreement;
provided, however, that if a VP is entitled under any prior written and executed
agreement to severance benefits that are greater than the severance benefits
provided under the VP Policy, the VP shall not forfeit his/her rights to the
difference between the severance benefits provided under such agreement and the
severance benefits provided under the VP Policy.
Coverage under COBRA If a VP elects COBRA continuation coverage pursuant to
federal law, the Company shall pay the VP's COBRA premiums for a six month
period after such VP's termination.
Acceleration of Option Vesting. In addition to any vesting or accelerated
vesting under the Company's Option Plans (as defined below in "Company Stock
Plans"), such VP's unvested stock options shall immediately vest as if the VP
were employed for an additional 12 months. Such VP shall have 90 days following
his or her termination date to exercise vested shares. The period to exercise
shall be extended, but only as long as necessary in order to allow the VP to
exercise such options without violating regulatory trading rules.
Benefits. Such VP shall receive the benefits, if any, under the Company's
401(k) Plan, employee bonus plans, employee stock purchase plans and other
Company benefit plans to which the VP may be entitled pursuant to the terms of
such plans. The VP's participation and rights in other benefit plans as may be
provided by the Company at the time of his or her termination of employment
shall be governed solely by the terms and conditions of such other plans, if
any. All other wages and vacation accrued through the date of
I-11
<PAGE> 41
termination shall be paid, but there shall be no proration of incentive bonus
unless "earned" under the provision of the applicable incentive bonus plan.
As used in the VP Policy, (i) a "Termination due to Change of Control"
means a Termination without Cause that occurs within one year after a Change of
Control, as defined below; (ii) "Termination without Cause" means (A) any
termination of a VP initiated by the Company unless Cause (as defined below) is
the grounds for termination; (B) any termination of a VP, initiated by a VP, for
a reason that constitutes a Constructive Termination (as defined below); or (C)
a termination, initiated by a VP, because any successor to the Company fails to
assume the obligations under the VP Policy; provided that notwithstanding the
foregoing, the term "Termination without Cause" shall not mean any termination
of a VP due to a VP's death, retirement, or permanent disability; (iii) "Cause"
means (A) any act of fraud, misappropriation, embezzlement, or other act of
material and unlawful dishonesty taken by a VP against the Company; (B) the
conviction of a felony which the Company reasonably believes had or will have a
material detrimental effect on the Company's reputation or business, (C) any act
by a VP which constitutes gross misconduct and is injurious to the Company and
(D) any act by a VP which the Company determines constitutes a breach of
security and is injurious to the Company; (iv) Change of Control means the
occurrence of any of the following events: (A) a merger or consolidation
involving the Company in which the shareholders of the Company immediately prior
to such merger or consolidation own less than 50% of the voting power of the
surviving corporation, (B) the sale of all or substantially all, of the assets
of the Company or (C) any person, (as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or group (within the meaning of Rule 13d
of the Exchange Act) becoming the beneficial owner (within the meaning of Rule
13d-3 of the Exchange Act) of securities representing more than 50% of the
voting power of the Company then outstanding; and (v) "Constructive Termination"
means the occurrence of any of the following conditions, without the Executive's
written consent, which condition(s) remain(s) in effect 20 days after written
notice to the Company Board from a VP of such condition(s): (A) a decrease in a
VP's base salary, or material decrease in a VP's annual target bonus, quarterly
bonus, or employee benefits; (B) a material decrease in a VP's position,
authority, duties and responsibilities; or (C) the relocation of a VP to a
facility or location more than thirty (30) miles from the VP's then-existing
facility or location.
COMPANY STOCK PLANS
The Company maintains the Amended 1993 Stock Plan, and the 1996 Director
Option Plan, as amended (the "Option Plans"). Pursuant to the Merger Agreement,
at the Effective Time, each option to purchase Common Stock under any of the
Option Plans will be assumed by the Parent and will be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such option (including, without limitation, any repurchase rights or vesting
provisions) shares of the common stock, $0.01 par value, of Parent ("Parent
Common Stock"), except that (i) such option will be exercisable for that number
of shares of Parent Common Stock equal to the product of the number of Shares
that were issuable upon exercise of such option immediately prior to the
Effective Time multiplied by a fraction, the numerator of which is the
consideration paid in the Merger and the denominator of which is the average of
the last reported sale prices of the Parent Common Stock on the five trading
days immediately preceding the date of the effective time of the Merger, rounded
down to the nearest whole number of shares of Parent Common Stock and (ii) the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed option will be equal to the aggregate exercise price
for the Shares purchasable pursuant to such assumed option immediately prior to
the effective time of the Merger divided by the full number of shares of Parent
Common Stock purchasable thereafter in accordance with the foregoing, rounded
down to the nearest whole cent. Within five business days after the Effective
Time, Parent will file a registration statement on Form S-8 with respect to the
shares of Parent Common Stock subject to the assumed options and will use its
best efforts to maintain the effectiveness of such registration statement for so
long as such options remain outstanding.
SETTLEMENT AGREEMENTS
The Company is party to a Settlement Agreement and Mutual Release with Unni
S. Warrier dated March 12, 1998 which accelerated the vesting of 53,125 options,
and such acceleration in the amount of $454,000 was expensed in the first
quarter of 1998. The Company also agreed to pay Mr. Warrier a severance payment
of $175,000, which has been paid in full.
I-12
<PAGE> 42
The Company is a party to a Settlement Agreement and Mutual Release with
Jeffrey Beaumont dated February 9, 1998 which accelerated the vesting of 18,749
options, and such acceleration in the amount of $128,000 was expensed in the
first quarter of 1998. The Company also agreed to pay Mr. Beaumont a severance
payment of $65,000 in installments through August 9, 1998.
INDEMNIFICATION
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such
exemption from liability is not permitted by the DGCL.
The Company's Bylaws provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director or officer of the
Company, or that such director or officer is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company has previously entered into indemnification agreements with
each of its directors and officers. The indemnification agreements generally
provide: (i) for indemnification to the fullest extent permitted by law if an
indemnitee was or is or becomes a participant in, or is threatened to be made a
participant in, any threatened, pending or completed action, suit, proceeding or
alternative dispute resolution mechanism, or any hearing, inquiry or
investigation that the indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other by reason of (or arising in part out of) any event or occurrence related
to the fact that the indemnitee is or was a director or officer of the Company,
or any subsidiary of the Company, or is or was serving at the request of the
Company as a director or officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of the indemnitee while serving in such
capacity against any and all expenses (including attorneys' fees and all other
costs, expenses and obligations incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any such action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation, judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of the claim and (ii) for advancement of all expenses
incurred by the indemnitee.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons beneficially owning more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC. Officers, directors and greater than 10% holders of
Common Stock are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no forms were required, the Company believes that
for the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and owners of greater than
10% of its Common Stock were complied with.
I-13
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 Agreement and Plan of Merger, dated July 28, 1998, by and
among Networks Associates, Inc., Cyclone Acquisition Corp.
and CyberMedia, Inc., including Conditions to the Offer.
2 Stock Option Agreement, dated July 28, 1998, by and between
Networks Associates, Inc., and CyberMedia, Inc.
3 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kanwal Rekhi.
4 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and James R. Tolonen.
5 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Suhas Patil.
6 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Ronald S. Posner.
7 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Robert Davis.
8 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kenneth Kucera.
9 Note Purchase and Security Agreement, made as of July 28,
1998, by and among CyberMedia, Inc. and Networks Associates,
Inc.
10 Secured Subordinated Convertible Promissory Note, dated July
28, 1998, made by CyberMedia, Inc. for the benefit of
Networks Associates, Inc.
11 Executive Employment Policy.
12 Letter to Stockholders of CyberMedia, Inc., dated August 31,
1998.
13 Fairness Opinion of Hambrecht & Quist LLC, dated July 28,
1998.
14 Confidentiality Agreement, dated June 9, 1998, by and
between Networks Associates, Inc. and CyberMedia, Inc.
15 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws.
16 Pages 6-11 of the Proxy Statement, dated May 6, 1998, for
the Annual Stockholder meeting on June 10, 1998.
17 Class Action Complaint filed by Stanley Schneider in the
Court of Chancery in the State of Delaware dated July 28,
1998.
</TABLE>
<PAGE> 1
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
by and among
NETWORKS ASSOCIATES, INC.,
CYCLONE ACQUISITION CORP.
and
CYBERMEDIA, INC.
dated as of
July 28, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I THE OFFER.................................................................................2
Section 1.1. The Offer............................................................................2
Section 1.2. Company Action.......................................................................4
Section 1.3. Directors............................................................................5
ARTICLE II THE MERGER................................................................................6
Section 2.1. The Merger...........................................................................6
Section 2.2. Effective Time; Closing..............................................................6
Section 2.3. Effects of the Merger................................................................6
Section 2.4. Certificate of Incorporation and By-Laws of the Surviving Corporation................6
Section 2.5. Directors............................................................................7
Section 2.6. Officers.............................................................................7
Section 2.7. Conversion of Shares.................................................................7
Section 2.8. Options; Company Stock Plans; Warrants...............................................7
Section 2.9. Stockholders' Meeting................................................................8
Section 2.10. Merger Without Meeting of Stockholders...............................................9
Section 2.11. Dissenting Shares....................................................................9
Section 2.12. Payment for Shares...................................................................9
Section 2.13. Supplementary Action................................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................11
Section 3.1. Organization and Qualification of the Company.......................................11
Section 3.2. Company Capital Structure...........................................................12
Section 3.3. Obligations With Respect to Capital Stock...........................................12
Section 3.4. Authority...........................................................................13
Section 3.5. SEC Filings; the Company Financial Statements.......................................14
Section 3.6. Absence of Certain Changes or Events................................................15
Section 3.7. Taxes...............................................................................16
Section 3.8. Title to Properties; Absence of Liens and Encumbrances..............................17
Section 3.9. Intellectual Property...............................................................18
Section 3.10. Compliance; Permits; Restrictions...................................................22
Section 3.11. Litigation..........................................................................23
Section 3.12. Brokers' and Finders' Fees..........................................................23
Section 3.13. Employee Benefit Plans and Employee Matters.........................................23
Section 3.14. Environmental Matters...............................................................27
Section 3.15. Agreements, Contracts and Commitments...............................................28
Section 3.16. Change of Control Payments..........................................................29
Section 3.17. Customs.............................................................................29
Section 3.18. Information.........................................................................29
Section 3.19. Section 203 of the DGCL Not Applicable..............................................30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................................30
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued
Page
----
<S> <C>
Section 4.1. Organization and Qualification of Parent and Purchaser..............................30
Section 4.2. Authority...........................................................................30
Section 4.3. Information.........................................................................31
Section 4.4. Available Funds.....................................................................31
Section 4.5. Litigation..........................................................................32
ARTICLE V COVENANTS................................................................................32
Section 5.1. Conduct of Business by the Company..................................................32
Section 5.2. Source Code Escrow..................................................................35
Section 5.3. Access to Information...............................................................36
Section 5.4. Efforts.............................................................................37
Section 5.5. Public Announcements................................................................37
Section 5.6. Employee Benefit Arrangements.......................................................38
Section 5.7. Indemnification.....................................................................38
Section 5.8. Notification of Certain Matters.....................................................39
Section 5.9. State Takeover Laws.................................................................39
Section 5.10. No Solicitation.....................................................................39
Section 5.11. Section 203 of the DGCL.............................................................42
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER.................................................42
Section 6.1. Conditions..........................................................................42
ARTICLE VII TERMINATION; AMENDMENTS; WAIVER..........................................................43
Section 7.1. Termination.........................................................................43
Section 7.2. Notice of Termination; Effect of Termination........................................44
Section 7.3. Fees and Expenses...................................................................44
Section 7.4. Amendment...........................................................................46
Section 7.5. Extension; Waiver...................................................................46
ARTICLE VIII MISCELLANEOUS............................................................................46
Section 8.1. Non-Survival of Representations and Warranties......................................46
Section 8.2. Entire Agreement; Assignment........................................................46
Section 8.3. Validity............................................................................47
Section 8.4. Notices.............................................................................47
Section 8.5. Governing Law.......................................................................48
Section 8.6. Interpretation......................................................................48
Section 8.7. Counterparts........................................................................48
Section 8.8. Severability........................................................................48
Section 8.9. Parties in Interest.................................................................48
Section 8.10. Certain Definitions.................................................................48
Section 8.11. Specific Performance................................................................49
</TABLE>
(ii)
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of July 28, 1998, by and among Networks Associates, Inc., a
Delaware corporation ("Parent"), Cyclone Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Purchaser"), and
CyberMedia, Inc., a Delaware corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Parent, Purchaser and the
Company and the sole stockholder of Purchaser have approved the acquisition of
the Company by the Purchaser on the terms and subject to the conditions set
forth in this Agreement;
B. Pursuant to this Agreement, Purchaser has agreed to commence a
tender offer (the "Offer") to purchase all of the outstanding shares of the
Company's common stock, par value $0.01 per share (the "Shares"), at a price per
Share of $9.50 (the "Offer Price");
C. The Board of Directors of the Company (the "Company Board") has (i)
approved the Offer and (ii) adopted and approved this Agreement and is
recommending that the Company's stockholders accept the Offer, tender their
Shares to Purchaser and approve this Agreement;
D. The Board of Directors of Purchaser and the Company Board have
approved the merger of the Purchaser with and into the Company, as set forth in
this Agreement (the "Merger"), in accordance with the Delaware General
Corporation Law (the "DGCL") and upon the terms and subject to the conditions
set forth in this Agreement, whereby each of the issued and outstanding Shares
not owned directly or indirectly by Parent, Purchaser or the Company will be
converted into the right to receive in cash the Offer Price or such higher price
as is paid pursuant to the Offer;
E. As a condition and inducement to Parent's and Purchaser's
willingness to enter into this Agreement, upon the execution and delivery of
this Agreement, Kanwal Rekhi, James R. Tolonen, Suhas Patil and Ronald S. Posner
(the "Director Stockholders") and Robert Davis and Kenneth Kucera (the
"Management Stockholders") are simultaneously entering into and delivering
support agreements (the "Support Agreements") in the form attached hereto as
Annex II;
F. As a condition and inducement to Parent's and Purchaser's
willingness to enter into this Agreement, Parent and the Company are
simultaneously entering into and delivering a stock option agreement (the
"Company Option Agreement") in the form attached hereto as Annex III; and
G. Parent, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and to
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<PAGE> 5
prescribe various conditions to the Offer and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Parent,
Purchaser and the Company agree as follows:
ARTICLE I
THE OFFER
Section 1.1. The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article VII hereof, as promptly as practicable but in no event
later than the fifth business day following the date of this Agreement,
Purchaser shall, and Parent shall cause Purchaser to, commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) the Offer at the Offer Price.
(b) The obligations of Purchaser to consummate the Offer and to accept
for payment and pay for any of the Shares tendered shall be subject to the
conditions set forth on Annex I hereto (the "Tender Offer Conditions"),
including the condition that a number of Shares equal to a majority of the
Shares outstanding on a fully diluted basis (including for purposes of such
calculation all Shares issuable upon exercise of all stock options and warrants
which are vested or scheduled to vest on or before October 31, 1998 with an
exercise price less than the Offer Price, and conversion of all convertible
securities or other rights to purchase or acquire Shares with a conversion price
less than the Offer Price) shall be validly tendered and not withdrawn prior to
the Expiration Date or shall be held by Parent, Purchaser or any affiliate
thereof or issuable upon the exercise or conversion of any equity or debt
security held by Parent, Purchaser or any affiliate thereof which is then
exercisable or convertible (the "Minimum Condition"). The amount of the Offer
Price shall be net to the seller in cash, upon the terms and subject to the
conditions of the Offer and subject to reduction for any applicable federal
back-up or other applicable withholding or stock transfer taxes. The Offer shall
remain open until 12:00 Midnight, New York City time, on the twentieth business
day following the commencement of the Offer. Parent and Purchaser agree that if
all of the conditions set forth in Annex I hereto are not satisfied by the time
of any scheduled termination of the Offer then, provided that all such
conditions are reasonably capable of being satisfied, Purchaser shall extend the
Offer until such conditions are satisfied or waived; provided that Purchaser
shall not be required to extend the Offer beyond September 15, 1998. As used in
this Agreement, the "Expiration Date" means 12:00 Midnight, New York City time,
on the twentieth business day following the commencement of this Offer, unless
Purchaser extends the Offer as permitted or required by this Agreement, in which
case the "Expiration Date" means the latest time and date to which the Offer is
extended.
(c) Purchaser expressly reserves the right to waive any conditions to
the Offer (other than the
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<PAGE> 6
conditions set forth in clauses (i) or (iii)(d) of Annex I), to increase the
price per Share payable in the Offer, to extend the duration of the Offer, or to
make any other changes in the terms and conditions of the Offer; provided,
however, that, without the Company's prior written consent, no such change may
be made which decreases the price per Share payable in the Offer, changes the
form of consideration to be paid in the Offer, reduces the maximum number of
Shares to be purchased in the Offer, imposes conditions to the Offer in addition
to the Tender Offer Conditions or amends any other material terms of the Offer
in a manner adverse to the Company's stockholders; and provided further that the
Offer may not, without the Company's prior written consent, be extended, except
as necessary to provide time to satisfy the Tender Offer Conditions, and, in any
event, may not be extended beyond September 30, 1998, except that Purchaser may
extend the Offer for up to 10 business days, if as of such date, there shall not
have been tendered at least 90% of the Shares then outstanding plus any Shares
then held by Parent, Purchaser or any affiliate thereof or issuable upon the
exercise or conversion of any equity or debt security held by Parent, Purchaser
or any affiliate thereof which is then exercisable or convertible, so that the
Merger could be effected without a meeting of the Company's stockholders in
accordance with applicable provisions of the DGCL.
(d) The Offer shall be made by means of an offer to purchase to which
the Company shall not have reasonably objected (the "Offer to Purchase")
containing the terms set forth in this Agreement and the Tender Offer
Conditions. Concurrently with the commencement of the Offer, Parent and
Purchaser shall file with the Securities and Exchange Commission (the "SEC") a
tender offer statement on Schedule 14D-1 under the Exchange Act to which the
Company shall not have reasonably objected reflecting the Offer (together with
all exhibits, amendments and supplements thereto, the "Schedule 14D-1"). The
Schedule 14D-1 will contain or will incorporate by reference the Offer to
Purchase (or portions thereof) and forms of the related letter of transmittal
and summary advertisements (which Schedule 14D-1, Offer to Purchase and other
documents, together with any supplements or amendments thereto, are referred to
herein collectively as the "Offer Documents"). The Company and its counsel shall
be given a reasonable opportunity to review and comment on the Offer Documents
prior to their filing with the SEC or dissemination to the stockholders of the
Company. Parent and Purchaser agree to provide the Company and its counsel with
any comments which Parent, Purchaser or their counsel may receive from the SEC
or the staff of the SEC with respect to such documents promptly after receipt
thereof. Parent and Purchaser represent and warrant that the Offer Documents
will, on the date filed with the SEC and on the date first published, sent or
given to the Company's stockholders, comply in all material respects with all
provisions of applicable federal securities laws and the rules and regulations
promulgated thereunder. Parent, Purchaser and the Company agree promptly to
correct any information provided by any of them for use in the Offer Documents
that shall be or have become false or misleading, and Parent and Purchaser
further agree to take all steps necessary to cause the Schedule 14D-1, as so
corrected, to be filed with the SEC and the other Offer Documents, as so
corrected, to be disseminated to the holders of Shares, in each case as and to
the extent required by applicable federal securities laws.
(e) Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and conditions of any
such extension or amendment), Purchaser will purchase by accepting for payment
and will pay for Shares validly tendered and not properly
4
<PAGE> 7
withdrawn, as promptly as practicable after the Expiration Date. Parent shall
provide or cause to be provided to Purchaser on a timely basis the funds
necessary to pay for any Shares that Purchaser becomes obligated to accept for
payment, and pay for, pursuant to the Offer.
Section 1.2. Company Action.
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that (i) the Company Board has unanimously (A)
determined that this Agreement and the transactions contemplated hereby,
including each of the Offer and the Merger, are fair to and in the best
interests of the holders of the Shares, (B) approved and adopted this Agreement
and the transactions contemplated hereby and (C) resolved to recommend that the
stockholders of the Company accept the Offer and approve and adopt this
Agreement and approve the transactions contemplated hereby (provided, however,
that subject to the provisions of Section Section 5.10, such recommendation may
be withdrawn, modified or amended in connection with a Superior Proposal (as
defined in Section Section 5.10) and (ii) Hambrecht & Quist ("H&Q"), the
Company's financial advisor, has rendered to the Company Board its opinion to
the effect that the consideration to be received by the holders of Shares
pursuant to each of the Offer and the Merger is fair to the holders of Shares
from a financial point of view. The Company hereby consents to the inclusion in
the Offer Documents of the recommendation of the Company Board described in
clause (i) of the first sentence of this Section Section 1.2(a), and
represents and warrants that it has obtained the consent of H&Q to the inclusion
in the Offer Documents and the Schedule 14D-9 (as defined in Section Section
1.2(b) of a copy of the written opinion referred to in clause (ii) of the
first sentence of this Section Section 1.2(a).
(b) The Company shall file with the SEC, concurrently with the filing by
Parent and Purchaser of the Schedule 14D-1, or promptly thereafter on the same
day, a Solicitation/Recommendation Statement on Schedule 14D-9 under the
Exchange Act, to which Parent shall not have reasonably objected, relating to
the Offer (together with all exhibits, amendments and supplements thereto, the
"Schedule 14D-9"), which shall, subject to Section Section 5.10 hereof, contain
the recommendation of the Company Board described in Section Section 1.2((a))
and the information required pursuant to Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder, and shall disseminate the Schedule 14D-9 as required by
Rule 14D-9 under the Exchange Act. Parent and Purchaser each will supply to the
Company any information with respect to itself and its officers, directors and
affiliates required to be provided in the Schedule 14D-9. Parent and its counsel
shall be given a reasonable opportunity to review and comment on the Schedule
14D-9 prior to its filing with the SEC or dissemination to the stockholders of
the Company. The Company agrees to provide Purchaser and its counsel with any
comments the Company or its counsel may receive from the SEC with respect to the
Schedule 14D-9 promptly after receipt thereof. The Company represents and
warrants that the Schedule 14D-9 will, on the date filed with the SEC and on the
date first published, sent or given to the Company's stockholders, comply in all
material respects with all provisions of applicable federal securities laws and
the rules and regulations promulgated thereunder. The Company, Parent and
Purchaser agree promptly to correct any information provided by any of them for
use in the Schedule 14D-9 that shall be or have become false or misleading, and
the Company further agrees to take all steps necessary to cause the Schedule
14D-9, as so corrected, to be filed with
5
<PAGE> 8
the SEC and disseminated to the holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
(c) The Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and security
position listings of Shares held in stock depositories, each of a recent date,
and shall promptly furnish Purchaser with such additional information, including
updated lists of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request in connection with communicating the Offer and any amendments or
supplements thereto to the Company's stockholders. Subject to the requirements
of applicable laws and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Merger,
Parent and Purchaser (and their agents) shall hold in confidence the information
contained in any of such labels and lists and, if this Agreement shall be
terminated, will promptly deliver to the Company all copies, extracts, or
summaries of such information then in their possession or control or in the
possession of their agents.
Section 1.3. Directors.
(a) Subject to compliance with applicable law, promptly upon the payment
by Purchaser for the Shares pursuant to the Offer, and from time to time
thereafter, Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of the total number of directors on the Company Board (determined after
giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Shares beneficially owned by Parent
or its affiliates bears to the total number of Shares then outstanding. The
Company shall, upon request of Parent, promptly take all actions necessary to
cause Parent's designees to be so elected, including, if necessary, increasing
the size of the Company Board (to the extent permitted by the Company's
Certificate of Incorporation and By-laws) and/or seeking the resignations of one
or more existing directors, provided, however, that prior to the Effective Time
(as defined in Section Section 2.2), the Company Board shall at all times have
at least two members who are members of the Company Board on the date of this
Agreement and are neither officers of the Company or any of its subsidiaries, or
officers or directors of Purchaser or any of its affiliates ("Independent
Directors"). If the number of Independent Directors is reduced below two prior
to the Effective Time, the remaining Independent Director shall be entitled to
designate a person to fill such vacancy who shall not be an officer or affiliate
of the Company or any of its subsidiaries or an officer, director, or affiliate
of Parent or any of its subsidiaries, and such person shall be deemed an
Independent Director for all purposes of this Agreement. If no Independent
Directors then remain, the other directors of the Company on the date hereof
shall designate two persons to fill such vacancies who shall not be officers or
affiliates of the Company or any of its subsidiaries, or officers, directors or
affiliates of Parent or any of its subsidiaries, and such persons shall be
deemed to be Independent Directors for all purposes of this Agreement.
(b) The Company's obligations to appoint Parent's designees to the
Company Board shall be subject to Section 14(f) of the Exchange Act and Rule
14f-1 thereunder. The Company shall, at its expense, promptly take all actions
required pursuant to such Section and Rule in order to
6
<PAGE> 9
fulfill its obligations under this Section Section 1.3 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under such Section and Rule in order to fulfill its
obligations under this Section Section 1.3. Parent will supply any information
with respect to itself, and its officers, directors and affiliates required by
such Section and Rule to the Company.
(c) Following the election or appointment of Parent's designees pursuant
to this Section Section 1.3 and prior to the Effective Time (as defined in
Section Section 2.2), any amendment or termination of this Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or other acts of Parent or Purchaser or any waiver of any of the
Company's rights hereunder, shall require the concurrence of a majority of the
Independent Directors (or in the case where there is only one Independent
Director, the concurrence of such Independent Director).
ARTICLE II
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to the satisfaction
or waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, Purchaser shall be merged with and
into the Company. Following the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
Section 2.2. Effective Time; Closing. As soon as practicable after the
satisfaction of the conditions set forth in Article VI, the Company shall
execute, in the manner required by the DGCL, and file with the Secretary of
State of the State of Delaware a duly executed and verified certificate of
merger (the "Certificate of Merger"), and the parties shall take such other and
further actions as may be required by law to make the Merger effective.
Contemporaneous with such filing, a closing (the "Closing") will be held at the
offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto,
California, or at such other location as the parties may establish for the
purpose of confirming the foregoing. The time the Merger becomes effective in
accordance with applicable law is referred to herein as the "Effective Time."
Section 2.3. Effects of the Merger. The Merger shall have the effects
set forth in the applicable provision of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and the
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and the Purchaser shall become the debts, liabilities
and duties of the Surviving Corporation.
Section 2.4. Certificate of Incorporation and By-Laws of the Surviving
Corporation.
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<PAGE> 10
(a) The Certificate of Incorporation of the Company shall be amended to
contain the substantive provisions of the Certificate of Incorporation of
Purchaser, as in effect immediately prior to the Effective Time, and, as so
amended, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter duly amended in accordance with the provisions thereof and
applicable law.
(b) Subject to the provisions of Section Section 5.7 of this Agreement,
the By-Laws of Purchaser, as in effect at the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter duly amended in accordance
with the provisions thereof and applicable law.
Section 2.5. Directors. Subject to applicable law, the directors of
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal.
Section 2.6. Officers. The officers of Purchaser immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
Section 2.7. Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Purchaser, the Company
or the holders of the Shares:
(a) each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held by Parent, Purchaser, the Company or any of their
wholly-owned subsidiaries, and any Dissenting Shares (as defined in Section
Section 2.11)) shall automatically be canceled and extinguished and shall be
converted into the right to receive $9.50, or the greatest amount per Share as
is paid pursuant to the Offer (the "Merger Consideration"), in cash without
interest thereon (in the event of any reclassification, recapitalization, stock
split, stock dividend or similar transaction with respect to the Shares,
appropriate and proportionate adjustments, if any, shall be made to the amount
of the Offer Price and Merger Consideration, and all references to the Offer
Price or the Merger Consideration in this Agreement shall be deemed to be to the
Offer Price or the Merger Consideration as so adjusted);
(b) each Share issued and outstanding immediately prior to the Effective
Time which is owned or held by Parent, Purchaser, the Company or any of their
wholly-owned subsidiaries shall be canceled and extinguished and cease to exist,
without any conversion thereof, and no payment shall be made with respect
thereto;
(c) each holder (other than holders referred to in Section Section
2.7((b))) of a certificate representing any Shares shall after the Effective
Time cease to have any rights with respect to such Shares, except either to
receive the Merger Consideration upon surrender of such certificate, or to
exercise such holder's appraisal rights as provided in Section Section 2.11 and
the DGCL; and
(d) each share of Common Stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and thereafter
represent one validly issued, fully paid
8
<PAGE> 11
and nonassessable share of Common Stock of the Surviving Corporation.
Section 2.8. Options; Company Stock Plans; Warrants.
(a) At the Effective Time, each option to purchase shares of Company
Common Stock (an "Option") outstanding under any of the Company's Amended 1993
Stock Plan, or 1996 Directors Option Plan (collectively the "Company Stock
Plans") shall be assumed by Parent and shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Option (including, without limitation, any repurchase rights or vesting
provisions) shares of Common Stock, $.01 par value, of Parent ("Parent Common
Stock"), except that (i) such Option shall be exercisable for that number of
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Option immediately
prior to the Effective Time multiplied by a fraction, the numerator of which is
the Merger Consideration and the denominator of which is the average of the last
reported sale prices of Parent Common Stock on the five (5) trading days
immediately preceding the date of the Effective Time, rounded down to the
nearest whole number of shares of Parent Common Stock and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Option will be equal to the aggregate exercise price for the shares
of Company Common Stock purchasable pursuant to such Option immediately prior to
the Effective Time divided by the number of full shares of Parent Common Stock
purchasable thereafter in accordance with the foregoing, rounded down to the
nearest whole cent. As soon as practicable after the Effective Time, Parent
shall deliver to holders of Options appropriate notice setting forth such
holders' rights pursuant hereto.
(b) Parent shall take all corporate action necessary to reserve and make
available for issuance a sufficient number of shares of Parent Common Stock for
delivery under the Options assumed in accordance with this Section Section 2.8
and shall use its best efforts to cause such shares to be approved for quotation
on the Nasdaq National Market. Within five business days following the Effective
Time, Parent shall file a registration statement on Form S-8 (or any successor
or other appropriate form) with respect to the shares of Parent Common Stock
subject to such Options and shall use its best efforts to maintain the
effectiveness of such registration statement for so long as such Options remain
outstanding.
(c) Parent shall not assume or continue any outstanding warrants to
purchase shares of Company Common Stock (the "Warrants"). The parties hereto
shall take all appropriate action to provide that, at or following the Effective
Time each holder of an outstanding Warrant shall be entitled to receive an
amount in cash equal to the product of (i) the excess, if any, of the Merger
Consideration over the per share exercise price of such Warrant and (ii) the
number of Shares subject to such Warrant which are exercisable immediately prior
to the Effective Time.
Section 2.9. Stockholders' Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through the Company Board, shall, in accordance with applicable
law:
(i) duly call, give notice of, convene and hold a special
meeting of its stockholders
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<PAGE> 12
(the "Special Meeting") as soon as practicable following the acceptance for
payment of and payment for Shares by Purchaser pursuant to the Offer for the
purpose of considering and taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to the Merger and this Agreement, and use its best efforts (A) to
obtain and furnish the information required to be included by the SEC in the
Proxy Statement (as hereinafter defined) and, after consultation with Parent, to
respond as soon as practicable to any comments made by the SEC with respect to
the preliminary proxy statement and cause a definitive proxy statement (the
"Proxy Statement") to be mailed to its stockholders and (B) to obtain the
necessary approvals of the Merger and adoption of this Agreement by its
stockholders; and
(iii) include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of the approval and
adoption of the Merger and of this Agreement.
(b) Parent agrees that it will vote, or cause to be voted, all of the
Shares then owned by it, Purchaser or any of its other subsidiaries in favor of
the approval of the Merger and of this Agreement.
Section 2.10. Merger Without Meeting of Stockholders. Notwithstanding
the provisions of Section Section 2.9, in the event that Purchaser shall acquire
at least 90% of the outstanding Shares pursuant to the Offer, the parties hereto
agree to take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the acceptance for payment of and payment
for Shares by Purchaser pursuant to the Offer without a meeting of stockholders
of the Company, in accordance with the provisions of Section 253 of the DGCL.
Section 2.11. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are outstanding immediately prior to the
Effective Time and which are held by a holder who has not voted in favor of the
Merger or consented thereto in writing and who has demanded appraisal for such
Shares in accordance with Section 262 of the DGCL ("Dissenting Shares") shall
not be converted into a right to receive the Merger Consideration pursuant to
Section Section 2.7, but the holders of Dissenting Shares shall instead be
entitled to receive such consideration as shall be determined pursuant to
Section 262 of the DGCL; provided, however, that if any such holder shall have
failed to perfect or shall withdraw or lose such holder's right of appraisal and
payment under the DGCL, such holder's Shares shall be treated as if they had
been converted as of the Effective Time into the right to receive the Merger
Consideration, without interest thereon, as provided in Section Section 2.7 and
such Shares shall no longer be Dissenting Shares. The Company shall give Parent
and Purchaser prompt notice of any demands received by the Company for appraisal
of Shares, and of any withdrawals of demands for appraisal, or of any other
instruments served pursuant to Section 262 of the DGCL and received by the
Company. Prior to the Effective Time, Parent and Purchaser shall have the right
to participate in all negotiations and proceedings with respect to such demands
for appraisal. Prior to the Effective Time, the Company shall not, except with
the prior written consent of Parent and Purchaser, make any payment with respect
to, or settle or offer to settle, any such demands. Each
10
<PAGE> 13
holder of Dissenting Shares shall have only such rights and remedies as are
granted to such holder under Section 262 of the DGCL.
Section 2.12. Payment for Shares.
(a) Prior to the Effective Time, Purchaser shall select and appoint a
bank or trust company having net capital of not less than $100,000,000 to act as
paying agent (the "Paying Agent") in effecting the payment of the Merger
Consideration in respect of certificates (the "Certificates") that, prior to the
Effective Time, represented Shares entitled to payment of the Merger
Consideration pursuant to Section Section 2.7. At the Effective Time, Parent or
Purchaser shall deposit, or cause to be deposited, in trust with the Paying
Agent the aggregate Merger Consideration to which holders of Shares shall be
entitled at the Effective Time pursuant to Section Section 2.7.
(b) Promptly after the Effective Time, Purchaser or Parent shall cause
the Paying Agent to mail to each record holder of Certificates a form of letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use of such letter of
transmittal in surrendering the Certificates for payment. Upon the surrender of
each Certificate, together with a completed and duly executed letter of
transmittal and such other documents as may be requested in connection
therewith, the Paying Agent shall pay the holder of such Certificate the Merger
Consideration multiplied by the number of Shares formerly represented by such
Certificate, in consideration therefor, and such Certificate shall forthwith be
canceled. Until so surrendered, each Certificate shall represent solely the
right to receive the aggregate Merger Consideration relating thereto. No
interest or dividends shall be paid or accrued on the Merger Consideration.
(c) If the Merger Consideration (or any portion thereof) is to be paid
and delivered to any person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition to such person's right to
receive such Merger Consideration that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Paying Agent that such taxes have been paid or are not
applicable. In the event any Certificate shall have been lost, stolen or
destroyed, the Paying Agent shall be required to pay the full Merger
Consideration in respect of any Shares represented by such Certificate; however,
Parent may require the owner of such lost, stolen or destroyed Certificate to
execute and deliver to the Paying Agent a form of affidavit claiming such
Certificate to be lost, stolen or destroyed in form and substance reasonably
satisfactory to Parent and the posting by such owner of a bond in such amount as
Parent may determine is reasonably necessary as indemnity against any claim that
may be made against Parent or the Paying Agent.
(d) Promptly following the date which is 180 days after the Effective
Time, the Paying Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its
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possession relating to the transactions described in this Agreement, and the
Paying Agent's duties shall terminate. Thereafter, each holder of a Certificate
may surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the aggregate Merger Consideration relating thereto, without any
interest thereon. Notwithstanding the foregoing, none of Parent, Purchaser, the
Surviving Corporation or the Paying Agent shall be liable to any person in
respect of any cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered immediately prior to such date on which any payment with
respect thereto would otherwise escheat to or become the property of any court,
administrative agency, commission, or other governmental authority or
instrumentality ("Governmental Entity"), the cash payment in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interests
of any person previously entitled thereto.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying Agent,
they shall be surrendered and canceled in return for the payment of the
aggregate Merger Consideration relating thereto, as provided in this Article II.
Section 2.13. Supplementary Action. If at any time after the Effective
Time, any further assignments or assurances in law or any other things are
necessary or desirable to vest or to perfect or confirm of record in the
Surviving Corporation the title to any property or rights of either the Company
or Purchaser, or otherwise to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered, in the name of and on behalf of the Company and Purchaser, to execute
and deliver any and all documents and instruments and to take all other action
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise to carry out the purposes and
provisions of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser, subject to
the exceptions specifically disclosed in writing in a disclosure schedule
delivered by the Company to Parent on or before the date hereof and certified by
a duly authorized officer of the Company (the "Company Schedule"), as follows:
Section 3.1. Organization and Qualification of the Company.
(a) The Company and each of its subsidiaries (i) is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is
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organized; (ii) has the corporate or other power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted; and (iii) is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary other than in jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a Material Adverse
Effect on the Company.
(b) The Company has made available to Parent a true and complete list of
all of the Company's subsidiaries as of the date of this Agreement, indicating
the jurisdiction of organization of each subsidiary and the Company's equity
interest therein.
(c) The Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company and
similar governing instruments of each of its subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither the Company
nor any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent governing instruments.
Section 3.2. Company Capital Structure. The authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock, $0.01 par value per
share (the "Company Common Stock"), of which there were an aggregate of
13,362,540 shares issued and outstanding as of the close of business on July 27,
1998 (with no shares held in treasury) plus shares of Company Common Stock to be
issued due to the exercise of Options since July 14, 1998, and 2,000,000 shares
of Preferred Stock, $0.01 par value per share, of which no shares are issued or
outstanding. All outstanding shares of the Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement or document to which the Company is a party or
by which it is bound. As of July 27, 1998, the Company has reserved an aggregate
of 4,552,000 shares of the Company Common Stock, net of exercises, for issuance
pursuant to the Company Stock Plans and is obligated to issue 22,511 shares of
Company Common Stock pursuant to the Company's Employee Stock Purchase Plan
during the current purchase period. As of July 27, 1998, there were Options
outstanding to purchase an aggregate of 2,818,386 (minus shares of Company
Common Stock issued upon exercise of Options since July 14, 1998) shares of the
Company Common Stock pursuant to the Company Stock Plans. As of July 27, 1998,
there were Warrants outstanding to purchase an aggregate of 59,668 shares of the
Company Common Stock. All shares of the Company Common Stock subject to issuance
as aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. The Company Schedule lists for
each person who held Options or Warrants as of July 27, 1998, the name of the
holder, the exercise price of such Option or Warrant, the number of shares as to
which such Option or Warrant had vested at such date, the vesting schedule for
such Option or Warrant, whether the exercisability of such Option or Warrant
will be accelerated in any way by the transactions contemplated by this
Agreement, and the extent of any such acceleration; provided that such schedule
does not reflect Option exercises since July 14, 1998.
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Section 3.3. Obligations With Respect to Capital Stock. Except as set
forth in Section Section 3.2, there are no shares of capital stock, partnership
interests or similar ownership interests of any class of the Company's equity
securities, or any securities exchangeable or convertible into or exercisable
for such equity securities, issued, reserved for issuance or outstanding. Except
for securities the Company owns free and clear of all claims and encumbrances,
directly or indirectly through one or more subsidiaries, and except for shares
of capital stock or other similar ownership interests of certain subsidiaries of
the Company that are owned by certain nominee equity holders as required by the
applicable law of the jurisdiction of organization of such subsidiaries, as of
the date of this Agreement, there are no shares of capital stock, partnership
interests or similar ownership interests of any class of equity securities of
any subsidiary of the Company, or any securities exchangeable or convertible
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in Section Section 3.2, as of July 27, 1998,
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the Company or any
of its subsidiaries is a party or by which it is bound obligating the Company or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as set forth in the Company Schedule and as
contemplated by this Agreement, the Company Option Agreement and the Support
Agreements, there are no registration rights and, to the knowledge of the
Company, there are no voting trusts, proxies, rights plan, antitakeover plans or
other agreements or understandings to which the Company is a party or by which
it is bound with respect to any equity security of any class of the Company or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
Section 3.4. Authority.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and the Company Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Company Option Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby have been
duly and validly authorized and approved by the Company Board and no other
corporate proceedings on the part of the Company are necessary to authorize or
approve this Agreement or the Company Option Agreement or to consummate the
transactions contemplated hereby or thereby (other than, with respect to the
Merger, the approval and adoption of this Agreement by the affirmative vote of
the holders of a majority of the then outstanding Shares entitled to vote
thereon, to the extent required by the applicable law). This Agreement and the
Company Option Agreement have been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by Parent and
Purchaser, constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except that (i)
such enforcement may be subject to
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bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement and the Company
Option Agreement by the Company do not, and the performance of this Agreement
and the Company Option Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company or the
equivalent organizational documents of any of its subsidiaries, (ii) subject to
compliance with the requirements set forth in Section Section 3.4((b)) below,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which the Company or
any of its subsidiaries or any of their respective properties is bound or
affected, other than such conflicts or violations which, individually or in the
aggregate, do not and would not reasonably be expected to have a Material
Adverse Effect (as defined in Section Section 8.10((d))) on the Company or a
material adverse effect on the ability of the parties hereto to consummate the
Offer or the Merger, (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both would
become a material default) under, or impair the Company's material rights or
alter the material rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material lien or encumbrance on any of the material
properties or assets of the Company or any of its subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise, concession, or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective assets are bound or affected.
The Company Schedule lists all consents, waivers and approvals under any of the
Company's or any of its subsidiaries' agreements, contracts, licenses or leases
required to be obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate are not
obtained, would be reasonably expected to have a Material Adverse Effect on the
Company.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained or
made by the Company or any of its subsidiaries in connection with the execution
and delivery of this Agreement or the Company Option Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the filing of
the Proxy Statement, if applicable, with the SEC in accordance with the Exchange
Act, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities (or related) laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the securities or antitrust laws of any
foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be
reasonably expected to have Material Adverse Effect on the Company or a material
adverse effect on the ability of the parties hereto to consummate the Offer or
the Merger.
Section 3.5. SEC Filings; the Company Financial Statements.
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(a) The Company has filed in a timely manner all forms, reports and
documents required to be filed by the Company with the SEC since October 23,
1996 and has made available to Parent such forms, reports and documents in the
form filed with the SEC. All such required forms, reports and documents
(including those that Company may file subsequent to the date hereof) are
referred to herein as the "Company SEC Reports." As of their respective dates,
the Company SEC Reports (i) were prepared, in all material respects, in
accordance with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Company's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (the
"Company Financials"), including any Company SEC Reports filed after the date
hereof until the consummation of the Offer, (i) complied, or will comply, as to
form in all material respects with the published rules and regulations of the
SEC with respect thereto, (ii) was, or will be, prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented, or will present, the consolidated financial position of the
Company and its subsidiaries as at the respective dates thereof and the
consolidated results of the Company's operations and cash flows for the periods
indicated, except that the unaudited interim financial statements may not
contain footnotes and were or are subject to normal and recurring year-end
adjustments. The consolidated balance sheet of the Company as of June 30, 1998
set forth in Section 3.5 of the Company Schedule is hereinafter referred to as
the "Company Balance Sheet" and shall be deemed to be a part of the Company
Financials. Except as disclosed in the Company Financials, since the date of the
Company Balance Sheet neither the Company nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) required under GAAP to
be set forth on a balance sheet which are, individually or in the aggregate,
material to the business, results of operations or financial condition of the
Company and its subsidiaries taken as a whole, except for liabilities incurred
since the date of the Company Balance Sheet in the ordinary course of business
consistent with past practices.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be so filed, to agreements, documents or
other instruments which previously have been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
Section 3.6. Absence of Certain Changes or Events. Between the date of
the Company Balance Sheet and the date hereof, there has not been: (i) any event
or occurrence which has had a Material Adverse Effect on the Company, (ii) any
declaration, setting aside or payment of any dividend
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on, or other distribution (whether in cash, stock or property) in respect of,
any of the Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by the Company of any of the Company's capital
stock or any other securities of the Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees, directors or consultants following the
termination of their services pursuant to the terms of pre-existing stock option
or purchase agreements, (iii) any split, combination or reclassification of any
of the Company's or any of its subsidiaries' capital stock, (iv) any granting by
the Company or any of its subsidiaries of any increase in compensation or fringe
benefits, except for normal increases of cash compensation in the ordinary
course of business consistent with past practice, or any payment by the Company
or any of its subsidiaries of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by the Company
or any of its subsidiaries of any increase in severance or termination pay or
any entry by the Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving the Company of the nature
contemplated hereby, (v) entry by the Company or any of its subsidiaries into
any licensing or other agreement with regard to the acquisition or disposition
of any material Intellectual Property (as defined in Section Section 3.9((a)))
other than non-exclusive licenses granted in the ordinary course of business
consistent with past practice, (vi) any material change by the Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP or SEC requirements, or (vii) any material revaluation by the
Company of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice.
Section 3.7. Taxes.
(a) For the purposes of this Agreement, "Tax" or "Taxes" refers to any
and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company and each of its subsidiaries have timely filed (taking
into account applicable extensions) all federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
Taxes required to be filed by the Company and each of its subsidiaries with any
Tax authority, except such Returns which are not material to the Company, and
have paid all Taxes shown to be due on such Returns.
(c) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act
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("FUTA") and any other Taxes required to be withheld, in all cases to the extent
such amounts are material individually or in the aggregate.
(d) Neither the Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(e) To the Company's knowledge, no audit or other examination of any
Return of the Company or any of its subsidiaries by any Tax authority is
presently in progress, nor has the Company or any of its subsidiaries been
notified of any request for such an audit or other examination.
(f) No adjustment relating to any Returns filed by the Company or any of
its subsidiaries has been proposed in writing formally or informally by any Tax
authority to the Company or any of its subsidiaries or any representative
thereof.
(g) Neither the Company nor any of its subsidiaries has any material
liability for unpaid Taxes which has not been accrued for or reserved on the
Company Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to the Company, other than any liability for unpaid Taxes that
may have accrued since the date of the Company Balance Sheet in connection with
the operation of the business of the Company and its subsidiaries in the
ordinary course.
(h) There is no contract, agreement, plan or arrangement to which the
Company is a party of this Agreement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company or any of its subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
(i) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company.
(j) Neither the Company nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement.
(k) Except as may be required as a result of the Merger, the Company and
its subsidiaries have not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or Section 263A of the Code or any comparable provision under state
or foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Closing.
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(l) None of the Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(m) The Company Schedule lists (i) any foreign Tax holidays, (ii) any
intercompany transfer pricing agreements, or other arrangements that have been
established by the Company or any of its subsidiaries with any Tax authority and
(iii) any expatriate programs or policies affecting the Company or any of its
subsidiaries.
Section 3.8. Title to Properties; Absence of Liens and Encumbrances.
(a) The Company Schedule lists all real property interests owned by the
Company or any of its subsidiaries as of the date hereof. The Company Schedule
lists all real property leases to which the Company or any of its subsidiaries
is a party as of the date hereof and each amendment thereto. All such leases are
in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that would give rise to a material claim.
(b) The Company and each of its subsidiaries has good and valid title
to, or, in the case of leased properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any liens, pledges, charges,
claims, security interests or other encumbrances of any sort ("Liens"), except
as reflected in the Company Financials and except for liens for taxes not yet
due and payable and such Liens or other imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
Section 3.9. Intellectual Property.
(a) The Company and each of its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications for such patents,
trademarks, trade names, service marks and copyrights, and all patent rights,
trade secrets, schematics, technology, know-how, computer software and tangible
or intangible proprietary information or material and other intellectual
property or proprietary rights (collectively, "Intellectual Property") material
to the conduct of its business as currently conducted, including without
limitation all copyrights registered in the name of the Company or any of its
subsidiaries ("Company Intellectual Property"). The Company and each of its
subsidiaries has taken reasonable measures to protect the proprietary nature of
each item of Company Intellectual Property that it considers confidential, and
to maintain in confidence all trade secrets and confidential information that it
presently owns or uses, except where the failure to own, license or possess
legally enforceable rights to use such Company Intellectual Property would not,
individually or in the aggregate, reasonably be expected to result in a material
loss of benefits or a material loss to the Company's business.
(i) Section Section 3.9((a))((i)) of the Company Schedule lists,
as of the date hereof, all patents and patent applications and all trademarks,
registered copyrights, trade names and
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service marks owned by, or licensed exclusively to, the Company or any of its
subsidiaries and which are currently used in connection with the business of the
Company or its subsidiaries, including the jurisdictions in which each item of
such Company Intellectual Property has been issued or registered or in which any
such application for such issuance or registration has been filed.
(ii) Section Section 3.9(a)(ii) of the Company Schedule
lists, as of the date hereof, all written licenses, sublicenses and other
agreements to which Company or any of its subsidiaries is a party and pursuant
to which any person is authorized to use any Company Intellectual Property
rights, excluding (A) source or object code end-user licenses granted to
end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same ("End-User
Licenses") and (B) licenses, sublicenses or other agreements with resellers,
distributors, original equipment manufacturers and other third party
intermediaries that grant non-exclusive rights to use or modify (for purposes of
establishing program interfaces) and resell or sublicense source or object code
which (I) did not in any individual case represent $100,000 or more of revenues
to the Company in 1997 on a consolidated basis, (II) were in all material
respects in the standard form of agreements provided by the Company to Parent,
and (III) the Company has no reason to believe will be material to the Company's
or any of its subsidiaries' business or would reasonably be expected to result
in a material loss to the Company.
(iii) Section Section 3.9(a)(iii) of the Company Schedule
lists, as of the date hereof, all written licenses, sublicenses and other
agreements to which the Company or any of its subsidiaries is a party and
pursuant to which the Company or any such subsidiary is authorized to use any
third party Intellectual Property, including software ("Third Party Intellectual
Property") which is incorporated in any existing product or service of the
Company or any of its subsidiaries, or any material product or service currently
under development ("Embedded Products").
(iv) Section Section 3.9(a)(iv) of the Company Schedule
lists, as of the date hereof, all written agreements or other arrangements under
which the Company or any of its subsidiaries has provided or agreed to provide
source code of any product of the Company or any of its subsidiaries to any
third party, except for software development kits provided either to agent
integration providers or by End-User Licenses.
The Company has made available to Parent correct and complete
copies of all patents, registrations, applications (owned by the Company or any
of its subsidiaries), and all licenses, sublicenses and agreements referred to
in this Section Section 3.9(a), each as amended to date. Except for retail
purchases of software, neither the Company nor any of its subsidiaries is a
party to any oral license, sublicense or agreement which, if reduced to written
form, would be required to be listed in Section Section 3.9 of the Company
Schedule under the terms of this Section Section 3.9(a).
(b) With respect to each item of Company Intellectual Property that the
Company or any of its subsidiaries owns: (i) other than common law trademarks,
and subject to such rights as have
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been granted by the Company or any of its subsidiaries under non-exclusive
license agreements and joint development agreements entered into by the Company
or any of its subsidiaries (copies of which have previously been made available
or disclosed in writing to Parent), the Company or its subsidiaries possess all
right, title and interest in and to such item; and (ii) such item is not subject
to any outstanding judgment, order, decree, stipulation or injunction that
materially interferes with the conduct of the Company's or any of its
subsidiaries' business as currently conducted.
(c) Except as set forth in Section 3.9 of the Company Schedule, with
respect to each item of Third Party Intellectual Property listed in Section
3.9(a)(iii): (i) the license, sublicense or other agreement covering such
item is legal, valid, binding, enforceable and in full force and effect with
respect to the Company or such subsidiary, and, to the Company's knowledge, is
legal, valid, binding, enforceable and in full force and effect with respect to
each other party thereto; (ii) neither the Company nor any of its subsidiaries
is in material breach or default thereunder, and, to the Company's knowledge, no
other party to such license, sublicense or other agreement is in material breach
or default thereunder, and, to the Company's knowledge, no event has occurred
which with notice or lapse of time would constitute a material breach or default
by the Company or any of its subsidiaries or permit termination, modification or
acceleration thereunder by the other party thereto; (iii) to the Company's
knowledge, the underlying item of Third Party Intellectual Property is not
subject to any outstanding judgment, order, decree, stipulation or injunction to
which the Company or any of is subsidiaries is a party or has been specifically
named that materially interferes with the conduct of the Company's or any of its
subsidiaries' business as currently conducted, nor, to the Company's knowledge,
subject to any other outstanding judgment, order, decree, stipulation, or
injunction that materially interferes with the conduct of the Company's or any
of its subsidiaries' business as currently conducted.
(d) Except as set forth in Section 3.9 of the Company Schedule, as of
the date hereof, neither the Company nor any of its subsidiaries has (i) been
named in any suit, action or proceeding as to which it has been served with
process which involves a claim of infringement or misappropriation of any
Intellectual Property right of any third party or (ii) received any written
notice alleging any such claim of infringement or misappropriation. The Company
has made available to Parent correct and complete copies of all such suits,
actions or proceedings or written notices. To the Company's knowledge, except as
set forth in Section 3.9 of the Company Schedule, the manufacturing, marketing,
licensing or sale of the products or the performance of the services offered by
the Company and its subsidiaries do not currently infringe, and have not
infringed, any Intellectual Property right of any third party (other than patent
rights) or, to the Company's knowledge, any patent rights of third parties; and,
to the knowledge of the Company, none of the Company Intellectual Property
rights are being infringed by activities, products or services of any third
party.
(e) Except as set forth in Section 3.9 of the Company Schedule, the
execution and delivery of this Agreement by the Company, and the consummation of
the transactions contemplated hereby, will neither cause the Company nor any of
its subsidiaries to be in violation or default under any license, sublicense or
other agreement relating to Intellectual
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Property, nor terminate nor modify nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license, sublicense
or agreement, nor limit in any way the Company's or any of its subsidiaries'
ability to conduct its business or use or provide the use of Company
Intellectual Property or any Intellectual Property rights of others, which
violation, default, termination, modification or limitation would reasonably be
expected, individually or in the aggregate, to result in a material loss of
benefits or material loss to the Company.
(f) Except for Embedded Products for which the Company has valid
non-exclusive licenses which are disclosed in Section 3.9 of the Company
Schedule and which are adequate for each of the Company's and its subsidiaries'
businesses as presently conducted, and except for usual and customary rights
retained by the United States government with respect to Intellectual Property
developed under research contracts with the Federal government (the "Retained
Fed Rights"), the Company is the sole and exclusive owner or the licensee of,
with all right, title and interest in and to all Company Intellectual Property
(free and clear of any liens or encumbrances), and has sole and exclusive rights
(and is not contractually obligated to pay any compensation to any third party
in respect thereof) to the use and distribution thereof or the material covered
thereby in connection with the services or products in respect of which Company
Intellectual Property is being used, except where the failure to have such
rights would not reasonably be expected to result in a material loss of benefits
or loss to the Company. To the Company's knowledge, the United States government
has never exercised, and the Company has no notice that the government intends
to exercise, its rights to use or provide to others the use of the Retained Fed
Rights with respect to any Company Intellectual Property in a manner that would
be material to the Company's non-governmental business. The Retained Fed Rights
do not materially interfere with the conduct of the Company's business.
(g) The Company has made available to Parent copies of the Company's and
each of its subsidiaries' standard forms of End-User Licenses. Except as
disclosed in Section 3.9 of the Company Schedule (which describes the material
variations from the standard form of End-User License), as of the date hereof,
neither the Company nor any of its subsidiaries has entered into any End-User
Licenses which contain terms materially different than as set forth in the
standard forms of such agreements made available to Parent.
(h) The Company and each of its subsidiaries has taken reasonable
security measures to safeguard and maintain the secrecy, confidentiality and
value of, and its property rights in, all Company Intellectual Property. All
officers, employees and consultants of the Company or any of its subsidiaries
who have access to proprietary information or Company Intellectual Property have
executed and delivered to the Company or such subsidiary an agreement regarding
the protection of proprietary information and the assignment to the Company or
any of its subsidiaries of all Intellectual Property arising from the services
performed for the Company or any of its subsidiaries by such persons. To the
Company's knowledge, no current or prior officers, employees or consultants of
the Company or any of its subsidiaries claim any ownership interest in any
material Company Intellectual Property as a result of having been involved in
the development of such property while employed by or consulting to the Company
or any of its subsidiaries, or otherwise. Except as set forth in Section 3.9 of
the Company Schedule and except for the Embedded Products, all Company
Intellectual Property has been developed by
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<PAGE> 25
employees of the Company or its subsidiaries, within the course and scope of
their employment.
(i) The Company and each of its subsidiaries has sufficient right, title
and interest in and to all material software development tools, not entirely
developed internally, currently used by the Company or any of its subsidiaries
in the development of any of the computer software included in the Company
Intellectual Property.
(j) To the Company's knowledge, there are no material defects in the
Company's or any of its subsidiaries' software products, and there are no errors
in any documentation, specifications, manuals, user guides, promotional
material, internal notes and memos, technical documentation, drawings, flow
charts, diagrams, source language statements, demo disks, benchmark test
results, and other written materials related to, associated with or used or
produced in the development of the Company's or any of its subsidiaries'
software products (collectively, the "Design Documentation"), which defects or
errors would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. The occurrence in or use by the computer
software products currently sold by the Company or any of its subsidiaries, of
dates on or after January 1, 2000 (the "Millennial Dates") will not adversely
affect the performance of the software with respect to date dependent data,
computations, output or other functions (including without limitation,
calculating, computing and sequencing) and such software will create, sort and
generate output data related to or including Millennial Dates without errors or
omissions.
(k) No government funding or university or college facilities were used
in the development of the Company's or any of its subsidiaries' software
products and such software was not developed pursuant to any contract or other
agreement with any person or entity except pursuant to contracts or agreements
listed in Section 3.9 of the Company Schedule.
(l) Section 3.9 of the Company Schedule lists all material warranty
claims (including any pending claims) related to the Company's or any of its
subsidiaries' products and the nature of such claims, except for customary
product support and maintenance. Except as set forth in Section 3.9 of the
Company Schedule, neither the Company nor any of its subsidiaries has made any
material oral or written representations or warranties with respect to its
products or services.
(m) Except as set forth in Section 3.9 of the Company Schedule, the
Company and its subsidiaries have been and are in compliance with the Export
Administration Act of 1979, as amended, and all regulations promulgated
thereunder.
Section 3.10. Compliance; Permits; Restrictions.
(a) Neither the Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which the Company or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or
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<PAGE> 26
affected, except for conflicts, violations and defaults that (individually or in
the aggregate) would not cause the Company to lose any material benefit or incur
any material liability. To the knowledge of the Company, no investigation or
review by any Governmental Entity is pending or has been threatened against the
Company or any of its subsidiaries, nor, to the Company's knowledge, has any
Governmental Entity indicated an intention to conduct an investigation of the
Company or any of its subsidiaries. There is no material agreement, judgment,
injunction, order or decree binding upon the Company or any of its subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of its
subsidiaries or the conduct of business by the Company as currently conducted.
(b) The Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from any Governmental Entities that
are material to and required for the operation of the business of the Company as
currently conducted (collectively, the "Company Permits") except for any such
failure which would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company. The Company and its
subsidiaries are in compliance in all material respects with the terms of the
Company Permits, except where the failure to be in compliance would not
reasonably be expected to have a Material Adverse Effect on the Company.
Section 3.11. Litigation.
(a) There are no claims, suits, actions or proceedings pending or, to
the Company's knowledge, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement, or, except as set forth in Section 3.11 of the Company Schedule,
which would reasonably be expected, either singularly or in the aggregate with
all such claims, actions or proceedings, to have a Material Adverse Effect on
the Company. No Governmental Entity has at any time challenged or questioned in
a writing delivered to the Company the legal right of the Company to design,
manufacture, offer or sell any of its products in the present manner or style
thereof.
(b) Neither the Company nor any of its subsidiaries has ever been
notified in writing that it has been subject to an audit, compliance review,
investigation or like contract review by the office of the Inspector General of
the U.S. General Services Administration or any other Governmental Entity or
agent thereof in connection with any government contract (a "Government Audit").
To the Company's knowledge, no Government Audit is threatened, and in the event
of any such Government Audit, to the knowledge of the Company, no basis exists
for a finding of noncompliance with any material provision of any government
contract or for a material refund of any amounts paid or owed to the Company or
any of its subsidiaries by any Governmental Entity pursuant to such government
contract. For each item disclosed in the Company Schedule pursuant to this
Section 3.11 a true and complete copy of all material correspondence and
documentation with respect thereto has been made available to Parent.
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Section 3.12. Brokers' and Finders' Fees. Except for fees payable to H&Q
pursuant to an engagement letter dated March 31, 1998, a copy of which has been
provided to Parent, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
Section 3.13. Employee Benefit Plans and Employee Matters.
(a) With the exception of the definition of "Affiliate" set forth in
Section 3.13(a)(i) below (which definition shall apply only to this Section
3.13), for purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee (as defined in Section 3.13(a)(v) below);
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(ix) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company, whether
informally or formally, for the benefit of Employees outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
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(xi) "Multiemployer Plan" shall mean any Pension Plan (as
defined in Section 3.13(a)(xiii) below) which is a "multiemployer plan," as
defined in Section 3(37) of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) The Company Schedule contains an accurate and complete list of each
Company Employee Plan and each material Employee Agreement as of the date
hereof. The Company does not have any plan or commitment to establish any new
Company Employee Plan, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or material Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) The Company has provided to Parent: (i) correct and complete copies
of all documents embodying each Company Employee Plan and each Employee
Agreement, including all amendments thereto and written interpretations thereof;
(ii) the three most recent annual reports (Form Series 5500 and all schedules
and financial statements attached thereto), if any, required under ERISA or the
Code in connection with each Company Employee Plan or related trust; (iii) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (iv) the most recent summary plan
description together with the summary of material modifications thereto, if any,
required under ERISA with respect to each Company Employee Plan; (v) all IRS
determination, opinion, notification and advisory letters, and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the DOL with respect to any Company Employee Plan; (vi) all
material written agreements and contracts relating to each Company Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (vii) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plan, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (viii) all standard COBRA forms and related
notices; and (ix) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) (i) The Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
in any material respect of, and has no knowledge of any default or violation by
any other party to each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA and the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under
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Section 501(a) of the Code has either received a favorable determination letter
from the IRS with respect to such plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a determination letter and make any amendments necessary to obtain a favorable
determination; (iii) no "prohibited transaction," within the meaning of Section
4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 408 of ERISA, has occurred with respect to any Company Employee
Plan; (iv) there are no actions, suits or claims pending, or, to the Company's
knowledge, threatened (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (v)
each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without material
liability to Parent, the Company or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (vi) there
are no audits, inquiries or proceedings pending or, to the Company's knowledge,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 402(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) The Company does not now, nor has it ever, maintained, established,
sponsored, participated in, or contributed to, any Pension Plan which is subject
to Title IV of ERISA or Section 412 of the Code.
(f) At no time has the Company contributed to or been requested to
contribute to any Multiemployer Plan.
(g) No Company Employee Plan provides, or has any liability to provide,
retiree life insurance, retiree health or other retiree employee welfare
benefits to any person for any reason, except as may be required by COBRA or
other applicable statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to or with any Employee (either
individually or as a group) or any other person that such Employee(s) or other
person would be provided with retiree life insurance, retiree health or other
retiree employee welfare benefit, except to the extent required by statute.
(h) Neither the Company nor any Affiliate has, prior to the Effective
Time, and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(j) The Company: (i) is in compliance in all material respects with all
applicable federal,
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state, local and foreign laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries and other payments to Employees, which amounts are
material individually or in the aggregate; (iii) is not liable for any material
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending or,
to the Company's knowledge, threatened claims or actions against the Company
under any worker's compensation policy or long-term disability policy. To the
Company's knowledge, no employee of the Company has violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
employee is bound due to such employee being employed by the Company and
disclosing to the Company or using trade secrets or proprietary information of
any other person or entity.
(k) No work stoppage or labor strike against the Company is pending or,
to the knowledge of the Company, threatened. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
Company's knowledge, threatened relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect on the Company. Neither the Company nor any of its subsidiaries
has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is currently
being negotiated by the Company.
(l) Each International Employee Plan has been established, maintained
and administered in material compliance with its terms and conditions and with
the requirements prescribed by any and all statutory or regulatory laws that are
applicable to such International Employee Plan. No International Employee Plan
has unfunded liabilities, that as of the Effective Time, will not be offset by
insurance or fully accrued. Except as required by law, no condition exists that
would prevent the Company or Parent from terminating or amending any
International Employee Plan at any time for any reason.
Section 3.14. Environmental Matters.
(a) Except as would not be reasonably likely to result in material
liability to the Company, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of
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1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
(a "Hazardous Material"), is present, as a result of the actions of the Company
or any of its subsidiaries or any affiliate of the Company or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company or any of its subsidiaries has at any
time owned, operated, occupied or leased.
(b) Except as would not be reasonably likely to result in a material
liability to the Company (in any individual case or in the aggregate) (i)
neither the Company nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Effective
Time, and (ii) neither the Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) The Company and its subsidiaries currently hold all material
environmental approvals, permits, licenses, clearances and consents (the
"Company Environmental Permits") necessary for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted.
(d) No action, proceeding, revocation proceeding, amendment procedure,
writ or injunction is pending, and to the Company's knowledge, no action,
proceeding, revocation proceeding, amendment procedure, writ or injunction has
been threatened by any Governmental Entity against the Company or any of its
subsidiaries in a writing delivered to the Company concerning any Company
Environmental Permit, Hazardous Material or Hazardous Materials Activity of the
Company or any of its subsidiaries. The Company is not aware of any fact or
circumstance which could involve the Company or any of its subsidiaries in any
material environmental litigation or impose upon the Company any material
environmental liability.
Section 3.15. Agreements, Contracts and Commitments. Except as set forth
in the Company Schedule as of the date hereof, neither the Company nor any of
its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or other employee at the director level or higher or any member of
the Company Board, other than those that are terminable by the Company or any of
its subsidiaries on no more than 30 days notice without liability or financial
obligation, except to the extent general principles of wrongful termination law
may limit the Company's or any of its subsidiaries' ability to terminate
employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock
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appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or license
of software products in the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of the Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by the Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the ordinary
course of business or pursuant to which the Company has any material ownership
interest in any corporation, partnership, joint venture or other business
enterprise other than the Company's subsidiaries;
(f) any joint marketing or development agreement currently in force
under which the Company or any of its subsidiaries have continuing material
obligations to jointly market any product, technology or service and which may
not be canceled without penalty upon notice of 90 days or less, or any material
agreement pursuant to which the Company or any of its subsidiaries have
continuing material obligations to jointly develop any intellectual property
that will not be owned, in whole or in part, by the Company or any of its
subsidiaries and which may not be canceled without penalty upon notice of 90
days or less; or
(g) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Company product, service or
technology except as a distributor in the normal course of business.
Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to any of the agreements, contracts or commitments to
which the Company or any of its subsidiaries is a party or by which any of them
are bound that are required to be disclosed in the Company Schedule pursuant to
Section 3.9 or this Section 3.15 ("Company Contracts") is, as of the date
hereof, in breach, violation or default under, and neither the Company nor any
of its subsidiaries has received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any Company
Contract in such a manner as would permit any other party to cancel or terminate
such Company Contract, or would permit any other party to seek material damages
or other remedies (for any or all of such breaches, violations or defaults, in
the aggregate).
Section 3.16. Change of Control Payments. The Company Schedule sets
forth, as of the date hereof, each plan or agreement pursuant to which any
amounts may become payable (whether currently or in the future) to current or
former officers or directors of the Company as a result of or in connection with
the Merger.
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Section 3.17. Customs. The Company has acted with reasonable care to
properly value and classify, in accordance with applicable tariff laws, rules
and regulations, all goods that the Company or any of its subsidiaries import
into the United States or into any other country (the "Imported Goods"). To the
Company's knowledge, there are currently no material claims pending against the
Company by the U.S. Customs Service (or any foreign customs authorities)
relating to the valuation, classification or marking of any of the Imported
Goods.
Section 3.18. Information. None of the information supplied by the
Company for inclusion or incorporation by reference in the Offer Documents or
any other document to be filed with the SEC or any other Governmental Entity in
connection with the transactions contemplated by this Agreement (the "Other
Filings") will, at the respective times filed with the SEC or other Governmental
Entity, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
Section 3.19. Section 203 of the DGCL Not Applicable. The Company Board
has taken all necessary action so that the restrictions contained in Section 203
of the DGCL applicable to a "business combination" (as defined in such Section
203) will not apply to the execution, delivery or performance of this Agreement
or the Company Option Agreement or to the consummation of the Offer or the
Merger or any of the other transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to
the Company as follows:
Section 4.1. Organization and Qualification of Parent and Purchaser.
Each of Parent and Purchaser (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized; (ii) has the corporate or other power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted; and (iii) is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary other than in jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a Material Adverse
Effect on Parent.
Section 4.2. Authority.
(a) Each of Parent and Purchaser has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by them of the
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transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Purchaser, subject only to
the filing of the Certificate of Merger pursuant to Delaware Law. This Agreement
has been duly executed and delivered by each of Parent and Purchaser and,
assuming the due authorization, execution and delivery by the Company,
constitutes the valid and binding obligation of Parent and Purchaser,
enforceable against Parent and Purchaser in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
The execution and delivery of this Agreement by each of Parent and Purchaser
does not, and the performance of this Agreement by each of Parent and Purchaser
will not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of Parent or Purchaser, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Purchaser or by
which any of their respective properties is bound or affected, other than such
conflicts or violations which, individually or in the aggregate, do not and
could not reasonably be expected to have a Material Adverse Effect on Parent or
a material adverse effect on the ability of the parties hereto to consummate the
Offer or the Merger, or (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both would
become a material default) under, or impair the rights of Parent or Purchaser or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a material lien or encumbrance on any of the material properties
or assets of Parent or Purchaser pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or Purchaser is a party or by which
Parent or Purchaser or any of their respective properties are bound or affected.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained or
made by Parent or Purchaser in connection with the execution and delivery of
this Agreement or the consummation of the Offer or the Merger, except for (i)
the filing of the Schedule 14D-1 with the SEC in accordance with the Exchange
Act, (ii) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities (or related) laws and the HSR Act and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made could not reasonably be expected to have a Material Adverse
Effect on Parent or a material adverse effect on the ability of the parties
hereto to consummate the Merger.
Section 4.3. Information. Neither the Schedule 14D-1 nor the Offer
Documents, nor any of the information supplied by Parent or Purchaser for
inclusion in the Schedule 14D-9, shall at the respective times they are filed
with the SEC or are first published, sent or given to stockholders or upon the
expiration of the Offer, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein in the light of the
circumstances under which they were made not
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misleading (except for information supplied by the Company for inclusion in the
Schedule 14D-1 and the Offer Documents, as to which Parent and Purchaser make no
representation). None of the information supplied by Parent or Purchaser for
inclusion in the Proxy Statement shall, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders, at the
time of the Special Meeting or at the Effective Time, contain any untrue
statement of a material fact required to be stated therein or necessary in order
to make the statements made therein in light of the circumstances under which
they were made, not misleading.
Section 4.4. Available Funds. Parent has or has available to it, and
will make available to Purchaser, all funds necessary to satisfy all of Parent's
and Purchaser's obligations under this Agreement and in connection with the
transaction contemplated hereby, including, without limitation, the obligation
to purchase all outstanding Shares pursuant to the Offer and the Merger and to
pay all related fees and expenses in connection with Offer and the Merger.
Section 4.5. Litigation. There is no action or suit pending or, to
Parent's knowledge, threatened or any judgment decree or order applicable to
Parent or Purchaser or any of their directors or officers that would be
reasonably expected to have a material adverse effect on the consummation of the
Offer or the Merger.
ARTICLE V
COVENANTS
Section 5.1. Conduct of Business by the Company. Except as contemplated
by this Agreement or as set forth in Section 5.1 of the Company Schedule, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement pursuant to its terms, the Effective Time, or
such time as Parent's designees shall constitute a majority of the Company
Board, the Company and each of its subsidiaries shall, except to the extent that
Parent shall otherwise consent in writing, carry on its business, in all
material respects, in the usual, regular and ordinary course, in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations, pay its debts and taxes when
due, subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, subject to good faith disputes over such
obligations, and use its commercially reasonable efforts consistent with past
practices and policies to (i) preserve intact its present business organization,
(ii) keep available the services of its present officers and employees, and
(iii) preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings. In
addition, except as permitted by the terms of this Agreement, and except as
provided in the Company Schedule, without the prior written consent of Parent,
during such period, the Company shall not do any of the following and shall not
permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of
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exercisability of options or restricted stock, or reprice options granted under
any employee, consultant, director or other stock plans or authorize cash
payments in exchange for any options granted under any of such plans except
pursuant to written agreements outstanding, or policies existing, on the date
hereof and disclosed in the Company Schedule;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on the
date hereof and disclosed in the Company Schedule, or adopt any new severance
plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company Intellectual
Property, or enter into grants to future patent, copyright or other intellectual
property rights, other than non-exclusive licenses granted in the ordinary
course of business and consistent with past practice (it being agreed that
Parent shall not unreasonably withhold consent to any non-exclusive license
agreement related to the Company's enterprise business and that Parent's failure
to reasonably object to any such agreement within five business days of any
request for consent shall constitute such consent);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock; provided that any of the Company's
wholly-owned subsidiaries may declare, set aside or pay dividends or make other
distributions with respect to their capital stock in the ordinary course of
business and consistent with past practices.
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the service
relationship with any employee, director or consultant pursuant to stock option
or purchase agreements in effect on the date hereof (which repurchases the
Company shall be obligated to effectuate if the repurchase price is less than
the Offer Price);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of the capital stock of the Company or any of its subsidiaries, or any
securities convertible into shares of such capital stock, or subscriptions,
rights, warrants or options to acquire any shares of such capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (i) the issuance, delivery and/or
sale of shares of Company Common Stock pursuant to the exercise of Options
therefor outstanding as of the date of this Agreement, and (ii) the grant of
employee stock options, consistent with the Company's established past practice
for similarly situated employees, to non-officer employees who are hired in
accordance with Section 5.1((k));
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or by
any other manner, any business or
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any corporation, partnership, association or other business organization or
division thereof or, except as permitted by Section 5.1((m)) or ((r)), otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of the Company or enter into any joint venture,
strategic partnership or alliance;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate, to
the business of the Company, except sales of inventory and used equipment, or
the license of the Company's products in the ordinary course of business
consistent with past practice (it being agreed that Parent shall not
unreasonably withhold consent to any non-exclusive license agreement related to
the Company's enterprise business and that Parent's failure to reasonably object
to any such agreement within five business days of any request for consent shall
constitute such consent);
(j) Incur, assume or pre-pay any indebtedness for borrowed money,
guarantee any indebtedness or obligation of another person, issue or sell any
debt securities or options, warrants, calls or other rights to acquire any debt
securities, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the economic
effect of any of the foregoing other than (i) in connection with the financing
of ordinary course trade payables consistent with past practice, (ii) pursuant
to existing credit facilities in the ordinary course of business, or (iii) as
contemplated by this Agreement;
(k) Hire any employee, except replacements for former non-officer
employees, hired in the ordinary course of business consistent with past
practice;
(l) Adopt or amend any employee stock purchase or employee stock option
plan, or adopt or amend any material employee benefit plan, or enter into any
employment contract or collective bargaining agreement (other than offer letters
and letter agreements entered into in the ordinary course of business consistent
with past practice with employees who are terminable "at will"), pay any special
bonus or special remuneration to any director, employee or consultant except
pursuant to written agreements outstanding on the date hereof and previously
disclosed in writing to Parent, or increase the salaries or wage rates or fringe
benefits (including rights to severance or indemnification) of any of its
directors, officers, employees or consultants other than normal periodic salary
increases for non-officer employees made in the ordinary course of business,
consistent with past practice, or change in any material respect any management
policies or procedures;
(m) Make any payments outside of the ordinary course of business in an
aggregate excess of $250,000;
(n) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary thereof is a party or waive, release or assign any material rights or
claims thereunder;
(o) Enter into, amend or extend any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by third
parties of the Company's products or products licensed by the Company, other
than agreements, extensions or amendments that grant non-
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exclusive rights to such third parties and provide for termination by the
Company for convenience on not more than 60 days' notice;
(p) Materially revalue any of its assets (other than the booking of
reserves in the ordinary course of business and consistent with past practices)
or, except as required by a change in law or in GAAP or the rules of the SEC,
make any change in accounting methods, principles or practices, including
inventory accounting practices;
(q) Make any loans, advances or capital contributions to, or investments
in, any other person or entity, except for loans, advances, capital
contributions or investments between any wholly-owned subsidiary of the Company
and the Company or another wholly-owned subsidiary of the Company and advances
of business related expenses (including expenses related to business travel) to
employees in the ordinary course and consistent with past practice;
(r) Authorize or make capital expenditures beyond those provided in the
Company's existing capital expenditure budget, or that are individually in
excess of $100,000 or in the aggregate in excess of $500,000 in any calendar
quarter;
(s) Materially accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates or the dates when the
same would have been collected in the ordinary course of business;
(t) Materially delay or accelerate payment of any account payable beyond
or in advance of its due date or the date such liability would have been paid in
the ordinary course of business;
(u) Settle or compromise any suits or claims or threatened suits or
claims for payments in an aggregate amount in excess of $500,000;
(v) Make any tax election not required by law or settle or compromise
any material tax liability;
(w) Cancel or terminate any material insurance policy naming it as a
beneficiary or a loss payable payee or permit any such policy to lapse (it being
understood that the Company may renew any insurance policy in effect as of the
date of this Agreement);
(x) Increase the aggregate dollar value of inventory owned by
distributors in the first and second tiers of its distribution channel (which
has not been "sold through" to end-user customers and which such distributors
have the right to return) above the aggregate value of such inventory at June
30, 1998;
(y) Begin shipment of any new products to customers, except for alpha
versions and not more than 50 beta versions of any product delivered to
customers solely for evaluation purposes; or
(z) Agree in writing or otherwise to take any of the actions described
in Section 5.1(a) through (y) above.
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Section 5.2. Source Code Escrow.
(a) Promptly following the execution of this Agreement, the Company
agrees to deposit into escrow (the "Source Code Escrow") with Brambles NSD,
Inc., or such other entity as is reasonably satisfactory to Parent and the
Company (the "Escrow Agent") CDROMs containing true, correct and complete copies
of the source code, together with all relevant documentation, build
instructions, and any tools or libraries used in the build process that are not
commercially available in off-the-shelf or shrink wrap form, for each of its
currently shipping versions of products (including but not limited to versions
of products in the following product families: First Aid, UnInstaller, Oil
Change, Guard Dog and CSS Repair Engine for Workgroups) and versions of all
products currently under development (collectively, the "Cyclone Source Code").
Such deposit shall consist of a sealed package certified by an authorized
officer of the Company to contain a true, correct and complete copy of each such
item of Cyclone Source Code (in form and content) as required by this Agreement.
The Company and Parent will enter into an escrow agreement with the Escrow Agent
with respect to the Source Code Escrow (the "Escrow Agreement") which will
provide that the Company will pay all fees and expenses of the Escrow Agent and
which will contain terms and conditions consistent with the provisions of this
Section 5.2 and other terms and conditions customary for such agreements.
(b) On the day that is 18 business days following the commencement of
the Offer (and, if the Offer is extended, on the day that is two calendar days
prior to the then current Expiration Date and, if the Offer is extended at any
one time by more than 25 days, every 20 days while the Offer is pending), the
Company agrees to deposit into the Source Code Escrow a complete and updated
copy of all Cyclone Source Code, any of which shall thereafter be deemed to be a
part of the Cyclone Source Code.
(c) The Escrow Agreement will direct the Escrow Agent to provide Parent
reasonable access to the Cyclone Source Code for the limited purpose of ensuring
that the Cyclone Source Code is what it purports to be by running a compile of
the Cyclone Source Code and checking the functionality of the resulting binary
code against the provided documentation. Such access shall, to the extent
reasonably practicable, take place on a one-time basis with respect to each
deposit of Cyclone Source Code into the Source Code Escrow, and shall be
conducted with two business days prior notice to the Company and during normal
business hours by a single Parent representative for whom Parent shall be
responsible. Nothing in this Section 5.2((c)) shall entitle Parent to remove or
make copies of the originals of the Cyclone Source Code or any part thereof. The
Company shall be entitled to have a representative present at any inspection of
the Cyclone Source Code by a Parent representative, provided that the Company's
failure to have a representative present shall not prevent or delay Parent's
right to such inspection.
(d) The Cyclone Source Code shall be held in the Source Code Escrow at
the offices of the Escrow Agent until the date on which Purchaser has accepted
for payment and paid for Shares pursuant to the Offer (the "Release Date"). The
Escrow Agreement shall contain provisions instructing the Escrow Agent to
deliver the Cyclone Source Code to Parent or its designated representative
promptly upon request at any time from and after the Release Date.
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(e) In the event that, prior to the Release Date, this Agreement shall
be terminated pursuant to its terms, the Source Code Escrow shall terminate and
the Cyclone Source Code shall be returned to the Company.
Section 5.3. Access to Information.
(a) From the date of this Agreement until the Effective Time, the
Company will give, and will cause its subsidiaries, and each of their respective
officers, directors, employees, counsel, advisors and representatives
(collectively, the "Company Representatives") to give Parent and Purchaser and
their respective officers, employees, counsel, advisors and representatives
(collectively, the "Parent Representatives") reasonable access, upon reasonable
notice and during normal business hours, to the offices and other facilities and
to the books and records of the Company and its subsidiaries and will cause the
Company Representatives and the Company's subsidiaries to furnish Parent,
Purchaser and Parent Representatives, to the extent available, with such
financial and operating data and such other information with respect to the
business and operations of the Company and its subsidiaries as Parent and
Purchaser may from time to time reasonably request subject, in each case, to the
continuing obligations of the parties under the Confidentiality Agreement
between Parent and the Company dated June 9, 1998 (the "Confidentiality
Agreement"), which agreement shall survive until termination pursuant to the
terms thereof. The Company shall furnish promptly to Parent and Purchaser a copy
of each report, schedule, registration statement and other document filed by it
or its subsidiaries during such period pursuant to the requirements of federal,
state or foreign securities laws.
(b) No investigation made by Parent, Purchaser or any Parent
Representative pursuant to this Section 5.3 shall affect any representations or
warranties of the parties contained in this Agreement or any conditions to their
obligations hereunder.
Section 5.4. Efforts.
(a) Subject to the terms and conditions hereof, each of the Company,
Parent and Purchaser shall, and the Company shall cause each of its subsidiaries
to, cooperate and use their respective reasonable commercial efforts to take, or
cause to be taken, all actions reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as is practicable,
including but not limited to cooperation in the preparation and filing of the
Offer Documents, the Schedule 14D-9, the Proxy Statement, any required filings
under the HSR Act, or other foreign filings and any amendments to any thereof.
(b) If at any time prior to the Effective Time any event or circumstance
relating to the Company, Parent or Purchaser, or any of their respective
subsidiaries, should be discovered by the Company or Parent, as the case may be,
which is required to be set forth in an amendment to the Offer Documents or the
Schedule 14D-9, the discovering party will promptly inform the other party of
such event or circumstance.
(c) Each of the parties will use its reasonable commercial efforts to
obtain as promptly as practicable all consents of any Governmental Entity or any
other person required in connection
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with, and waivers of any violations that may be caused by, the consummation of
the transactions contemplated by the Offer, the Merger and this Agreement.
Section 5.5. Public Announcements. The Company, on the one hand, and
Parent and the Purchaser, on the other hand, agree to attempt in good faith to
consult with each other prior to issuing any press release or otherwise making
any public statement with respect to this Agreement, the Offer, the Merger or
the other transactions contemplated hereby, agree to provide to the other party
for review a copy of any such press release or statement, and shall not issue
any such press release or make any such public statement prior to attempting in
good faith such consultation and review, unless required by applicable law or
any listing agreement with a securities exchange. This Section 5.5 shall
supersede any conflicting provisions of the Confidentiality Agreement.
Section 5.6. Employee Benefit Arrangements.
(a) The Company shall, and Parent agrees to cause the Company to, honor
and, from and after the Effective Time, the Surviving Corporation to honor, all
obligations under the employment and severance agreements to which the Company
or any of its subsidiaries is presently a party which are listed in the Company
Schedule. Notwithstanding the foregoing, from and after the Effective Time, the
Surviving Corporation shall have the right to amend, modify, alter or terminate
any Company Employee Plan, provided that any such action shall not affect any
rights for which the agreement or consent of the other party or a beneficiary is
required; provided that, except as prohibited by the Company's 401(k) plan or
applicable law, the Company will promptly take any and all actions necessary and
appropriate to terminate the Company's 401(k) plan, including without limitation
(i) adoption of resolutions by the Company Board terminating the 401(k) plan
immediately prior to consummation of the Offer and (ii) timely delivery of any
notices required under the terms of the 401(k) plan.
(b) Employees of the Surviving Corporation immediately following the
Effective Time who immediately prior to the Effective Time were employees of the
Company or any Company subsidiary shall be given credit for purposes of
eligibility and vesting under each employee benefit plan, program, policy or
arrangement of the Parent or the Surviving Corporation in which such employees
participate subsequent to the Effective Time for all service with the Company
and any Company subsidiary prior to the Effective Time (to the extent such
credit was given by the Company or any Company subsidiary) for purposes of
eligibility and vesting.
Section 5.7. Indemnification.
(a) Parent agrees that all rights to indemnification now existing in
favor of any of the current or former directors and officers of the Company (the
"Indemnified Parties") as provided in its Certificate of Incorporation or
By-Laws, in each case as of the date of this Agreement, and in indemnification
agreements between the Company and the Indemnified Parties shall survive the
Merger and shall continue in full force and effect from and after consummation
of the Offer in accordance with their terms, as such terms exist on the date
hereof. After the Effective Time, Parent agrees to cause the Surviving
Corporation to honor all rights to indemnification referred to in the preceding
sentence.
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(b) Parent agrees to cause the Company, and from and after the Effective
Time, the Surviving Corporation to maintain in effect for not less than six
years from the Effective Time the current policies of directors' and officers'
liability insurance maintained by the Company; provided that the Surviving
Corporation may substitute therefor other policies not less advantageous (other
than to a de minimus extent) to the beneficiaries of the current policies,
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
provided, further, that the Surviving Corporation shall not be required to pay
an annual premium in excess of 150% of the last annual premium paid by the
Company prior to the date hereof (which the Company represents to be $210,000
for the 12-month period ending October 22, 1998) and if the Surviving
Corporation is unable to obtain the insurance required by this Section 5.7((b))
for such maximum amount it shall obtain as much comparable insurance as possible
for an annual premium equal to such maximum amount.
Section 5.8. Notification of Certain Matters.
(a) Parent and the Company shall give prompt notice in writing to the
other of the occurrence or non-occurrence of any fact or event which would be
reasonably likely to (i) cause any representation or warranty made by such party
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time or (ii) cause any covenant or
agreement made by such party under this Agreement not to be complied with or
satisfied in any material respect; provided, however, that no such notification
shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder.
(b) Each of the Company, Parent and Purchaser shall give prompt notice
in writing to the other parties hereto of any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement.
(c) The Company shall give prompt notice in writing to Parent of any
act, omission to act, event or occurrence which, with the passage of time or
otherwise, would be reasonably expected to have a Material Adverse Effect on the
Company; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder.
(d) The failure by the Company to provide timely notice of the
occurrence or non-occurrence of any particular fact, event, act, omission to
act, event, occurrence, liability or communication relating to the possible
untruth or inaccuracy of any representation or warranty of the Company in this
Agreement or the possible non-compliance by the Company with any covenant or
obligation of the Company under this Agreement shall not constitute a failure to
satisfy the condition to the Offer set forth in clause (iii)(f) of Annex I, or a
basis for the Parent to terminate this Agreement pursuant to Section
7.1((c))((iv)) unless the matter or matters as to which notice was not timely
sent would constitute or indicate a failure to satisfy clauses (iii) (c) or (e)
of Annex I, or constitute a material breach by the Company of a covenant or
obligation under this Agreement other than this Section 5.8.
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Section 5.9. State Takeover Laws. The Company shall, upon the request of
the Purchaser, take all reasonable steps to assist in any challenge by the
Purchaser to the validity or applicability to the transactions contemplated by
this Agreement, including the Offer and the Merger, of any state takeover law.
Section 5.10. No Solicitation.
(a) For purposes of this Agreement:
(i) "Alternative Proposal" means any inquiry, proposal or offer
from any person or Group relating to any direct or indirect acquisition or
purchase of any product line or other material portion of the assets of the
Company and its subsidiaries taken as a whole (other than the purchase of the
Company's products or used equipment in the ordinary course of business), or
more than a 20% interest in the total outstanding voting securities of the
Company or any of its subsidiaries, or any tender offer or exchange offer that
if consummated would result in any person or Group beneficially owning 10% or
more of the total outstanding voting securities of the Company or any of its
subsidiaries, or any merger, consolidation, business combination, sale of
substantially all the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries, other than
the transactions contemplated by this Agreement.
(ii) "Superior Proposal" means a bona fide offer made by a third
party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or securities, more than 50% of the total outstanding voting securities
of the Company or all or substantially all the assets of the Company, which
offer is otherwise on terms which the Company Board determines in its good faith
judgment (after consultation with a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders from a financial
point of view than the Offer and the Merger, and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Company Board is capable of being obtained by such third party.
(iii) "Representative" means the officers, directors or
employees or any investment banker, attorney, accountant or other advisor or
representative retained by the Company or its subsidiaries.
(iv) "Group" means any group as defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder.
(b) (i) From and after the date of this Agreement until the earlier
of the Effective Time or termination of this Agreement pursuant to its terms,
the Company and its subsidiaries will not, and they will direct their respective
Representatives not to, directly or indirectly, (A) solicit, initiate or
encourage the submission of any Alternative Proposal or (B) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, or take any other action to facilitate the making
of any proposal that constitutes or may reasonably be expected to lead to, an
Alternative Proposal. The Company and its
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subsidiaries will immediately cease, and will instruct and cause their
respective Representatives to immediately cease, any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Alternative Proposal. Any violation of the restrictions set
forth in this Section 5.10(b)(i) by any Representative of the Company or any
of its subsidiaries will be deemed to be a breach material hereof by the
Company.
(ii) Notwithstanding the provisions of Section 5.10(b)(i), if,
at any time prior to the consummation of the Offer, the Company Board reasonably
determines in good faith, after consultation with outside legal counsel, that it
is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Company and its Representatives
may, in response to a Superior Proposal that was unsolicited or that did not
otherwise result from a breach of this Section 5.10, and subject to compliance
with Section 5.10(d) and Section 5.10(f), furnish non-public information with
respect to the Company and participate in discussions and negotiations regarding
such Superior Proposal.
(c) (i) From and after the date of this Agreement until the
earlier of the Effective Time or termination of this Agreement pursuant to its
terms, neither the Company Board nor any committee thereof shall (A) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to Parent
or Purchaser, their approval or recommendation to the Company's stockholders of
the Offer, this Agreement or the Merger or (B) cause the Company to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement (an "Acquisition Agreement") with respect to any Alternative
Proposal. In addition, from and after the date of this Agreement until the
earlier of the Effective Time and termination of this Agreement pursuant to its
terms, the Company and its subsidiaries will not, and they will direct their
Representatives not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Alternative
Proposal.
(ii) Notwithstanding the provisions of Section 5.10(c)(i), if,
at any time prior to the consummation of the Offer, the Company Board reasonably
determines in good faith, after consultation with outside legal counsel, that it
is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Company Board may withdraw or
modify its approval or recommendation of the Offer, this Agreement or the
Merger, approve or recommend a Superior Proposal, or enter into an Acquisition
Agreement with respect to a Superior Proposal, provided that the Company shall
have given Parent written notice (a "Notice of Superior Proposal") at least two
business days prior to entering into any such Acquisition Agreement and at least
two business days prior to public disclosure by the Company Board of such
withdrawal, modification, approval or recommendation, advising Parent that the
Company Board has received a Superior Proposal, specifying the material terms
and conditions of the Superior Proposal and identifying the person making such
Superior Proposal. Any amendment to the price or material terms of a Superior
Proposal shall require an additional Notice of Superior Proposal and an
additional two business day period thereafter, to the extent permitted under
applicable law, prior to public disclosure by the Company Board of its
recommendation with respect thereto.
(d) In addition to the obligations of the Company set forth in Section
5.10(b) and
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Section 5.10(c), the Company as promptly as practicable, and in any event
within 24 hours, shall advise Parent orally and in writing of (i) any request
for non-public information which the Company reasonably believes may lead to an
Alternative Proposal, or of any Alternative Proposal, (ii) the material terms
and conditions of such information request or Alternative Proposal, and (iii)
the identity of the person making any such information request or Alternative
Proposal. The Company will keep Parent informed in all material respects of the
status and details (including material amendments) of any such request or
Alternative Proposal.
(e) Nothing contained in this Section 5.10 or elsewhere in this
Agreement shall prohibit the Company from (i) taking and disclosing to its
stockholders a position contemplated by Rules 14d-9 and 14e-2(a) under the
Exchange Act or (ii) making any disclosure to the Company's stockholders if, in
the good faith judgment of the Company Board, after consultation with outside
legal counsel, failure to so disclose would be inconsistent with applicable
laws; provided that neither the Company nor the Company Board nor any committee
thereof shall, except in accordance with the provisions of Section
5.10(c)(ii), withdraw or modify, or publicly propose to withdraw or modify,
its position with respect to the Offer, this Agreement or the Merger or approve
or recommend, or propose to approve or recommend, an Alternative Proposal.
(f) Notwithstanding anything to the contrary in this Section 5.10, the
Company will not provide any non-public information to a third party unless: (i)
the Company provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (ii)
such non-public information has been previously or is contemporaneously
delivered to Parent.
Section 5.11. Section 203 of the DGCL. From and after the date of this
Agreement until the earlier of the termination of this Agreement pursuant to its
terms or the Effective Time, the Company will not approve any acquisition of
shares of Company Common Stock by any person (other than Parent, Purchaser or
their respective affiliates) which would result in such person becoming an
"interested stockholder" (as such term is defined in Section 203 of the DGCL) or
otherwise become subject to Section 203 of the DGCL, unless such acquisition is
related to a Superior Proposal and the Company has complied with Section 5.10
and, if applicable, Section 7.3.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1. Conditions. The respective obligations of Parent, the
Purchaser and the Company to consummate the Merger are subject to the
satisfaction, at or before the Effective Time, of each of the following
conditions:
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(a) Stockholder Approval. The stockholders of the Company shall have
duly approved and adopted this Agreement, if required by applicable law.
(b) Purchase of Shares. The Purchaser shall have accepted for payment
and paid for Shares pursuant to the Offer in accordance with the terms hereof.
(c) Injunctions; Illegality. The consummation of the Merger shall not be
restrained, enjoined or prohibited by any order, judgment, decree, injunction or
ruling of a Governmental Entity of competent jurisdiction and there shall not
have been any statute, rule or regulation enacted, promulgated or issued by any
Governmental Entity which prevents the consummation of the Merger or has the
effect of making the purchase of Shares illegal.
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
Section 7.1. Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company (with
any termination by Parent also being an effective termination by Purchaser):
(a) by mutual written consent duly authorized by the Board of Directors
of Parent and the Company Board, subject to the concurrence of the Independent
Directors to the extent required by Section 1.3(c);
(b) by either Parent or the Company if:
(i) the Offer is terminated, withdrawn or expires pursuant to
its terms without any Shares having been purchased thereunder; provided,
however, that neither Parent nor the Company may terminate this Agreement
pursuant to this Section 7.1(b)(i) if such party is in material breach of
this Agreement (including if Parent or Purchaser is in breach of Section 1.1 of
this Agreement) or, in the case of Parent, if Parent or Purchaser is in material
violation of the terms of the Offer; or
(ii) a Governmental Entity shall have issued an order, decree or
ruling or taken any other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Offer or the Merger, which
order, decree, ruling or other action is final and nonappealable.
(iii) prior to the purchase of Shares pursuant to the Offer, the
Company Board has recommended, or the Company has entered into an Acquisition
Agreement with respect to, a Superior Proposal; provided, however, that
termination by the Company pursuant to this Section 7.1(b)(iii) shall be
conditioned upon concurrent payment by the Company of
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the Termination Fee pursuant to Section 7.3.
(c) by Parent prior to the purchase of Shares pursuant to the Offer if:
(i) the Company shall have failed to include in the Schedule
14D-9 the recommendation of the Company Board that the stockholders of the
Company accept the Offer;
(ii) the Company Board or any committee thereof shall have (A)
withdrawn or modified (including but not limited to by amendment of the Schedule
14D-9) in a manner adverse to Parent or Purchaser its approval or recommendation
of the Offer, this Agreement or the Merger, (B) approved or recommended, taken
no position with respect to, or failed to recommend against any Alternative
Proposal, or (C) resolved to do any of the foregoing;
(iii) the Company or any of its subsidiaries or any of their
respective Representatives participate in any discussions or negotiations with
or provide any non-public information to any third party in breach of the
provisions of Section 5.10;
(iv) the Company is in material breach of any of its covenants
or obligations under this Agreement; provided that if such breach is curable
through the exercise of the Company's commercially reasonable efforts, Parent
may not terminate this Agreement under this Section 7.1(c)(iv) unless such
breach is not cured on or prior to September 30, 1998;
(d) by the Company prior to the purchase of Shares pursuant to the Offer
if:
(i) the Offer shall not have been commenced in accordance with
Section 1.1, or Parent or Purchaser shall have failed to purchase validly
tendered Shares in violation of the terms of the Offer within 10 business days
after the expiration of the Offer; provided, however, that the Company shall not
be entitled to terminate this Agreement pursuant to this Section 7.1(d)(i)
if it is in material breach of this Agreement; or
(ii) Parent or Purchaser is in material breach of any of its
covenants or obligations under this Agreement; provided that if such breach is
curable through exercise of Parent's or Purchaser's commercially reasonable
efforts, the Company may not terminate this Agreement under this Section
7.1(d)(ii) unless such breach is not cured within 20 days after giving
notice to the Parent.
Section 7.2. Notice of Termination; Effect of Termination.
(a) Any termination of this Agreement under Section 7.1 above will be
effective immediately upon the delivery of written notice by the terminating
party to the other parties hereto.
(b) In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 7.2, Section 7.3 and Article VIII (miscellaneous),
each of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any willful
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<PAGE> 48
breach of this Agreement.
(c) Except as provided in Section 7.2(d), no termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
(d) In the event this Agreement is terminated pursuant to Section
7.1(b)(iii) or Section 7.1(c)(i), (ii) or (iii), the Company irrevocably waives
any otherwise applicable standstill or other agreement or restrictions in favor
of the Company (contractual or otherwise) on the ability and right of Parent,
Purchaser or any of their affiliates to acquire Shares.
Section 7.3. Fees and Expenses.
(a) Except as set forth in this Section 7.3, all costs and expenses
incurred in connection with this Agreement, the Offer, the Merger and the other
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not such transactions are consummated.
(b) In the event that this Agreement is terminated pursuant to Section
7.1(b)(iii) or Section 7.1(c)(i), (ii) or (iii), the Company shall, concurrently
with such termination in the case of termination by the Company pursuant to
Section 7.1(b)(iii), or within one business day after any other such
termination, pay Parent a termination fee of $4,000,000 (the "Termination Fee")
in immediately available funds by wire transfer to an account designated by
Parent. In the event that this Agreement is terminated pursuant to Section
7.1(a), Section 7.1(b)(i) or Section 7.1(c)(iv), and at the time of such
termination there is pending any offer by any person other than Parent or any
affiliate of Parent to effect an Acquisition (as hereinafter defined) and,
within 12 months following such termination, any person other than Parent or any
affiliate of Parent effects an Acquisition, or enters into an Acquisition
Agreement with the Company or commences a tender offer for an Acquisition and
the transactions contemplated thereby are subsequently consummated at any time,
the Company shall pay Parent the Termination Fee at or prior to the consummation
of such Acquisition in immediately available funds by wire transfer to an
account designated by Parent. In the event that this Agreement is terminated
pursuant to Section 7.1(a), Section 7.1(b)(i) (other than a termination solely
as a result of a failure to satisfy the Minimum Condition, or a failure to
satisfy the conditions specified in clauses (iii)(a) or (iii)(b) of Annex I) or
Section 7.1(c)(iv), and at the time of such termination no offer by any person
other than Parent or any affiliate of Parent to effect an Acquisition is
pending, and, within six months following such termination, any person other
than Parent or any affiliate of Parent effects an Acquisition, or enters into an
Acquisition Agreement with the Company or commences a tender offer for an
Acquisition and the transactions contemplated thereby are subsequently
consummated at any time, the Company shall pay Parent at or prior to the
consummation of such Acquisition in immediately available funds by wire transfer
to an account designated by Parent an amount equal to the lesser of (A) the
Termination Fee or (B) the amount, if any, by which the aggregate consideration
paid to the Company and/or its stockholders in such Acquisition exceeds
$126,944,000. For the purposes hereof, an "Acquisition" shall mean any merger,
consolidation
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<PAGE> 49
or other reorganization, any tender offer or other transaction or series of
related transactions involving the acquisition of securities of the Company, or
any sale or license of all or substantially all the business or assets of the
Company, unless the stockholders of the Company prior to such transaction or
series of related transactions retain following such transaction or series of
related transactions (in respect of their equity interest in the Company prior
thereto) more than 50% of the voting equity securities of the surviving or
successor corporation to the business of the Company. The Company acknowledges
that the agreements contained in this Section 7.3(b) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, Parent would not enter into this Agreement; accordingly, if the
Company fails promptly to pay any amount due pursuant to this Section 7.3(b),
and, in order to obtain such payment, Parent commences a suit which results in a
judgment against the Company for the amounts set forth in this Section 7.3(b),
the Company shall pay to Parent its reasonable costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amounts set forth in this Section 7.3(b) at the prime rate of
Bank of America, NT&SA, in effect on the date such payment was required to be
made.
(c) The Termination Fee shall not be deemed to be liquidated damages,
and the right to the payment of the Termination Fee shall be in addition to (and
not a maximum payment in respect of) any other damages or remedies at law or in
equity to which Parent or Purchaser may be entitled as a result of the willful
violation or willful breach of any term or provision of this Agreement or any
Support Agreement.
Section 7.4. Amendment. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Parent and Company.
Section 7.5. Extension; Waiver. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed and subject to the terms and
conditions of Section 1.3(c) hereof, (i) extend the time for the performance
of any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties by the Company made in Article III shall not
survive beyond the consummation of the Offer, and
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the representations and warranties made by Parent and Purchaser in Article IV
shall not survive beyond the Effective Time.
Section 8.2. Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred
to herein) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of each other
party (except that Parent may assign its rights and Purchaser may assign its
rights, interest and obligations to any wholly-owned subsidiary of Parent
incorporated in the State of Delaware without the consent of the Company
provided that no such assignment shall relieve Parent of any liability for any
breach by such assignee). Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 8.3. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
Section 8.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Parent or the Purchaser:
Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
Attn: Richard Hornstein, Esq.
Fax: (408) 346-3038
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
If to the Company:
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CyberMedia, Inc.
2850 Ocean Park Blvd., Suite 100
Santa Monica, California 90405
Attn: Chief Executive Officer
Fax: (310) 581-4751
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Jr., Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
Section 8.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 8.6. Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made in this Agreement to a
Section or Article, such reference shall be to a Section or Article of this
Agreement, unless otherwise indicated. Whenever the words "include," "includes,"
or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation." Whenever "or" is used in this Agreement it
shall be construed in the nonexclusive sense. The words "herein," "hereby,"
"hereof," "hereto," "hereunder" and words of similar import refer to this
Agreement.
Section 8.7. 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
shall constitute one and the same agreement.
Section 8.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. 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 to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby, subject to the terms and conditions hereof,
are fulfilled to the fullest extent possible.
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Section 8.9. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except with respect
to Sections Section 5.6 and Section 5.7 and the obligations of the parties
following consummation of the Offer which are intended for the benefit of the
Company's stockholders, nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 8.10. Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any Person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise;
(b) the term "Person" or "person" shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term shall
include a "group" as such term is defined in Section 13(d)(3) of the Exchange
Act);
(c) the term "subsidiary" or "subsidiaries" means, with respect to
Parent, the Company or any other person, any corporation, partnership, joint
venture or other legal entity of which Parent, the Company or such other person,
as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, stock or other equity interests the
holders of which are generally entitled to 50% or more of the vote for the
election of the board of directors or other governing body of such corporation
or other legal entity;
(d) the term "Material Adverse Effect" when used in connection with an
entity means any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of such entity and its subsidiaries, taken as a whole, except for
those changes, events and effects that (i) are directly caused by conditions
affecting the United States economy as a whole or affecting the industry in
which such entity competes as a whole, which conditions do not affect such
entity in a disproportionate manner, or (ii) are related to or result from the
announcement or pendency of the Offer and/or the Merger; and
(e) the phrase "to the Company's knowledge" refers to the actual
knowledge of any of the following officers and employees of the Company: Kanwal
Rekhi, James R. Tolonen, Alex Klyce, Nancy Tullos and Jane Wike.
Section 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having
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jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity, without posting any bond or proving that damages
would be inadequate.
51
<PAGE> 54
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
Networks Associates, Inc.
By: /s/ Richard Hornstein
-----------------------------------------
Name: Richard Hornstein
Title: Vice President, Legal Affairs and Corporate
Development
Cyclone Acquisition Corp.
By: /s/ Richard Hornstein
-----------------------------------------
Name: Richard Hornstein
Title: Vice President, Legal Affairs and
Corporate Development
CyberMedia, Inc.
By: /s/ Kanwal Rekhi
-----------------------------------------
Name: Kanwal Rekhi
Title: Chief Executive Officer and Chairman of the
Board
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Annex I
TENDER OFFER CONDITIONS
The capitalized terms used in this Annex I shall have the meanings set
forth in the Agreement and Plan of Merger to which this Annex is attached,
except that the term "Merger Agreement" shall be deemed to refer to such
Agreement and Plan of Merger.
Notwithstanding any other provisions of the Offer, Purchaser shall not
be required to accept for payment or pay for any tendered Shares, if at the
Expiration Date (i) the Minimum Condition is not satisfied, (ii) any applicable
waiting period under the HSR Act shall not have expired or been terminated, or
(iii) any of the following exist:
(a) any statute, rule, regulation, legislation, ruling, judgment, order
or injunction enacted, enforced, promulgated, amended, issued or deemed
applicable to the Offer or the Merger, by any Governmental Entity of competent
jurisdiction that (1) makes illegal or otherwise prohibits consummation of the
Offer or the Merger, (2) prohibits or materially limits the ownership or
operation by Parent or Purchaser of all or any substantial portion of the
business or assets of the Company (or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole), or compels Parent or
Purchaser to dispose of, divest or hold separately all or any substantial
portion of the business or assets of Parent, Purchaser or the Company (or any of
its subsidiaries that is material to the Company and its subsidiaries, taken as
a whole), or imposes any material limitation on the ability of Parent or
Purchaser to conduct its business or own such assets, (3) imposes any material
limitation on the ability of Parent or Purchaser effectively to acquire, hold or
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote any Shares acquired or owned by Purchaser or Parent on the
adoption of the Merger Agreement and all other matters properly presented to the
Company's stockholders, (4) requires divestiture by Parent or Purchaser of any
Shares, or (5) results in a Material Adverse Effect on the Company; or
(b) there shall be instituted and pending any action or proceeding by
any Governmental Entity that would reasonably be expected to result in any of
the consequences referred to in clauses (1) through (5) of paragraph (a) above;
or
(c) any change shall have occurred that has had, or reasonably would be
expected to have, a Material Adverse Effect on the Company; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement, when read without any exception or qualification as to
materiality or Material Adverse Effect, shall not be true and correct, as if
such representations and warranties were made
<PAGE> 56
immediately prior to the consummation of the Offer (except as to any such
representation or warranty which speaks as of a specific date, which must be
untrue or incorrect as of such specific date), except where the failure or
failures to be so true and correct, individually or in the aggregate, do not and
would not reasonably be expected to have a Material Adverse Effect on the
Company; or
(f) the Company shall have failed to perform or to comply with any of
its obligations, covenants or agreements under the Merger Agreement in any
material respect.
The foregoing conditions (including those set forth in clauses (i) and
(ii) of the initial paragraph) are for the benefit of Parent and Purchaser and
may be asserted by Parent or Purchaser regardless of the circumstances giving
rise to any such conditions (except for any action or inaction in material
breach of the Merger Agreement by Parent or Purchaser) and, except for the
Minimum Condition, may be waived by Parent or Purchaser, in whole or in part, at
any time and from time to time in their sole discretion, in each case, subject
to the terms of the Merger Agreement. The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
<PAGE> 1
EXHIBIT 2
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as
of July 28, 1998, by and between Networks Associates, Inc., a Delaware
corporation ("Parent"), and CyberMedia, Inc., a Delaware corporation (the
"Company").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, the
Company, Parent and Cyclone Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), are entering into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to
which Purchaser agrees to make a tender offer (the "Offer") for all outstanding
shares of common stock, par value $.01 per share (the "Shares"), of the Company,
at a price of $9.50 per Share (the "Offer Price") net to the seller in cash, to
be followed by a merger (the "Merger") of Purchaser with and into the Company
(capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement);
B. Concurrently with the execution and delivery of this Agreement, the
Company and Parent are entering into a Note Purchase and Security Agreement of
even date herewith pursuant to which Parent is lending the Company the principal
amount of $10,000,000, evidenced by a Secured Convertible Promissory Note of
even date herewith (the "Convertible Note"); and
C. As a condition and inducement to Parent's willingness to enter into the
Merger Agreement and make the Offer, Parent and Purchaser have required that the
Company agree, and the Company has agreed, to grant to Parent an option to
acquire certain shares of the Company's authorized but unissued common stock,
par value $.01 per share ("Company Common Stock"), on the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, to induce Parent to enter into the Merger Agreement and in
consideration of the representations, warranties, covenants and agreements
contained herein and in the Merger Agreement, the parties hereto hereby agree as
follows:
1. Grant of Option. The Company hereby grants to Parent an irrevocable
option (the "Company Option") to purchase a number of shares of Company Common
Stock equal to the Option Number (as defined in Section 2(d)), on the terms
and subject to the conditions set forth below.
2. Exercise and Termination of the Company Option.
(a) Exercise. The Company Option may be exercised by Parent, in whole
or in part, at any time or from time to time after the occurrence of an event
which causes the Termination Fee (as defined in the Merger Agreement) to become
payable to Parent (a "Trigger Event") and prior to the termination of Parent's
right to exercise the Company Option by the terms of this
<PAGE> 2
Agreement. The Company shall notify Parent promptly in writing of the occurrence
of any Trigger Event; however, such notice shall not be a condition to the right
of Parent to exercise the Company Option. Notwithstanding the foregoing, the
Company Option may not be exercised if Parent is in material breach of any of
its material representations, warranties, covenants or agreements in this
Agreement or the Merger Agreement.
(b) Exercise Procedure. In the event that Parent wishes to exercise the
Company Option, Parent shall deliver to the Company written notice (an "Exercise
Notice") specifying the total number of shares of Company Common Stock that
Parent wishes to purchase. To the extent permitted by law and the Certificate of
Incorporation of the Company (the "Company Charter") and provided that the
conditions set forth in Section 3 to the Company's obligation to issue the
shares of Company Common Stock to Parent hereunder have been satisfied or
waived, Parent shall, upon delivery of the Exercise Notice and tender of the
applicable aggregate Exercise Price (as hereinafter defined), immediately be
deemed to be the holder of record of the shares of Company Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Company
Common Stock shall not theretofore have been delivered to Parent. Each closing
of a purchase of shares of Company Common Stock hereunder (a "Closing") shall
occur at a place, on a date, and at a time reasonably designated by Parent in an
Exercise Notice delivered at least two (2) business days prior to the date of
such Closing.
(c) Termination of the Company Option. Parent's right to exercise the
Company Option shall terminate upon the earliest to occur of: (i) the Effective
Time; (ii) the termination of the Merger Agreement pursuant to, Section
7.1(b)(i) (solely as a result of a failure to satisfy the conditions specified
in clauses (iii)(a) or (iii)(b) of Annex I to the Merger Agreement), Section
7.1(b)(ii) or Section 7.1(d) thereof; (iii) six (6) months following the receipt
by Parent of written notice from the Company of the occurrence of a Trigger
Event; (iv) twelve (12) months following the termination of the Merger Agreement
if during such twelve (12)-month period no Trigger Event has occurred, and no
transaction the consummation of which would give rise to a Trigger Event, is
pending; and (v) the date following twelve (12) months after the termination of
the Merger Agreement when no transaction entered into or commenced prior to that
date that, if consummated, would have given rise to a Trigger Event, remains
pending. Notwithstanding the foregoing, if, after the occurrence of a Trigger
Event and prior to the termination of the Company Option pursuant to the
foregoing, the Company Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, the Company Option shall remain
exercisable and shall not terminate until the earlier of (x) the date on which
such impediment shall become final and not subject to appeal and (y) 5:00 p.m.,
Pacific Standard Time, on the tenth (10th) business day after such impediment
shall have been removed. The rights of Parent set forth in Section 10 shall not
terminate upon termination of Parent's right to exercise the Company Option, but
shall extend to the time provided in such section.
(d) Option Number. The "Option Number" shall initially be the number of
Shares equal to nineteen and nine-tenths percent (19.9%) of the total number of
shares of Company Common Stock issued and outstanding as of the date of this
Agreement less the number of shares issuable upon full conversion of the
Convertible Note, and shall be adjusted hereafter to reflect
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<PAGE> 3
changes in the Company's capitalization occurring after the date hereof in
accordance with Section 11 (provided that the number of Shares issuable
hereunder shall be reduced to the extent necessary so that the aggregate number
of Shares issuable hereunder and upon conversion of the Convertible Note shall
not, upon such issuance, constitute more than nineteen and nine-tenths percent
(19.9%) of the total number of shares of Company Common Stock issued and
outstanding).
(e) Exercise Price. The purchase price per share of Company Common
Stock purchased pursuant to exercise of the Company Option (the "Exercise
Price") shall be a cash amount per share equal to the Offer Price or such higher
price as is payable pursuant to the Offer.
(f) Certain Limitations. In the event that Parent (and/or any of its
affiliates) receives Net Proceeds (as defined below) which, combined with any
Termination Fee paid to Parent pursuant to Section 7.3 of the Merger Agreement
and any payment made to Parent (and/or any of its affiliates) pursuant to
Section 7 hereof (or upon any other sale of the Company Option), exceed
$5,500,000, an amount equal to all Net Proceeds in excess of such amount shall
be promptly remitted by Parent to the Company. For purposes of this Agreement,
"Net Proceeds" shall mean the aggregate proceeds from the sale or other
disposition of shares of Company Common Stock acquired by Parent (and/or any of
its affiliates) upon exercise of the Company Option (plus any securities or
other assets issued to Parent (and/or any of its affiliates) in exchange for or
as dividends upon such shares and any cash dividends received by Parent (and/or
any of its affiliates) with respect to such shares) less the Exercise Price
multiplied by the number of such shares included in such disposition.
3. Conditions to Closing. The obligation of the Company to issue the
shares of Company Common Stock to Parent hereunder is subject to the conditions
that (a) all waiting periods, if any, under the Hart Scott Rodino Antitrust
Improvements Act of 1975, as amended (the "HSR Act"), applicable to the issuance
of the shares of Company Common Stock by the Company and the acquisition of such
shares by Parent hereunder shall have expired or been terminated; (b) no
preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect; and (c) all consents, approvals, orders, authorizations and permits of
any federal, state, local or foreign governmental authority, if any, required in
connection with the issuance of the shares of Company Common Stock and the
acquisition of such shares by Parent hereunder shall have been obtained. It is
agreed that at any time during which Parent shall be entitled to deliver to the
Company an Exercise Notice, the parties will use their respective best efforts
to satisfy all conditions to any Closing so that such Closing may take place as
promptly as practicable.
4. Closing. At any Closing:
(a) The Company shall deliver to Parent or its designee a single
certificate in definitive form representing the number of shares of Company
Common Stock designated by Parent in its Exercise Notice, such certificate to be
registered in the name of Parent and to bear the legend set forth in Section 12;
(b) Parent shall deliver to the Company the aggregate Exercise Price
for the shares of
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<PAGE> 4
Company Common Stock so designated and being purchased by wire transfer of
immediately available funds to the account or accounts specified in writing by
the Company or by certified or official bank check payable to the order of the
Company;
(c) Each party shall pay all expenses incurred by such party, and
Parent shall pay any and all federal, state and local taxes and other charges
that may be payable in connection with the preparation, issue and delivery by
the Company of stock certificates under this Section 4; and
(d) The Company shall cause the shares being delivered by it pursuant
hereto to be approved for quotation on The Nasdaq National Market and shall pay
all expenses in connection with the application for approval of such quotation.
5. Representations and Warranties of the Company. The Company represents
and warrants to Parent that:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all corporate
power and authority required to enter into this Agreement and to carry out its
obligations hereunder;
(b) the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company and
no other corporate proceedings on the part of the Company and no action of the
Company's stockholders are necessary to authorize this Agreement or any of the
transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by the Company, and, assuming the due authorization,
execution and delivery hereof by Parent and the receipt of all required
governmental approvals, constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) except for any filings required under the HSR Act, the Company has
taken all necessary corporate action to authorize and reserve for issuance and
to permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved for issuance, a number of authorized and unissued shares of Company
Common Stock not less than the Option Number, such amount being subject to
adjustment as provided in Section 11, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable;
(d) the shares of Company Common Stock issued to Parent upon the
exercise of the Company Option will be, upon delivery thereof to Parent, free
and clear of all claims, liens, charges, encumbrances and security interests of
any nature whatsoever, excluding those created or imposed by Parent;
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<PAGE> 5
(e) the execution and delivery of this Agreement by the Company do not,
and the consummation by the Company of the transactions contemplated hereby will
not, violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or lapse of time, or both) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination, cancellation, or acceleration of any
obligation or the loss of a material benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets (any such violation,
conflict, breach, default, termination, acceleration, right of termination,
cancellation or acceleration, loss, or creation, a "Violation") by the Company
or any of its subsidiaries, pursuant to (i) any provision of the Company Charter
or the Bylaws of the Company, (ii) any provision of any material loan or
material credit agreement, note, mortgage, indenture, lease, benefit plan or
other material agreement, obligation, instrument, permit, concession, franchise
or license (a "Material Contract") of the Company or any of its subsidiaries or
to which any of them is a party or by which any of them or their properties or
assets are bound, or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its subsidiaries or any
of their properties or assets;
(f) the execution and delivery of this Agreement by the Company does
not, and (except for the expiration or early termination of the waiting period
under the HSR Act and except as contemplated by Sections 10(e), (f) and
(j)) the performance of this Agreement by the Company and the consummation of
the transactions contemplated hereby will not, require any consent, approval,
order, authorization or permit of, filing with, or notification to any
Governmental Entity; and
(g) assuming the representations and warranties of Parent contained in
Section 6(e) and 6(f) are true and correct, the issuance, sale and delivery
of the shares of Company Common Stock hereunder would be exempt from the
registration and prospectus delivery requirements of the Securities Act, as in
effect on the date hereof, and the Company shall not take any action which would
cause the issuance, sale, and delivery of shares of Company Common Stock
hereunder not to be exempt from such requirements.
6. Representations and Warranties of Parent. Parent represents and
warrants to the Company that:
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all corporate
power and authority required to enter into this Agreement and to carry out its
obligations hereunder;
(b) the execution and delivery of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent, and no other
corporate proceedings on the part of Parent and no action of Parent's
stockholders are necessary to authorize this Agreement or any of the
transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by Parent and, assuming the due authorization, execution
and delivery hereof by the Company and the receipt of all required governmental
approvals, constitutes the valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms, except as
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<PAGE> 6
may be limited by applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding may be brought;
(c) the execution and delivery of this Agreement by Parent do not, and
the consummation by Parent of the transactions contemplated hereby will not,
violate, conflict with, or result in the breach of any provision of, or
constitute a default (with or without notice or a lapse of time, or both) under,
or result in any Violation by Parent or any of its subsidiaries, pursuant to (i)
any provision of the Certificate of Incorporation or Bylaws of Parent, (ii) any
Material Contract of Parent or any of its subsidiaries or to which any of them
is a party or by which any of them or any of their properties or assets are
bound, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or its properties or assets, which Violation, in
the case of each of clauses (ii) or (iii), would have a Material Adverse Effect
on Parent;
(d) the execution and delivery of this Agreement by Parent does not,
and (except for the expiration or early termination of the waiting period under
the HSR Act and except as contemplated by Sections 10(e), (f) and (j)) the
performance of this Agreement by Parent and the consummation of the transactions
contemplated hereby will not, require any consent, approval, order,
authorization or permit of, filing with, or notification to any Governmental
Entity;
(e) any shares of Company Common Stock acquired by Parent upon exercise
of the Company Option will be acquired for Parent's own account, for investment
purposes only and will not be, and the Company Option is not being, acquired by
Parent with a view to the public distribution thereof, in violation of any
applicable provision of the Securities Act; and
(f) Parent is, and at the time of any exercise of the Company Option
will be, an "accredited investor" as defined in Regulation D promulgated under
the Securities Act.
7. Put Right.
(a) At any time during which the Company Option is exercisable pursuant
to Section 2, Parent may, by delivering written notice to the Company (the
"Repurchase Notice"), require the Company to repurchase from Parent all or any
portion of the Company Option, as specified by Parent, at the Option Repurchase
Price (as defined below).
(b) For purposes of this Agreement, "Option Repurchase Price" shall
mean (i) the difference between the Exercise Price and the Market Price (as
defined below) as of the date of the applicable Repurchase Notice multiplied by
(ii) the number of shares of Company Common Stock purchasable pursuant to the
Company Option and covered by the applicable Repurchase Notice.
(c) For purposes of this Agreement, "Market Price" shall mean, as of
any date, the average per share closing sale price of the Company Common Stock
on the Nasdaq National
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<PAGE> 7
Market for the ten (10) trading days immediately preceding such date.
(d) In the event that Parent exercises its rights under this Section 7,
the Company shall, within ten (10) business days thereafter, pay the Option
Repurchase Price to Parent by wire transfer of immediately available funds to
the account or accounts specified in writing by Parent; provided, however, that
the Company shall not be required pursuant to this Section 7 to pay to Parent an
amount which, when combined with any Termination Fee paid to Parent pursuant to
Section 7.3 of the Merger Agreement and any Net Proceeds received by Parent,
exceeds $5,500,000.
8. Voting of Shares. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), (a) Parent shall vote
any shares of Company Common Stock acquired by Parent pursuant to this Agreement
("Restricted Shares"), or otherwise beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) by Parent, on each matter
submitted to a vote of the stockholders of the Company for and against such
matter in the same proportion as all other shares of Company Common Stock are
voted (whether by proxy or otherwise) for and against such matter, and (b)
Parent shall execute written consents with respect to the Restricted Shares in
the same proportion as written consents are executed by other holders of Company
Capital Stock. Before acquiring any Restricted Shares hereunder, Parent shall
execute and deliver a proxy to the Company authorizing the Company to vote and
execute written consents with respect to all Restricted Shares acquired by
Parent hereunder in accordance with the provisions of this Section 8.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date, Parent
shall not, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by Parent, other than in accordance with Sections 9(b),
9(c) or 10.
(b) Permitted Sales. Following the termination of the Merger Agreement,
Parent shall be permitted to sell any Restricted Shares beneficially owned by it
if such sale is made pursuant to a tender or exchange offer that has been
approved or recommended, or otherwise determined to be fair to and in the best
interests of the holders of Company Common Stock by a majority of the members of
the Board of Directors of the Company.
(c) The Company's Right of First Refusal. At any time after the first
occurrence of a Trigger Event and prior to the expiration of twenty-four (24)
months immediately following the first purchase of shares of Company Common
Stock pursuant to the Company Option, if Parent shall desire to sell, assign,
transfer or otherwise dispose of all or any of the shares of Company Common
Stock or other securities acquired by it pursuant to the Company Option, it
shall give the Company written notice of the proposed transaction (a "Parent
Offer Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares or other securities signed by such
transferee and setting forth the terms of the proposed transaction. A Parent
Offer Notice shall be deemed an offer by Parent to Company, which may be
accepted within five (5) business days of the receipt of such Parent Offer
Notice, on the same terms and
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<PAGE> 8
conditions and at the same price at which Parent is proposing to transfer such
shares or other securities to such transferee. The purchase of any such shares
or other securities by the Company shall be settled within five (5) business
days of the date of the acceptance of the offer and the purchase price shall be
paid to Parent in immediately available funds. In the event of the failure or
refusal of the Company to purchase all the shares or other securities covered by
a Parent Offer Notice, Parent may sell all, but not less than all, of such
shares or other securities to the proposed transferee at no less than the price
specified and on terms no more favorable to the transferee than those set forth
in the Parent Offer Notice; provided that the provisions of this sentence shall
not limit the rights Parent may otherwise have in the event the Company has
accepted the offer contained in the Parent Offer Notice and wrongfully refuses
to purchase the shares or other securities subject thereto. The requirements of
this Section 9((c)) shall not apply to (i) any disposition as a result of which
the proposed transferee would own beneficially not more than one percent (1%) of
the outstanding voting power of the Company, (ii) any disposition of Company
Common Stock or other securities by a person to whom Parent has assigned its
rights under the Company Option with the consent of the Company, (iii) any sale
by means of a public offering registered under the Securities Act, or (iv) any
transfer to a wholly-owned subsidiary of Parent which agrees in writing to be
bound by the terms hereof.
10. Registration Rights.
(a) Following any exercise of the Company Option, Parent and/or any
permitted transferee(s) of Restricted Shares under clauses (ii) or (iv) of
Section 9(c) (a "Holder") may by written notice (the "Registration Notice") to
the Company request the Company to register under the Securities Act all or any
part of the Restricted Shares beneficially owned by the Holder(s) (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering in which the Holder(s) and the underwriters shall effect as wide
a distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person (including any "group" as
used in Rule 13d-5 under the Exchange Act)) and its affiliates from purchasing
through such offering Restricted Shares representing more than one percent (1%)
of the outstanding shares of Company Common Stock on a fully diluted basis (a
"Permitted Offering"); provided, however, that any such Registration Notice must
relate to a number of shares equal to at least two percent (2%) of the
outstanding shares of Company Common Stock on a fully diluted basis and that any
rights to require registration hereunder shall terminate with respect to any
shares that may be sold pursuant to Rule 144(k) under the Securities Act.
(b) The Registration Notice shall include a certificate executed by the
Holder(s) and its or their proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"Manager"), stating that (i) they have a good faith intention to commence
promptly a Permitted Offering, and (ii) the Manager in good faith believes that,
based on the then-prevailing market conditions, it will be able to sell the
Registrable Securities to the public in a Permitted Offering within one hundred
twenty (120) days at a per share price equal to at least eighty percent (80%) of
the average per share closing sale price of the Company Common Stock on the
Nasdaq National Market for the twenty (20) trading days immediately preceding
the date of the Registration Notice (the "Registration Notice Price").
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<PAGE> 9
(c) The Company (and/or any person designated by the Company) shall
thereupon have the option, exercisable by written notice delivered to the
Holder(s) within five (5) business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price equal to the product of
(i) the number of Registrable Securities to be so purchased by the Company
and/or its designee and (ii) the Registration Notice Price.
(d) Any purchase of Registrable Securities by the Company (or its
designee) under Section 10(c) shall take place at a closing to be held at the
principal executive offices of the Company or at the offices of its counsel at
any reasonable date and time designated by the Company and/or such designee in
such notice within twenty (20) business days after delivery of such notice, and
any payment for the shares to be so purchased shall be made by delivery at the
time of such closing in immediately available funds.
(e) If the Company does not elect to exercise its option pursuant to
Section 10((c)) with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so sold;
provided, however, that (i) the Holder(s) shall not be entitled to demand more
than an aggregate of two (2) effective registration statements hereunder, and
(ii) the Company will not be required to file any such registration statement
during any period of time (not to exceed forty (40) days after such request in
the case of clause (A) below or ninety (90) days after such request in the case
of clauses (B) and (C) below) when (A) the Company is in possession of material
non-public information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the Company, such
information would be required to be disclosed if a registration statement were
filed at that time; (B) the Company is required under the Securities Act to
include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement; or (C) the Company determines, in its reasonable
judgment, that such registration would interfere with any financing, acquisition
or other transaction involving the Company or any of its material subsidiaries
and that such transaction is material to the Company and its subsidiaries taken
as a whole. If consummation of the sale of any Registrable Securities pursuant
to a registration hereunder does not occur within one hundred twenty (120) days
after the effectiveness of the initial registration statement, the provisions of
this Section 10 shall again be applicable to any proposed registration.
(f) The Company shall use its reasonable efforts to cause any
Registrable Securities registered pursuant to this Section 10 to be qualified
for sale under the securities or Blue Sky laws of such jurisdictions as the
Holder(s) may reasonably request and shall continue such registration or
qualification in effect in such jurisdiction; provided, however, that the
Company shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 10 are subject to
the condition that the Holder(s) shall provide the Company with such information
with respect to the Holders' Registrable Securities, the plans for the
distribution thereof, and such other information with
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<PAGE> 10
respect to the Holder(s) as, in the reasonable judgment of counsel for the
Company, is necessary to enable the Company to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 10 shall be effected at
the Company's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder(s), and the Company shall provide to
the underwriters such documentation (including certificates, opinions of counsel
and "comfort" letters from auditors) as is customary in connection with
underwritten public offerings as such underwriters may reasonably require.
(i) In connection with any registration effected under this Section 10,
the parties agree (i) to indemnify each other and the underwriters in the
customary manner, (ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and (iii) to take all further
actions which shall be reasonably necessary to effect such registration and sale
(including, if the Manager deems it necessary, participating in road-show
presentations).
(j) The Company shall be entitled to include (at its expense)
additional shares of Company Common Stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such offering.
11. Adjustment Upon Changes in Capitalization.
(a) Without limiting any restriction on the Company contained in this
Agreement or in the Merger Agreement, in the event of any change in the Company
Common Stock by reason of any stock dividend, stock split, merger (other than
the Merger), recapitalization, combination, exchange of shares or any similar
transaction, the type and number of shares or securities subject to the Company
Option, and the Exercise Price per share provided herein, shall be adjusted
appropriately and proper provision shall be made in the agreements governing
such transaction so that Parent shall receive, upon exercise of the Company
Option, the number and class of securities or property that Parent would have
received in respect of the shares of Company Common Stock issuable to Parent if
the Company Option had been exercised immediately prior to such event or the
record date therefor, as applicable.
(b) In the event that the Company shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Parent or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger; (ii) to permit any person, other than Parent or one of
its subsidiaries, to merge into the Company and the Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of the Company or any other person or
cash or any other property; or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Parent or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that upon the consummation of such
transaction and upon the subsequent exercise of the Company Option, Parent shall
be entitled to receive, for each share of Company
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<PAGE> 11
Common Stock with respect to which the Company Option has not theretofore been
exercised, an amount of consideration in the form of and equal to the per share
amount of consideration that would be received by the holder of one share of
Company Common Stock (and, in the event of an election or similar arrangement
with respect to the type of consideration to be received by the holders of
Company Common Stock, subject to the foregoing, proper provision shall be made
so that the holder of the Company Option would have the same election or similar
rights as would the holder of the number of shares of Company Common Stock for
which the Company Option is then exercisable).
12. Restrictive Legends. Each certificate representing shares of Company
Common Stock issued to Parent hereunder shall include a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE
SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCK OPTION AGREEMENT DATED AS OF
JULY 28, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION.
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act and state securities or Blue Sky laws in the foregoing legend
shall be removed by delivery of substitute certificate(s) without such reference
if Parent shall have delivered to the Company a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such legend is not required for
purposes of the Securities Act or such laws; (ii) the reference to the
provisions of this Agreement in the foregoing legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law. Certificates
representing shares sold in a registered public offering pursuant to Section 10
shall not be required to bear the legend set forth in this Section 12.
13. Binding Effect; No Assignment; No Third-Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party, and any such attempted
assignment in violation of this Agreement shall be void and of no force or
effect. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever. Any
Restricted Shares sold by a party in compliance with the provisions of Section
10 shall, upon consummation of such sale, be free of the restrictions imposed
with respect to such shares by this Agreement, unless and until such party shall
repurchase or otherwise become the beneficial owner of such
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shares, and any transferee of such shares shall not be entitled to the
registration rights of such party.
14. Specific Performance. The parties hereto recognize and agree that if
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, whether at law or in equity, the other party shall be entitled to an
injunction to prevent or restrain any violation or threatened violation of the
provisions of this Agreement. In the event that any action should be brought in
equity to enforce the provisions of this Agreement, neither party will allege,
and each party hereby waives the defense, that there is an adequate remedy at
law.
15. Validity.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event that any Governmental Entity holds any provisions of
this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.
(c) If for any reason any Governmental Entity determines that Parent is
not permitted to acquire the full number of shares of Company Common Stock
provided in this Agreement (as the same may be adjusted pursuant to the
provisions hereof) or that the Company is not permitted to purchase from Parent
pursuant to Section 7 the full portion of the Company Option provided in said
section, it is the express intention of the Company to allow Parent to acquire
or to require the Company to repurchase such lesser number of shares or such
lesser portion of the Company Option as may be permissible without any other
amendment or modification hereof.
16. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five (5) days after
being mailed by registered or certified mail (return receipt requested) to the
parties in each case to the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to the Company, to:
CyberMedia, Inc.
2580 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
Attn: Chief Executive Officer
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Fax: (310) 664-5014
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
(b) If to Networks Associates, Inc., to:
Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attn: Richard Hornstein, Esq.
Fax: (408) 346-3038
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attn: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles.
18. Interpretation. The headings contained in this Agreement are for
reference purposes and shall not affect in any way the meaning or interpretation
of the Agreement. When reference is made in this Agreement to a Section, such
reference shall be to a Section of this Agreement, unless otherwise indicated.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense. The words "herein," "hereby," "hereof," "hereto,"
"hereunder" and words of similar import refer to this Agreement.
19. Counterparts; Effect. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
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20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. Further Assurance. Each party agrees to execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
NETWORKS ASSOCIATES, INC.
By: /s/ Richard Hornstein
---------------------------------
Name: Richard Hornstein
Title: Vice President, Legal Affairs
and Corporate Development
CYBERMEDIA, INC.
By: /s/ Kanwal Rekhi
---------------------------------
Name: Kanwal Rekhi
Title: Chief Executive Officer and
Chairman of the Board
15
<PAGE> 1
EXHIBIT 3
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as
of July 28, 1998, by and between Networks Associates, Inc., a Delaware
corporation ("Parent"), and Kanwal Rekhi ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement,
Parent, Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 441,375
Shares (the "Owned Shares"); and
C. As a condition to their willingness to enter into the Merger
Agreement and make the Offer, Parent and Purchaser have required that Seller
agree, and, in order to facilitate the Offer and the Merger, Seller is willing
to agree, (i) to tender pursuant to the Offer the Owned Shares, together with
any Shares acquired after the date hereof and prior to the termination of the
Offer, whether upon the exercise of options, conversion of convertible
securities or otherwise (collectively, the "Tender Shares"), on the terms and
subject to the conditions provided for in this Agreement and (ii) to enter into
the other agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the
record owner of such shares to validly tender) the Tender Shares pursuant to and
in accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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<PAGE> 2
the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of the Company,
however called, Seller shall (a) vote the Tender Shares in favor of the Merger;
(b) vote the Tender Shares against any action or agreement that would result in
a breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement; and (c) vote the Tender
Shares against any action or agreement (other than the Merger Agreement or the
transactions contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger or the Offer, including, but not
limited to: (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries; (ii) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or a reorganization, recapitalization or
liquidation of the Company and its subsidiaries; (iii) any change in the
management or Board of Directors of the Company, except as otherwise agreed to
in writing by Parent; (iv) any material change in the present capitalization or
dividend policy of the Company; or (v) any other material change in the
Company's corporate structure or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in
respect of the Tender Shares are not irrevocable, and that any such proxies are
hereby revoked.
(c) Seller understands and acknowledges that Parent is entering
into the Merger Agreement in reliance, among other things, upon Seller's
execution and delivery of this Agreement. Seller hereby affirms that the
irrevocable proxy set forth in this Section 1.3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Seller under this Agreement. Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Seller hereby ratifies and confirms
all that such proxies and attorneys-in-fact may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, it
shall not:
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<PAGE> 3
(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in
or with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into
a voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender
provided herein shall terminate on the earlier of the payment for the Tender
Shares pursuant to the Offer and the termination of the Merger Agreement in
accordance with its terms.
3. Representation and Warranties. Seller hereby represents and warrants
to Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are
owned of record or beneficially by Seller and, on the date hereof, the Owned
Shares constitute all of the Shares owned of record or beneficially by Seller.
Seller has sole voting power and sole power of disposition with respect to all
of the Owned Shares, with no restrictions, subject to applicable federal
securities laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power
and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by Seller
will not violate any other agreement to which Seller is a party including,
without limitation, any voting agreement, stockholders agreement or voting
3
<PAGE> 4
trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance
with the provisions of the Exchange Act and the HSR Act, no authorization,
consent or approval of, or filing with, any court or any public body or
authority is necessary for the consummation by Seller of the transactions
contemplated by this Agreement. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, encumbrance, pledge, charge or claim upon any of the properties or assets
of Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and
without further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein
shall terminate upon Seller's sale of the Tender Shares to Purchaser in the
Offer, other than Seller's representation and warranty in Section 3.1, which
shall survive the sale of the Tender Shares and the termination of this
Agreement following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
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<PAGE> 5
If to Seller: Kanwal Rekhi
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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<PAGE> 6
interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this Agreement to be duly
executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. KANWAL REKHI
By: /s/ Richard Hornstein By: /s/ Kanwal Rekhi
------------------------------ ----------------------------
Name: Richard Hornstein Name: Kanwal Rekhi
Date: July 27, 1998 Date: July 27, 1998
6
<PAGE> 1
EXHIBIT 4
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as
of July 28, 1998, by and between Networks Associates, Inc., a Delaware
corporation ("Parent"), and James R. Tolonen ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement,
Parent, Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 132,812
Shares (the "Owned Shares"); and
C. As a condition to their willingness to enter into the Merger
Agreement and make the Offer, Parent and Purchaser have required that Seller
agree, and, in order to facilitate the Offer and the Merger, Seller is willing
to agree, (i) to tender pursuant to the Offer the Owned Shares, together with
any Shares acquired after the date hereof and prior to the termination of the
Offer, whether upon the exercise of options, conversion of convertible
securities or otherwise (collectively, the "Tender Shares"), on the terms and
subject to the conditions provided for in this Agreement and (ii) to enter into
the other agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the
record owner of such shares to validly tender) the Tender Shares pursuant to and
in accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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<PAGE> 2
the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of the Company,
however called, Seller shall (a) vote the Tender Shares in favor of the Merger;
(b) vote the Tender Shares against any action or agreement that would result in
a breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement; and (c) vote the Tender
Shares against any action or agreement (other than the Merger Agreement or the
transactions contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger or the Offer, including, but not
limited to: (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries; (ii) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or a reorganization, recapitalization or
liquidation of the Company and its subsidiaries; (iii) any change in the
management or Board of Directors of the Company, except as otherwise agreed to
in writing by Parent; (iv) any material change in the present capitalization or
dividend policy of the Company; or (v) any other material change in the
Company's corporate structure or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in
respect of the Tender Shares are not irrevocable, and that any such proxies are
hereby revoked.
(c) Seller understands and acknowledges that Parent is entering
into the Merger Agreement in reliance, among other things, upon Seller's
execution and delivery of this Agreement. Seller hereby affirms that the
irrevocable proxy set forth in this Section 1.3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Seller under this Agreement. Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Seller hereby ratifies and confirms
all that such proxies and attorneys-in-fact may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and
agrees that, except as contemplated by this Agreement and the Merger Agreement,
it shall not:
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(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in
or with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into
a voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender
provided herein shall terminate on the earlier of the payment for the Tender
Shares pursuant to the Offer and the termination of the Merger Agreement in
accordance with its terms.
3. Representation and Warranties. Seller hereby represents and warrants
to Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are
owned of record or beneficially by Seller and, on the date hereof, the Owned
Shares constitute all of the Shares owned of record or beneficially by Seller.
Seller has sole voting power and sole power of disposition with respect to all
of the Owned Shares, with no restrictions, subject to applicable federal
securities laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power
and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by Seller
will not violate any other agreement to which Seller is a party including,
without limitation, any voting agreement, stockholders agreement or voting
3
<PAGE> 4
trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance
with the provisions of the Exchange Act and the HSR Act, no authorization,
consent or approval of, or filing with, any court or any public body or
authority is necessary for the consummation by Seller of the transactions
contemplated by this Agreement. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, encumbrance, pledge, charge or claim upon any of the properties or assets
of Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and
without further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein shall
terminate upon Seller's sale of the Tender Shares to Purchaser in the Offer,
other than Seller's representation and warranty in Section 3.1, which shall
survive the sale of the Tender Shares and the termination of this Agreement
following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
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If to Seller: James R. Tolonen
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. JAMES R. TOLONEN
By: /s/ Richard Hornstein By: /s/ James R. Tolonen
------------------------------ ---------------------------
Name: Vice President, Legal Affairs and Name: James R. Tolonen
Corporate Development
Date: July 27, 1998 Date: July 27, 1998
6
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EXHIBIT 5
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as of
July 28, 1998, by and between Networks Associates, Inc., a Delaware corporation
("Parent"), and Suhas Patil ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Parent,
Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 1,948,729
Shares (the "Owned Shares"); and
C. As a condition to their willingness to enter into the Merger Agreement
and make the Offer, Parent and Purchaser have required that Seller agree, and,
in order to facilitate the Offer and the Merger, Seller is willing to agree, (i)
to tender pursuant to the Offer the Owned Shares, together with any Shares
acquired after the date hereof and prior to the termination of the Offer,
whether upon the exercise of options, conversion of convertible securities or
otherwise (collectively, the "Tender Shares"), on the terms and subject to the
conditions provided for in this Agreement and (ii) to enter into the other
agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the record
owner of such shares to validly tender) the Tender Shares pursuant to and in
accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this Agreement
is in effect, at any meeting of the stockholders of the Company, however called,
Seller shall (a) vote the Tender Shares in favor of the Merger; (b) vote the
Tender Shares against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (c) vote the Tender Shares against
any action or agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, including, but not limited to:
(i) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of its subsidiaries;
(ii) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries or a reorganization, recapitalization or liquidation of the
Company and its subsidiaries; (iii) any change in the management or Board of
Directors of the Company, except as otherwise agreed to in writing by Parent;
(iv) any material change in the present capitalization or dividend policy of the
Company; or (v) any other material change in the Company's corporate structure
or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in respect
of the Tender Shares are not irrevocable, and that any such proxies are hereby
revoked.
(c) Seller understands and acknowledges that Parent is entering into
the Merger Agreement in reliance, among other things, upon Seller's execution
and delivery of this Agreement. Seller hereby affirms that the irrevocable proxy
set forth in this Section 1.3 is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of Seller under this Agreement. Seller hereby further
affirms that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. Seller hereby ratifies and confirms all that such
proxies and attorneys-in-fact may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the Delaware General
Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, it
shall not:
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(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in or
with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender provided
herein shall terminate on the earlier of the payment for the Tender Shares
pursuant to the Offer and the termination of the Merger Agreement in accordance
with its terms.
3. Representation and Warranties. Seller hereby represents and warrants to
Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are owned
of record or beneficially by Seller and, on the date hereof, the Owned Shares
constitute all of the Shares owned of record or beneficially by Seller. Seller
has sole voting power and sole power of disposition with respect to all of the
Owned Shares, with no restrictions, subject to applicable federal securities
laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power and
authority to enter into and perform all of his obligations under this Agreement.
The execution, delivery and performance of this Agreement by Seller will not
violate any other agreement to which Seller is a party including, without
limitation, any voting agreement, stockholders agreement or voting
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<PAGE> 4
trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance with
the provisions of the Exchange Act and the HSR Act, no authorization, consent or
approval of, or filing with, any court or any public body or authority is
necessary for the consummation by Seller of the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
material breach, violation or default (or any event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
encumbrance, pledge, charge or claim upon any of the properties or assets of
Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and without
further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein shall
terminate upon Seller's sale of the Tender Shares to Purchaser in the Offer,
other than Seller's representation and warranty in Section 3.1, which shall
survive the sale of the Tender Shares and the termination of this Agreement
following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
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<PAGE> 5
If to Seller: Suhas Patil
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention:Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. SUHAS PATIL
By: /s/ Richard Hornstein By: /s/ Suhas Patil
-------------------------------- --------------------------------
Name: Vice President, Legal Affairs Name: Suhas Patil
and Corporate Development
Date: July 27, 1998 Date: July 27, 1998
6
<PAGE> 1
EXHIBIT 6
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as of
July 28, 1998, by and between Networks Associates, Inc., a Delaware corporation
("Parent"), and Ronald S. Posner ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Parent,
Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 264,200 Shares
(the "Owned Shares"); and
C. As a condition to their willingness to enter into the Merger Agreement
and make the Offer, Parent and Purchaser have required that Seller agree, and,
in order to facilitate the Offer and the Merger, Seller is willing to agree, (i)
to tender pursuant to the Offer the Owned Shares, together with any Shares
acquired after the date hereof and prior to the termination of the Offer,
whether upon the exercise of options, conversion of convertible securities or
otherwise (collectively, the "Tender Shares"), on the terms and subject to the
conditions provided for in this Agreement and (ii) to enter into the other
agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the record
owner of such shares to validly tender) the Tender Shares pursuant to and in
accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this Agreement
is in effect, at any meeting of the stockholders of the Company, however called,
Seller shall (a) vote the Tender Shares in favor of the Merger; (b) vote the
Tender Shares against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (c) vote the Tender Shares against
any action or agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, including, but not limited to:
(i) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of its subsidiaries;
(ii) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries or a reorganization, recapitalization or liquidation of the
Company and its subsidiaries; (iii) any change in the management or Board of
Directors of the Company, except as otherwise agreed to in writing by Parent;
(iv) any material change in the present capitalization or dividend policy of the
Company; or (v) any other material change in the Company's corporate structure
or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in respect
of the Tender Shares are not irrevocable, and that any such proxies are hereby
revoked.
(c) Seller understands and acknowledges that Parent is entering
into the Merger Agreement in reliance, among other things, upon Seller's
execution and delivery of this Agreement. Seller hereby affirms that the
irrevocable proxy set forth in this Section 1.3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Seller under this Agreement. Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Seller hereby ratifies and confirms
all that such proxies and attorneys-in-fact may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, it
shall not:
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(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in
or with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender provided
herein shall terminate on the earlier of the payment for the Tender Shares
pursuant to the Offer and the termination of the Merger Agreement in accordance
with its terms.
3. Representation and Warranties. Seller hereby represents and warrants to
Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are owned
of record or beneficially by Seller and, on the date hereof, the Owned Shares
constitute all of the Shares owned of record or beneficially by Seller. Seller
has sole voting power and sole power of disposition with respect to all of the
Owned Shares, with no restrictions, subject to applicable federal securities
laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power and
authority to enter into and perform all of his obligations under this Agreement.
The execution, delivery and performance of this Agreement by Seller will not
violate any other agreement to which Seller is a party including, without
limitation, any voting agreement, stockholders agreement or voting
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trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance with
the provisions of the Exchange Act and the HSR Act, no authorization, consent or
approval of, or filing with, any court or any public body or authority is
necessary for the consummation by Seller of the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
material breach, violation or default (or any event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
encumbrance, pledge, charge or claim upon any of the properties or assets of
Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and without
further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein shall
terminate upon Seller's sale of the Tender Shares to Purchaser in the Offer,
other than Seller's representation and warranty in Section 3.1, which shall
survive the sale of the Tender Shares and the termination of this Agreement
following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
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<PAGE> 5
If to Seller: Ronald S. Posner
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. Ronald S. Posner
By: /s/ Richard Hornstein By: /s/ Ronald S. Posner
------------------------------ ----------------------------------
Name: Vice President, Legal Affairs Name: Ronald S. Posner
and Corporate Development
Date: July 27, 1998 Date: July 27, 1998
6
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EXHIBIT 7
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as of
July 28, 1998, by and between Networks Associates, Inc., a Delaware corporation
("Parent"), and Robert Davis ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Parent,
Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 0 Shares (the
"Owned Shares"); and
C. As a condition to their willingness to enter into the Merger Agreement
and make the Offer, Parent and Purchaser have required that Seller agree, and,
in order to facilitate the Offer and the Merger, Seller is willing to agree, (i)
to tender pursuant to the Offer the Owned Shares, together with any Shares
acquired after the date hereof and prior to the termination of the Offer,
whether upon the exercise of options, conversion of convertible securities or
otherwise (collectively, the "Tender Shares"), on the terms and subject to the
conditions provided for in this Agreement and (ii) to enter into the other
agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the record
owner of such shares to validly tender) the Tender Shares pursuant to and in
accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this Agreement
is in effect, at any meeting of the stockholders of the Company, however called,
Seller shall (a) vote the Tender Shares in favor of the Merger; (b) vote the
Tender Shares against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (c) vote the Tender Shares against
any action or agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, including, but not limited to:
(i) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of its subsidiaries;
(ii) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries or a reorganization, recapitalization or liquidation of the
Company and its subsidiaries; (iii) any change in the management or Board of
Directors of the Company, except as otherwise agreed to in writing by Parent;
(iv) any material change in the present capitalization or dividend policy of the
Company; or (v) any other material change in the Company's corporate structure
or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in
respect of the Tender Shares are not irrevocable, and that any such proxies are
hereby revoked.
(c) Seller understands and acknowledges that Parent is entering
into the Merger Agreement in reliance, among other things, upon Seller's
execution and delivery of this Agreement. Seller hereby affirms that the
irrevocable proxy set forth in this Section 1.3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Seller under this Agreement. Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Seller hereby ratifies and confirms
all that such proxies and attorneys-in-fact may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, it
shall not:
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<PAGE> 3
(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in
or with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender provided
herein shall terminate on the earlier of the payment for the Tender Shares
pursuant to the Offer and the termination of the Merger Agreement in accordance
with its terms.
3. Representation and Warranties. Seller hereby represents and warrants to
Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are owned
of record or beneficially by Seller and, on the date hereof, the Owned Shares
constitute all of the Shares owned of record or beneficially by Seller. Seller
has sole voting power and sole power of disposition with respect to all of the
Owned Shares, with no restrictions, subject to applicable federal securities
laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power and
authority to enter into and perform all of his obligations under this Agreement.
The execution, delivery and performance of this Agreement by Seller will not
violate any other agreement to which Seller is a party including, without
limitation, any voting agreement, stockholders agreement or voting
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<PAGE> 4
trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance with
the provisions of the Exchange Act and the HSR Act, no authorization, consent or
approval of, or filing with, any court or any public body or authority is
necessary for the consummation by Seller of the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
material breach, violation or default (or any event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
encumbrance, pledge, charge or claim upon any of the properties or assets of
Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and without
further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein shall
terminate upon Seller's sale of the Tender Shares to Purchaser in the Offer,
other than Seller's representation and warranty in Section 3.1, which shall
survive the sale of the Tender Shares and the termination of this Agreement
following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
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<PAGE> 5
If to Seller: Robert Davis
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. ROBERT DAVIS
By: /s/ Richard Hornstein By: /s/ Robert W. Davis
----------------------------- ----------------------------------
Name: Richard Hornstein Name: Robert W. Davis
Date: July 27, 1998 Date: July 27, 1998
6
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EXHIBIT 8
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") is made and entered into as
of July 28, 1998, by and between Networks Associates, Inc., a Delaware
corporation ("Parent"), and Kenneth Kucera ("Seller").
RECITALS
A. Concurrently with the execution and delivery of this Agreement,
Parent, Cyclone Acquisition Corp. ("Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of Parent, and CyberMedia, Inc., a Delaware corporation
(the "Company"), are entering into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), pursuant to which Purchaser agrees to make a
tender offer (the "Offer") for all outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, at a price of $9.50 per Share
(the "Offer Price") net to the seller in cash, to be followed by a merger (the
"Merger") of Purchaser with and into the Company (capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement);
B. As of the date hereof, Seller beneficially owns directly 0 Shares
(the "Owned Shares"); and
C. As a condition to their willingness to enter into the Merger
Agreement and make the Offer, Parent and Purchaser have required that Seller
agree, and, in order to facilitate the Offer and the Merger, Seller is willing
to agree, (i) to tender pursuant to the Offer the Owned Shares, together with
any Shares acquired after the date hereof and prior to the termination of the
Offer, whether upon the exercise of options, conversion of convertible
securities or otherwise (collectively, the "Tender Shares"), on the terms and
subject to the conditions provided for in this Agreement and (ii) to enter into
the other agreements set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Seller hereby agrees to validly tender (or cause the
record owner of such shares to validly tender) the Tender Shares pursuant to and
in accordance with the terms of the Offer, as soon as practicable after
commencement of the Offer (but in no event later than five business days after
the filing of the Offer Documents with the SEC, in the case of the Owned Shares,
or the first business day following their acquisition, in the case of any other
Tender Shares), by physical delivery of the certificates therefor and to not
withdraw such Tender Shares, except following termination of this Agreement
pursuant to Section 2 hereof. Seller hereby acknowledges and agrees that
Parent's and Purchaser's obligation to accept for payment and pay for the Tender
Shares is subject to the terms and conditions of the Offer. Seller hereby agrees
to permit Parent and Purchaser to publish and disclose in the Offer Documents
and, if approval of
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the Company's stockholders is required under applicable law, the Proxy Statement
(including all related documents and schedules filed with the SEC) his identity
and ownership of the Tender Shares and the nature of his commitments,
arrangements and understandings under this Agreement.
1.2 Voting. Seller hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of the Company,
however called, Seller shall (a) vote the Tender Shares in favor of the Merger;
(b) vote the Tender Shares against any action or agreement that would result in
a breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement; and (c) vote the Tender
Shares against any action or agreement (other than the Merger Agreement or the
transactions contemplated thereby) that would impede, interfere with, delay,
postpone or attempt to discourage the Merger or the Offer, including, but not
limited to: (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries; (ii) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or a reorganization, recapitalization or
liquidation of the Company and its subsidiaries; (iii) any change in the
management or Board of Directors of the Company, except as otherwise agreed to
in writing by Parent; (iv) any material change in the present capitalization or
dividend policy of the Company; or (v) any other material change in the
Company's corporate structure or business.
1.3 Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Seller hereby irrevocably grants to, and appoints William L.
Larson and Richard Hornstein, or either of them, in their respective capacities
as officers of Parent, and any individual who shall hereafter succeed to any
such office of Parent, and each of them individually, Seller's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Seller, to vote the Tender Shares in favor of the Merger and
otherwise as contemplated by Section 1.2.
(b) Seller represents that any proxies heretofore given in
respect of the Tender Shares are not irrevocable, and that any such proxies are
hereby revoked.
(c) Seller understands and acknowledges that Parent is entering
into the Merger Agreement in reliance, among other things, upon Seller's
execution and delivery of this Agreement. Seller hereby affirms that the
irrevocable proxy set forth in this Section 1.3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Seller under this Agreement. Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Seller hereby ratifies and confirms
all that such proxies and attorneys-in-fact may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the Delaware
General Corporation Law.
1.4 No Inconsistent Arrangements. Seller hereby covenants and agrees
that, except as contemplated by this Agreement and the Merger Agreement, it
shall not:
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(a) transfer (which term shall include, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Tender Shares or any interest therein; provided, however, that Seller
may transfer (i) the Tender Shares by will or intestacy, and (ii) up to 10% of
the Tender Shares as a bona fide gift or gifts, provided that prior to any such
permitted transfer, each transferee shall agree in writing (in a form
satisfactory to Parent) that such transferee will receive and hold such Tender
Shares subject to the provisions of this Agreement;
(b) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Tender Shares or
any interest therein;
(c) grant any proxy, power-of-attorney or other authorization in
or with respect to any or all of the Tender Shares;
(d) deposit the Tender Shares into a voting trust or enter into
a voting agreement or arrangement with respect to the Tender Shares; or
(e) take any other action that would make any representation or
warranty of Seller hereunder untrue or incorrect.
1.5 Waiver of Appraisal Rights. Seller hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have under applicable
law.
2. Expiration. This Agreement and Seller's obligation to tender
provided herein shall terminate on the earlier of the payment for the Tender
Shares pursuant to the Offer and the termination of the Merger Agreement in
accordance with its terms.
3. Representation and Warranties. Seller hereby represents and warrants
to Parent as follows:
3.1 Title. Seller has good and valid title to the Owned Shares and,
upon the acquisition thereof, will have good and valid title to any other Tender
Shares, in each case, free and clear of any lien, pledge, charge, encumbrance or
claim of whatever nature and, upon the purchase of the Tender Shares by
Purchaser, Seller will deliver good and valid title to the Tender Shares, free
and clear of any lien, charge, encumbrance or claim of whatever nature.
3.2 Ownership of Shares. On the date hereof, the Owned Shares are
owned of record or beneficially by Seller and, on the date hereof, the Owned
Shares constitute all of the Shares owned of record or beneficially by Seller.
Seller has sole voting power and sole power of disposition with respect to all
of the Owned Shares, with no restrictions, subject to applicable federal
securities laws, on Seller's rights of disposition pertaining thereto.
3.3 Power; Binding Agreement. Seller has the legal capacity, power
and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by Seller
will not violate any other agreement to which Seller is a party including,
without limitation, any voting agreement, stockholders agreement or voting
3
<PAGE> 4
trust. This Agreement has been duly and validly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms.
3.4 No Conflicts. Other than in connection with or in compliance
with the provisions of the Exchange Act and the HSR Act, no authorization,
consent or approval of, or filing with, any court or any public body or
authority is necessary for the consummation by Seller of the transactions
contemplated by this Agreement. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, encumbrance, pledge, charge or claim upon any of the properties or assets
of Seller under, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Seller is a party or by
which his properties or assets are bound.
4. Additional Shares. Seller hereby agrees, while this Agreement is in
effect, to promptly notify Parent of the number of any Shares acquired by Seller
after the date hereof.
5. Further Assurances. From time to time, at Parent's request and
without further consideration, Seller shall execute and deliver such additional
documents and take all such further action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
6. Miscellaneous.
6.1 Non-Survival. The representations and warranties made herein
shall terminate upon Seller's sale of the Tender Shares to Purchaser in the
Offer, other than Seller's representation and warranty in Section 3.1, which
shall survive the sale of the Tender Shares and the termination of this
Agreement following such sale.
6.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise, provided that Parent may
assign its rights and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Parent
of its obligations hereunder if such assignee does not perform such obligations.
6.3 Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
6.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand delivery
or telecopy or by any courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be delivered to the respective
parties at the following addresses:
4
<PAGE> 5
If to Seller: Kenneth Kucera
2850 Ocean Park Boulevard, Suite 100
Santa Monica, CA 90405
copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Blair W. Stewart, Esq.
Daniel R. Mitz, Esq.
Fax: (650) 493-6811
If to Parent: Networks Associates, Inc.
2865 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Fax: (408) 346-3038
copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Dennis C. Sullivan, Esq.
Bradley J. Rock, Esq.
Fax: (650) 327-3699
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
6.6 Specific Performance. Seller recognizes and acknowledges that a
breach by him of any covenants or agreements contained in this Agreement will
cause Parent to sustain damages for which it would not have an adequate remedy
at law for money damages, and therefore Seller agrees that in the event of any
such breach Parent shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
6.7 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
6.8 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or
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interpretation of this Agreement.
6.9 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Parent and Seller have caused this
Agreement to be duly executed as of the day and year first above written.
PARENT: SELLER:
NETWORKS ASSOCIATES, INC. KENNETH KUCERA
By: /s/ RICHARD HORNSTEIN By: /s/ KENNETH C. KUCERA
--------------------------- --------------------------
Name: Richard Hornstein Name: Kenneth C. Kucera
Date: July 27, 1998 Date: July 27, 1998
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EXHIBIT 9
CYBERMEDIA, INC.
NOTE PURCHASE AND SECURITY AGREEMENT
<PAGE> 2
CYBERMEDIA, INC.
NOTE PURCHASE AND SECURITY AGREEMENT
This NOTE PURCHASE AND SECURITY AGREEMENT is made as of the 28th day of
July, 1998 by and among CYBERMEDIA, INC., a Delaware corporation (the
"Company"), and NETWORKS ASSOCIATES, INC., a Delaware corporation (the
"Purchaser").
The parties hereby agree as follows:
SECTION 1. AMOUNT AND TERMS OF THE LOAN
1.1 THE LOAN. Subject to the terms of this Agreement, the Purchaser
agrees to loan to the Company, the principal amount of Ten Million Dollars
($10,000,000) (the "Loan Amount") pursuant to a secured subordinated convertible
promissory note in the form attached hereto as Exhibit A (the "Note").
Capitalized terms in this Agreement not otherwise defined herein are as defined
in the Note.
SECTION 2. THE CLOSING
2.1 CLOSING DATE. The closing of the purchase and sale of the Note (the
"Closing") shall be held at 1:00 a.m. PDT on the date hereof or at such other
time as the Company and the Purchaser shall agree (the "Closing Date").
2.2 DELIVERY. At the Closing (i) the Purchaser will deliver to the
Company a wire transfer of funds in the amount of the Loan Amount; and (ii) the
Company shall deliver to the Purchaser the Note representing the Loan Amount.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
3.1 CORPORATE POWER. The Company will have at the Closing Date all
requisite corporate power to execute and deliver this Agreement and the Note and
to carry out and perform its obligations under the terms of this Agreement.
3.2 AUTHORIZATION. All corporate action on the part of the Company, its
directors and its shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company and the performance of
the Company's obligations hereunder, including the issuance and delivery of the
Note, has been taken or will be taken prior to the Closing. The Company agrees
to take all necessary corporate action to reserve or authorize the equity
securities issuable upon conversion of the Note. This Agreement and the Note
constitute valid and binding obligations of the Company enforceable in
accordance with their terms, subject to laws of general application relating to
bankruptcy, insolvency, the relief of debtors and, with respect to rights to
indemnity, subject to federal and state securities laws. The Common Stock or
other equity securities of the Company, when issued upon conversion of the Note
in compliance
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with the provisions of this Agreement or the Note, will be validly issued, fully
paid and nonassessable and free of any liens or encumbrances.
3.3 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in connection with the valid execution and delivery of this Agreement, the
offer, sale or issuance of the Note and the equity securities issuable upon
conversion of the Note or the consummation of any other transaction contemplated
hereby shall have been obtained and will be effective at the Closing except for
notices required or permitted to be filed with certain state and federal
securities commissions, which notices will be filed on a timely basis, and
filings to perfect security interests.
3.4 OFFERING. Assuming the accuracy of the representations and warranties
of the Purchaser contained in Section 4 hereof, the offer, issue, and sale of
the Note are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and are
exempt from registration and qualification under the registration, permit, or
qualification requirements of all applicable state securities laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 PURCHASE FOR OWN ACCOUNT. The Purchaser represents that it is
acquiring the Note and the equity securities issuable upon conversion of the
Note (collectively, the "Securities") solely for its own account and beneficial
interest for investment and not for sale or with a view to distribution of the
Securities or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the same, and does not presently have reason to
anticipate a change in such intention.
4.2 INFORMATION AND SOPHISTICATION. The Purchaser acknowledges that it
has received all the information it has requested from the Company and considers
necessary or appropriate for deciding whether to acquire the Note. The Purchaser
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the Note
and to obtain any additional information necessary to verify the accuracy of the
information given the Purchaser. The Purchaser further represents that it has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.
4.3 ABILITY TO BEAR ECONOMIC RISK. The Purchaser acknowledges that
investment in the Note involves a high degree of risk, and represents that it is
able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.
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4.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Purchaser further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement under the 1933
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Purchaser shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the 1933 Act.
(c) Notwithstanding the provisions of paragraphs ((a)) and ((b))
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by the Purchaser to one or more direct or indirect affiliates of
Purchaser, if all transferees agree in writing to be subject to the terms hereof
to the same extent as if they were the Purchaser hereunder. 4.5 SUITABILITY. The
Purchaser is an "accredited investor" as such term is defined in Rule 501 under
the Securities Act.
4.5 SUITABILITY. The Purchaser is an "accredited investor" as such term
is defined in Rule 501 under the Securities Act.
SECTION 5. COVENANTS
5.1 GRANT OF SECURITY INTEREST. (a) As collateral security for the prompt
and complete payment of the Note and the Company's present or future
indebtedness, obligations and liabilities to Purchaser under the Note and this
Agreement, the Company hereby grants and pledges to Purchaser a continuing
security interest in all presently existing and hereafter acquired or arising
collateral (the "Collateral") as follows. The "Collateral" shall consist of all
right, title and interest of the Company in and to the following:
(i) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(ii) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Company's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Company's books relating to any of the foregoing;
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(iii) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, leases, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind, all patents, patent applications
and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations in part of the
same, including without limitation the patents and patent applications set forth
on Exhibit B attached hereto (collectively, the "Patents");
(iv) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Company arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Company, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Company and Company's books
relating to any of the foregoing;
(v) All documents, cash, deposit accounts, securities,
securities accounts, investment property, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Company's books relating to the foregoing;
(vi) All trade secret rights, including all rights to unpatented
inventions, know how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired;
(vii) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit C
attached hereto (collectively, the "Copyrights");
(viii) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(ix) All licenses or other rights to use any of the trademarks,
Copyrights or Patents, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(x) All amendments, renewals and extensions of any of the
Copyrights or Patents;
(xi) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing; and
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(xii) Any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and proceeds
thereof.
Notwithstanding the foregoing, (i) the security interest granted herein
shall be effective upon the earlier to occur of (A) the fifth business day after
the date of this Agreement, and (B) the consent of Imperial Bank to the security
interest granted herein and agreement to the subordination provisions of the
Note; and (ii) the security interest granted herein shall not extend to and the
term "Collateral" shall not include any property, rights or licenses to the
extent the granting of a security interest therein (1) would be contrary to
applicable law or (2) is prohibited by or would constitute a default under any
agreement or license under which such property, rights or licenses arise (but
only to the extent such prohibition is enforceable under applicable law).
(b) AUTHORIZATION AND REQUEST. The Company authorizes and requests
that the Register of Copyrights and the Commissioner of Patents and Trademarks
record this security agreement.
(c) COVENANTS AND WARRANTIES. The Company represents, warrants,
covenants and agrees as follows:
(i) Except as disclosed in the Agreement and Plan of Merger
between Company and Purchaser of even date herewith (the "Merger Agreement"),
Company has good and indefeasible title to the Collateral, free and clear of
Liens, except for Permitted Liens. The Company is now the sole owner of the
Patents and Copyrights, except for non-exclusive licenses granted by the Company
to its customers in the ordinary course of business;
(ii) Performance of this Agreement does not conflict with or
result in a breach of any agreement to which the Company is party or by which
the Company is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Agreement constitutes
an assignment;
(iii) During the term of this Agreement, the Company will not
transfer or otherwise encumber any interest in the Collateral, except for
Permitted Liens and Liens that may be granted in favor of Senior Debt and except
for non-exclusive licenses under Patents, Copyrights and other intellectual
property rights of the Company granted by the Company in the ordinary course of
business or as set forth in this Agreement;
(iv) To its knowledge, and except as disclosed in the Merger
Agreement, each of the Patents is valid and enforceable, and no part of the
Patents or Copyrights has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of the Collateral violates the
rights of any third party;
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(v) The Company shall deliver to Purchaser within (30) days of
the last day of each calendar quarter, a report signed by the Company, in form
reasonably acceptable to Purchaser, listing any applications or registrations
that the Company has made, filed or acquired in respect of any patents,
copyrights or trademarks and the status of any outstanding applications or
registrations;
(vi) The Company shall (A) protect, defend and maintain the
validity and enforceability of the material Patents and Copyrights (B) use its
best efforts to detect infringements of the Patents and Copyrights and promptly
advise Purchaser in writing of material infringements detected and (C) not allow
any material Patents or Copyrights to be abandoned, forfeited or dedicated to
the public without the written consent of Purchaser, which shall not be
unreasonably withheld;
(vii) The Company shall register or cause to be registered (to
the extent not already registered) with the United States Copyright Office, the
copyrights associated with the currently shipping versions of each of its
software products whose names include the words "First Aid" within thirty (30)
days of the date of this Agreement. Once each calendar quarter the Company shall
register or cause to be registered with the United States Copyright Office those
additional copyrights developed, authored or acquired by the Company from time
to time for new releases (that is, versions of such software which offer
meaningful additional features beyond mere corrections) of each then shipping
version of First Aid and Uninstaller software (or successor software products);
(viii) Subject to any filings that may be required to perfect
the security interests granted herein, and to Permitted Liens and Liens in favor
of Senior Debt, this Agreement creates, and in the case of after acquired
Collateral, this Agreement will create at the time the Company first has rights
in such after acquired Collateral, in favor of Purchaser a valid and perfected
security interest in the Collateral in the United States junior in priority only
to Permitted Liens and Liens in favor of the Senior Debt, securing the payment
and performance of the obligations evidenced by the Note;
(ix) All information heretofore, herein or hereafter supplied to
Purchaser by or on behalf of the Company with respect to the Collateral is
accurate and complete in all material respects; and
(x) Except for Permitted Liens and the granting of Liens in
favor of Senior Debt, the Company shall not create, incur, assume or suffer to
exist any Lien with respect to any of its property or assign or otherwise convey
any right to receive income therefrom, or enter into any agreement that would
impair or conflict with the Company's obligations hereunder without Purchaser's
prior written consent, which consent shall not be unreasonably withheld. The
Company shall not permit the inclusion in any contract to which it becomes a
party of any provisions that could or might in any way prevent the creation of a
security interest in the Company's rights and interests in any property included
within the definition of the Collateral acquired under such contracts, except
that certain contracts may contain anti-assignment
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provisions that could in effect prohibit the creation of a security interest in
such contracts if the Company is required, in its commercially reasonable
judgment, to accept such provisions.
(d) PURCHASER'S RIGHTS. Purchaser shall have the right, but not the
obligation, to take, at the Company's sole expense, any actions that the Company
is required under this Agreement to take but which the Company fails to take,
after fifteen (15) days' notice to the Company. The Company shall reimburse and
indemnify Purchaser for all reasonable costs and reasonable expenses incurred in
the reasonable exercise of its rights under this Section 5.1((d)).
(e) FURTHER ASSURANCES; ATTORNEY IN FACT
(i) On a continuing basis, the Company will make, execute,
acknowledge and deliver, and file and record in the filing and recording places
in the United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be deemed necessary or advisable, or as requested
by Purchaser, to perfect Purchaser's security interest in all its registered
Copyrights and Patents and otherwise to carry out the intent and purposes of
this Agreement, or for assuring and confirming to Purchaser the grant or
perfection of a security interest in all Collateral.
(ii) The Company hereby irrevocably appoints Purchaser as the
Company's attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in Purchaser's
discretion, to take any action and to execute any instrument which Purchaser may
deem necessary or advisable to accomplish the purposes of this Agreement,
including (i) to modify, in its sole discretion, this Agreement without first
obtaining the Company's approval of or signature to such modification by
amending Exhibit B and Exhibit C, thereof, as appropriate, to include reference
to any right, title or interest in any Copyrights or Patents acquired by the
Company after the execution hereof or to delete any reference to any right,
title or interest in any Copyrights or Patents in which the Company no longer
has or claims any right, title or interest, (ii) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of the Company
where permitted by law, and (iii) after the occurrence of an Event of Default,
to transfer the Collateral into the name of Purchaser or a third party to the
extent permitted under the California Uniform Commercial Code.
(f) EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under the Agreement:
(i) An Event of Default occurs under the Note; or
(ii) The Company breaches any warranty or agreement made by the
Company in this Agreement and, as to any breach that is capable of cure, the
Company fails to cure such breach within twenty (20) days of notice from
Purchaser of the occurrence of such breach.
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(g) REMEDIES. Upon the occurrence and continuance of an Event of
Default, Purchaser shall have the right to exercise all the remedies of a
secured party under the California Uniform Commercial Code, including without
limitation the right to require the Company to assemble the Collateral and any
tangible property in which Purchaser has a security interest and to make it
available to Purchaser at a place designated by Purchaser. Purchaser shall have
a nonexclusive, royalty free license to use the Copyrights, Patents and
trademarks to the extent reasonably necessary to permit Purchaser to exercise
its rights and remedies upon the occurrence of an Event of Default. The Company
will pay any expenses (including reasonable attorneys' fees) incurred by
Purchaser in connection with the exercise of any of Purchaser's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Purchaser's rights and remedies with respect to the
Collateral shall be cumulative.
(h) INDEMNITY. The Company agrees to defend, indemnify and hold
harmless Purchaser and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the loan transaction contemplated by this Agreement,
and (b) all losses or expenses in any way suffered, incurred, or paid by
Purchaser as a result of or in any way arising out of, following or
consequential to the loan transaction between Purchaser and the Company under
this Agreement (including without limitation reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Purchaser's gross
negligence or willful misconduct.
5.2 NOTICE OF DEFAULTS. The Company agrees and covenants to promptly
notify Purchaser upon the occurrence of any Event of Default as defined in the
Note.
5.3 REGISTRATION RIGHTS.
(a) Following the conversion of some or all of the Loan Amount into
Conversion Shares (each as defined in the Note) in accordance with the Note,
Purchaser may by written notice (the "Registration Notice") to the Company
request the Company to register under the Securities Act all or any part of the
Conversion Shares beneficially owned by Purchaser (the "Registrable Securities")
pursuant to a bona fide firm commitment underwritten public offering in which
Purchaser and the underwriters shall endeavor to effect a reasonably wide
distribution of such Registrable Securities and shall use their reasonable
efforts to prevent any person (including any "group" as used in Rule 13d-5 under
the Exchange Act) and its affiliates from purchasing through such offering
Conversion Shares representing more than one percent (1%) of the outstanding
shares of common stock of the Company on a fully diluted basis, provided that
firm commitment underwriting shall not be required if the number of Conversion
Shares proposed to be registered at any one time represents less than three
percent (3%) of the outstanding shares of common stock of the Company on a fully
diluted basis (in either case, a "Permitted Offering").
(b) The Registration Notice shall include a certificate executed by
Purchaser and, if applicable, its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that (i) they have a good faith intention to
commence promptly a Permitted Offering, and (ii) the Manager in good faith
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believes that, based on the then-prevailing market conditions, it will be able
to sell the Registrable Securities to the public in a Permitted Offering within
one hundred twenty (120) days at a per share price equal to at least eighty
percent (80%) of the then Fair Market Value of such shares, as defined below.
"Fair Market Value" means the average of the daily closing prices for the ten
(10) trading days before the date of the Registration Notice (the "Registration
Notice Price"). The closing price for each day shall be the last sale price on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as officially reported
on the principal national securities exchange or national market system on which
such shares are then listed, admitted to trading or traded.
(c) The Company (and/or any person designated by the Company) shall
thereupon have the option exercisable by written notice delivered to Purchaser
within five (5) business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable Securities
proposed to be so sold for cash at a price equal to the product of (i) the
number of Registrable Securities to be so purchased by the Company and (ii) the
Registration Notice Price.
(d) Any purchase of Registrable Securities by the Company (or its
designee) under Section 5.3((c)) shall take place at a closing to be held at the
principal executive offices of the Company or at the offices of its counsel at
any reasonable date and time designated by the Company and/or such designee in
such notice within twenty (20) business days after delivery of such notice, and
any payment for the shares to be so purchased shall be made by delivery at the
time of such closing in immediately available funds.
(e) If the Company does not elect to exercise its option pursuant to
Section 5.3((c)) with respect to all Registrable Securities, it shall use all
commercially reasonable efforts to effect, as promptly as practicable, the
registration under the Securities Act of the unpurchased Registrable Securities
proposed to be so sold and to cause such registration to be declared effective
and such effectiveness maintained until the distribution of the Registrable
Securities thereunder is completed or for a period of 120 days, whichever is
shorter; provided, however, that (i) Purchaser shall not be entitled to demand
more than an aggregate of four (4) effective registration statements hereunder
if the Company is eligible to register the Registrable Securities on Form S-3
(or an equivalent or successor form), or two (2) effective registration
statements hereunder if the Company is not so eligible, and (ii) the Company
will not be required to file any such registration statement during any period
of time (not to exceed forty (40) days after such request in the case of clause
(A) below or ninety (90) days after such request in the case of clauses (B) and
(C) below) when (A) the Company is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed at
such time and, in the judgment of counsel to the Company, such information would
be required to be disclosed if a registration statement were filed at that time;
(B) the Company is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement; or (C) the Company determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other
transaction involving the Company or
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any of its material subsidiaries and that such transaction is material to the
Company and its subsidiaries taken as a whole.
(f) The Company shall use all commercially reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 5.3 to be
qualified for sale under the securities or Blue Sky laws of such jurisdictions
as Purchaser may reasonably request and shall continue such registration or
qualification in effect in such jurisdiction; provided, however, that the
Company shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 5.3 are subject
to the condition that Purchaser shall provide the Company with such information
with respect to its Registrable Securities, the plans for the distribution
thereof, and such other information with respect to Purchaser as, in the
reasonable judgment of counsel for the Company, is necessary to enable the
Company to include in such registration statement all material facts required to
be disclosed with respect to a registration thereunder.
(h) A registration effected under this Section 5.3 shall be effected
at the Company's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to Purchaser, and the Company shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as is customary in connection with
underwritten public offerings as such underwriters may reasonably require.
(i) In connection with any registration effected under this Section
5.3, the parties agree (A) to indemnify each other and the underwriters, if any,
in the customary manner, (B) if applicable, to enter into an underwriting
agreement in form and substance customary for transactions of such type with the
Manager and the other underwriters participating in such offering, and (C) to
take all further actions which shall be reasonably necessary to effect such
registration and sale (including if the Manager deems it necessary,
participating in road-show presentations).
(j) The Company shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 5.3 only if and to the extent the offering is firmly underwritten
and the Manager determines that such inclusion will not adversely affect the
prospects for success of such offering.
SECTION 6. MISCELLANEOUS
6.1 ENFORCEMENT COSTS. Company shall pay all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses Purchaser
expends or incurs in connection with the enforcement of this Agreement, the
collection of any sums due under the Note, any actions for declaratory relief in
any way related to this Agreement, or the protection or preservation of any
rights of the holder hereunder.
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6.2 BINDING AGREEMENT. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.6 NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
or upon deposit with the United States Post Office, postage prepaid, addressed
to the Company at 2850 Ocean Park Boulevard, Suite 100, Santa Monica, California
90405, or to a Purchaser at its address shown on the signature page below, or at
such other address as such party may designate by ten (10) days advance WRITTEN
NOTICE TO THE OTHER PARTY.
6.7 COURSE OF DEALING. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
6.8 ATTORNEYS' FEES. If any action relating to this Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
6.9 AMENDMENTS. Except as otherwise expressly permitted herein, this
Agreement may be amended only by a written instrument signed by both parties
hereto.
6.10 CALIFORNIA LAW AND JURISDICTION; JURY WAIVER. This Agreement shall be
governed by the laws of the State of California, without regard for choice of
law provisions. The Company and Purchaser consent to the exclusive jurisdiction
of any state or federal court located in Santa Clara County, California. THE
COMPANY AND PURCHASER EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE NOTE, THIS AGREEMENT,
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this NOTE PURCHASE AND
SECURITY AGREEMENT as of the date first written above.
COMPANY:
CYBERMEDIA, INC.
By: /s/ Kanwal Rekhi
-------------------------------------
Title: Chief Executive Officer and
Chairman of the Board
PURCHASER:
NETWORKS ASSOCIATES, INC.
By: /s/ Richard Hornstein
-------------------------------------
Title: Vice President, Legal Affairs and
Corporate Development
Networks Associates, Inc.
3965 Freedom Circle
Santa Clara, CA 95054
Attention: Chief Financial Officer
12
<PAGE> 14
EXHIBIT A
Secured Subordinated Convertible Promissory Note
1
<PAGE> 15
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
<S> <C> <C> <C>
1. Automatic Updating of Diverse Software Products 08/660,488 June 7, 1996
on Multiple Client Computer Systems
2. Method and Software Products for Continued 06/686,250 July 24, 1996
Application Execution after Generation of Fatal
Exceptions
</TABLE>
2
<PAGE> 16
EXHIBIT C
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
<S> <C> <C> <C>
1. CyberMedia UnInstaller Version 3.5
2. CyberMedia UnInstaller Version 4.0
3. CyberMedia UnInstaller Version 4.5
</TABLE>
3
<PAGE> 1
EXHIBIT 10
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH
RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION.
SECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$10,000,000 1:00 a.m. PDT, July 28, 1998
Santa Monica, California
For value received CYBERMEDIA, INC., a Delaware corporation
("Borrower"), promises to pay to NETWORKS ASSOCIATES, INC., a Delaware
corporation ("Holder"), or order, the principal sum of Ten Million Dollars
($10,000,000) together with accrued interest on the outstanding principal amount
at the applicable rate as follows. The balance of the unpaid principal and all
accrued interest thereon from time to time is the "Loan Amount."
1. SECURED NOTE. The repayment of this note (the "Note") is evidenced
and secured by that certain Note Purchase and Security Agreement of even date
herewith, executed by Borrower in favor of Holder (as the same may from time to
time be amended, modified or supplemented or restated, the "Security
Agreement"). Additional rights and remedies of Holder are set forth in the
Security Agreement. All capitalized terms used herein and not otherwise defined
herein shall have the meanings given to them in the Security Agreement.
2. PAYMENT. All payments shall be applied first to accrued interest,
and thereafter to principal.
(i) SCHEDULED PAYMENT. The principal indebtedness shall be payable
in full on the second anniversary of the date hereof. Interest shall be due and
payable in arrears on the first day of each calendar quarter and upon maturity
or prepayment of any principal amount, commencing on October 1, 1998.
(ii) ACQUISITION. The principal outstanding hereunder and the
interest accrued and unpaid shall be due and payable, without payment of any
premium or penalty, upon (i) the closing of the sale or transfer of all or
substantially all of Borrower's assets; or (ii) the closing of a merger or
consolidation of Borrower or other transaction or series of related transactions
in which Borrower's shareholders immediately prior to such transaction or
transactions do not own a majority of the voting securities of Borrower or the
surviving corporation, as applicable.
(iii) PREPAYMENT. Borrower may not prepay any part of the Loan
Amount without the prior written consent of Holder, unless and until that
certain Agreement and Plan of Merger by and among Holder and Borrower of even
date herewith (the "Merger Agreement") shall have been terminated in accordance
with its terms: Thereafter, Borrower shall have the right at any
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<PAGE> 2
time and from time to time, upon ten (10) business days' prior written notice to
Holder (during which notice period Holder will remain entitled to elect to
convert all or part of the Loan Amount in accordance with Section 4), to prepay,
in whole or in part, the principal of this Note, without payment of any premium
or penalty. Any principal prepayment shall be accompanied by a payment of all
interest accrued on the amount prepaid through the date of such prepayment.
(iv) FORM OF PAYMENT. Principal and interest and all other amounts
due hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
3. INTEREST. Interest shall accrue with respect to the principal sum
hereunder at the per annum rate equal to LIBOR (3-month) as in effect on the
first day of each calendar quarter, plus two percent (2%). However, if an Event
of Default, as defined herein, occurs, then interest shall accrue at the rate
per annum equal to two percent (2%) plus the rate that would otherwise be in
effect (the "Default Rate"). Interest payable hereunder shall be calculated on
the basis of a three hundred sixty (360) day year for actual days elapsed.
4. CONVERSION RIGHT.
(i) CONVERSION RIGHT. Holder shall have the right (the "Conversion
Right"), in its sole discretion, at any time and from time to time to elect to
convert all or any part of the Loan Amount into such number of fully paid and
nonassessable shares of Common Stock as determined by dividing the total amount
of the Loan Amount being converted by the Conversion Price. The Conversion Price
is Six Dollars and Sixty-Six Cents ($6.66) per share, subject to adjustment as
provided in below.
(ii) EXERCISE OF CONVERSION RIGHT. To convert any of the Loan Amount
into shares of Common Stock, Holder shall deliver to Borrower a written notice
of election to exercise the Conversion Right (the "Conversion Notice"). Borrower
shall, as soon as practicable thereafter, issue and deliver to Holder a
certificate or certificates, registered in Holder's name, for the number of
shares of Common Stock to which Holder shall be entitled by virtue of such
exercise (such shares the "Conversion Shares"). The conversion of the Loan
Amount shall be deemed to have been made on the date that Borrower receives the
Conversion Notice (the "Conversion Date") and Holder shall be treated for all
purposes as the record holder of the Conversion Shares as of such date.
(iii) FRACTIONAL SHARES. Borrower shall not issue fractional shares
of Common Stock or scrip representing fractional shares of Common Stock upon
exercise of the Conversion Right. As to any fractional share of Common Stock
which Holder would otherwise be entitled to purchase from Borrower upon such
exercise, Borrower shall purchase from Holder such fractional share at a price
equal to an amount calculated by multiplying such fractional share (calculated
to the nearest 1/100th of a share) by the fair market value of a share of Common
Stock on the Conversion Date. Payment of such amount shall be made in cash or by
check payable to the order of Holder at the time of delivery of any certificate
or certificates arising upon such exercise.
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<PAGE> 3
(iv) CONVERSION PRICE ADJUSTMENTS
(a) Adjustments for Stock Splits and Subdivisions. If Borrower
at any time or from time to time after the date hereof fixes a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of this Note shall be increased
in proportion to such increase of outstanding shares.
(b) ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of
shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
5. INSPECTION RIGHTS; CONFIDENTIALITY.
(i) INSPECTION RIGHTS. Until the Loan Amount is repaid in full, in
cash, or the Conversion Right is fully exercised, Holder shall be entitled to
visit and inspect Borrower's properties, to examine its books of account and
financial records and to discuss Borrower's financial affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
Holder; provided, however, that, unless an Event of Default has occurred and is
continuing, such visitation and inspection shall be limited to once per fiscal
quarter within two weeks of the Borrower's public announcement of its earnings
for such quarter.
(ii) CONFIDENTIALITY. Holder shall not disclose to any third party
any Confidential Information disclosed to Holder pursuant to this Section 5, or
use such Confidential Information other than for purposes of this Agreement,
except that (i) Holder may disclose Confidential Information to a third party to
the extent compelled by law, subpoena, civil investigative demand,
interrogatories or similar legal process, (ii) Holder may disclose Confidential
Information if such disclosure is required by Holder's reporting obligations
under federal securities laws, rules and regulations, and (iii) Holder may
disclose Confidential Information to a potential transferee of this Note,
provided that the potential transferee is not a competitor of Borrower and that
the potential transferee agrees to be bound by the same confidentiality
obligations as Holder under this Section 5. For purposes of this Note,
"Confidential Information" is information disclosed by Borrower to Holder
pursuant hereto that is not information which (i) becomes generally available to
the public, other than as a result of
3
<PAGE> 4
disclosure by Holder, (ii) was available on a non-confidential basis prior to
its disclosure to Holder by Borrower, or (iii) becomes available to Holder on a
non-confidential basis from a source other than Borrower.
6. REGISTRATION RIGHTS. The Conversion Shares shall be subject to the
Registration Rights provided in the Security Agreement.
7. COLLATERAL. The full amount of this Note is secured by the
Collateral identified and described as security therefor in the Security
Agreement. Borrower shall not, directly or indirectly, create, permit or suffer
to exist, and shall defend the Collateral against and take such other action as
is necessary to remove, any lien or encumbrance on or in the Collateral, or in
any portion thereof, except as permitted pursuant to the Security Agreement.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder:
(i) Borrower's breach of the obligation to pay any amount payable
hereunder within ten (10) days of the date of written notice from Holder to
Borrower of such breach;
(ii) Borrower's failure to perform, keep or observe any of its
covenants, conditions, promises, agreements or obligations under any agreement
with any third person or entity, after the expiration of any applicable grace
period under such agreement, or after any period of forbearance acknowledged in
writing by the other party to such agreement, if such failure has a material
adverse effect on Borrower's assets, operations or financial condition;
(iii) Borrower's institution of proceedings against itself, or
Borrower's filing of a petition or answer or consent seeking reorganization or
release, under the federal Bankruptcy Code, or any other applicable federal or
state law relating to creditor rights and remedies, or Borrower's consent to the
filing of any such petition or the appointment of a receiver, liquidation,
assignee, trustee or other similar official of Borrower or of any substantial
part of its property, or Borrower's making of an assignment for the benefit of
creditors, or the taking of corporate action in furtherance of such action;
(iv) the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or encumbrance upon any of the Collateral, other
than Permitted Liens and Liens in favor of Senior Debt, or the making or any
attempt to make any levy, seizure or attachment thereof and such lien,
encumbrance, levy, seizure or attachment has not been removed, discharged or
rescinded within ten (10) days after Borrower is notified of or learns of such
lien, encumbrance, levy, seizure or attachment;
(v) the occurrence and continuance of any default under any lease or
agreement for borrowed money that gives the lessor or the creditor of such
indebtedness, as applicable, the right to accelerate the lease payments or the
indebtedness, as applicable, in an amount in excess of $1,000,000 or the right
to exercise any rights or remedies with respect to any of the Collateral;
(vi) the entry of any judgment or order against Borrower in an
amount in excess of
4
<PAGE> 5
$1,000,000 which remains unsatisfied or undischarged and in effect for thirty
(30) days without a stay of enforcement or execution; or
(vii) the Borrower breaches any warranty or agreement made by the
Borrower in the Security Agreement and, as to any breach that is capable of
cure, the Borrower fails to cure such breach within twenty (20) days of notice
from Holder of the occurrence of such breach.
9. RIGHTS AND REMEDIES ON EVENT OF DEFAULT.
(i) During the continuance of an Event of Default, Holder shall have
the right, itself or through any of its agents, with or without notice to
Borrower (as provided below), as to any or all of the Collateral, by any
available judicial procedure, or without judicial process (provided, however,
that it is in compliance with the California Uniform Commercial Code), to
exercise any and all rights afforded to a secured party under the California
Uniform Commercial Code or other applicable law. Without limiting the generality
of the foregoing, Holder shall have the right to sell or otherwise dispose of
all or any part of the Collateral, either at public or private sale, in lots or
in bulk, for cash or for credit, with or without warranties or representations,
and upon such terms and conditions, all as Holder, in its sole discretion, may
deem advisable, and it shall have the right to purchase at any such sale.
Borrower agrees that a notice sent at least fifteen (15) days before the time of
any intended public sale or of the time after which any private sale or other
disposition of the Collateral is to be made shall be reasonable notice of such
sale or other disposition. The proceeds of any such sale, or other Collateral
disposition shall be applied, first to the reasonable expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like, and
to Holder's reasonable attorneys' fees and legal expenses, and then to the
repayment hereof and to the payment of any other amounts required by applicable
law, after which Holder shall account to Borrower for any surplus proceeds. If,
upon the sale or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which Holder is legally entitled, Borrower
shall be liable for the deficiency, together with interest thereon at the
Default Rate, and the reasonable fees of any attorneys Holder's employs to
collect such deficiency; provided, however, that the foregoing shall not be
deemed to require Holder to resort to or initiate proceedings against the
Collateral prior to the collection of any such deficiency from Borrower. To the
extent permitted by applicable law, Borrower waives all claims, damages and
demands against Holder arising out of the retention or sale or lease of the
Collateral or other exercise of Holder's rights and remedies with respect
thereto.
(ii) To the extent permitted by law, Borrower covenants that it will
not at any time insist upon or plead, or in any manner whatever claim or take
any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisal of the Collateral or any part thereof, prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or the decree,
judgment or order of any court of competent jurisdiction; or, after such sale or
sales, claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, hereby expressly waives all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law
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<PAGE> 6
or laws or otherwise hinder, delay or impede the execution of any power herein
granted and delegated to Holder, but will suffer and permit the execution of
every such power as though no such power, law or laws had been made or enacted.
(iii) Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all Borrower's right,
title, interest, claim and demand whatsoever, either at law or in equity, in and
to the Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(iv) Borrower appoints Holder, and any officer, employee or agent of
Holder, with full power of substitution, as Borrower's true and lawful
attorney-in-fact, effective as of the date hereof, with power, in its own name
or in the name of Borrower, during the continuance of an Event of Default, to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Holder's possession, to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to Collateral; to pay or
discharge taxes or Liens at any time levied or placed on or threatened against
the Collateral; to demand, collect, issue receipt for, compromise, settle and
sue for monies due in respect of the Collateral; to notify persons and entities
obligated with respect to the Collateral to make payments directly to Holder;
and, generally, to do, at Holder's option and at Borrower's expense, at any
time, or from time to time, all acts and things which Holder deems necessary to
protect, preserve and realize upon the Collateral and Holder's security interest
therein to effect the intent of this Note, all as fully and effectually as
Borrower might or could do; and Borrower hereby ratifies all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
shall be irrevocable as long as any of the Loan Amount is outstanding.
(v) All of Holder's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements, instruments
or documents or by law shall be cumulative and may be exercised singly or
concurrently.
10. SUBORDINATION.
(i) SUBORDINATION TO SENIOR DEBT.
(a) PAYMENT LIMITATIONS. Holder, by accepting this Note, agrees
for itself and its successors and assigns that payment of principal, interest
and other amounts due to Holder under this Note is subordinated in right of
payment to the prior payment in full in cash (or cash equivalents) of the Senior
Debt on the terms set forth herein.
(b) LIEN SUBORDINATION. Any Lien of Holder on any assets or
property of Borrower or any proceeds or revenues therefrom which Holder may have
at any time as security for any amounts due and obligations under this Note
shall be subordinate to all Liens now or hereafter granted to a holder of Senior
Debt by Borrower or by law, notwithstanding the date or order of attachment or
perfection of any such Lien or the provisions of any applicable law. Until
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<PAGE> 7
payment in full in cash of all of Senior Debt, Holder agrees that a holder of
Senior Debt may dispose of any or all of the collateral for the Senior Debt held
by such holder free and clear of any and all Liens in favor of Holder in
accordance with applicable law including taking title to such collateral after
notice to Holder. Holder agrees that any such sale or other disposition by a
holder of Senior Debt as is necessary to satisfy in full, all of the principal
of, interest on and reasonable costs of collection of the Senior Debt shall be
made free and clear of any Lien granted to Holder, provided that the entire
proceeds (after deducting reasonable expenses of sale) are applied to reduce the
Senior Debt. Upon the request of a holder of Senior Debt, Holder shall execute
and deliver or cause to be executed and delivered any releases or other
documents and agreements that a holder of Senior Debt may reasonably request to
dispose of the collateral for the Senior Debt free of any Lien of Holder in such
collateral.
(ii) PERMITTED PAYMENTS. Notwithstanding the subordination of the
Note to the Senior Debt hereunder, (i) principal of the Note may be paid to
Holder as it becomes due and payable, without acceleration, in accordance with
the terms hereof, as amended from time to time in accordance with the terms
hereof, (ii) accrued interest with respect to the Note may be paid to Holder as
such interest becomes due and payable in accordance with the terms hereof, as
amended from time to time in accordance with the terms hereof, and (iii) other
fees, expenses or other amounts payable under or with respect to the Note may be
paid to Holder as such fees, expenses and amounts become due and payable,
without acceleration, in accordance with the terms hereof, as amended from time
to time in accordance with the terms hereof, provided that, in the case of each
such Note payment, on the date of payment such payments are not prohibited
pursuant to Section 10(iii), Section 10(iv), Section 10(v), or Section 10(vii).
(iii) SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION
OF BORROWER.
(a) PRIORITY OF PAYMENT UPON DISTRIBUTION OF ASSETS. Upon any
Distribution of Assets in the event of any dissolution or winding up or total or
partial liquidation or reorganization, whether voluntary or involuntary, or
adjustment or protection or relief or composition of Borrower or Borrower's
debts, or in any bankruptcy, insolvency, receivership, arrangement,
reorganization, relief or other proceeding of Borrower or upon an arrangement
for the benefit of creditors of Borrower or any other marshaling of the assets
and liabilities of Borrower:
A. all amounts payable under or on account of the Senior
Debt shall first be paid in full, in cash or cash equivalents, before Holder
shall be entitled to receive any Distribution of Assets with respect to the
Note; and
B. before any payment may be made on account of the
Note, any such Distribution of Assets to which Holder would be entitled, except
for the provisions of this Section 10(iii)(a), shall be made directly to
Senior Debtholders to the extent necessary to pay all Senior Debt in full, in
cash or cash equivalents, after giving effect to any concurrent payment or
distribution to Senior Debtholders.
(b) NOTICE OF DISTRIBUTION OF ASSETS. Borrower shall give
prompt written notice to Senior Debtholders and Holder of any Distribution of
Assets of the nature described in
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<PAGE> 8
this Section 10(iii).
(d) HOLDER RELIANCE. Upon any Distribution of Assets, Holder
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation,
bankruptcy or reorganization proceeding is pending, or a certificate of the
liquidating trustee or the Senior Debtholders or other Person making such
distribution to Holder, for the purpose of ascertaining the Persons entitled to
participate in such Distribution of Assets, the Senior Debtholders, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto and this Section 10(iii).
(iv) SUBORDINATION ON SENIOR PAYMENT DEFAULT. If there has occurred
and is continuing a Senior Payment Default, the obligation of Borrower to make
payment under or on account of the Note, directly or indirectly, in cash or
other property or by set-off or in any other manner, shall be suspended for the
period commencing upon the date Senior Debtholder notifies Holder of the
commencement of such period, which notice shall either be: (1) in writing,
including telex, telegram, telecopy or other form of electronic transmission; or
(2) telephonic, in which case a written confirmation thereof complying with
clause (1) above must be delivered to Holder on or prior to the date upon which
the payment would otherwise be due and payable in order for such telephonic
notice to be sufficient and within five (5) Business Days after such telephonic
notice is given. Such payment suspension period shall continue until (1) the
Senior Payment Default is cured or waived by Senior Debtholder or (2) Senior
Debtholder waives the benefit of this subsection (ii), unless Senior Debtholder
accelerates payment of the Senior Debt, in which case the obligation of Borrower
to make payment under or on account of the Note shall continue to be suspended
under this Section 10(iv) until such acceleration is rescinded by Senior
Debtholder.
(v) SUBORDINATION ON NONPAYMENT DEFAULT. If there has occurred and
is continuing a Senior Default which is not a Senior Payment Default, the
obligation of Borrower to make payment under or on account of the Note, directly
or indirectly, in cash or other property or by set-off or in any other manner,
may be suspended by Senior Debtholder for the period and in the manner specified
below (the "Standstill Period"). The Standstill Period shall commence upon the
date Senior Debtholder notifies Holder of the commencement of such period (a
"Standstill Notice"), which notice shall either be: (1) in writing, including
telex, telegram, telecopy or other form of electronic transmission; or (2)
telephonic, in which case a written confirmation thereof complying with clause
(1) above must be delivered to Holder on or prior to the date upon which the
payment would otherwise be due and payable in order for such telephonic notice
to be sufficient and within five (5) Business Days after such telephonic notice
is given. So long as the Senior Debt is not totally accelerated by Senior
Debtholder, the Standstill Period shall end on the earlier of (1) the waiver of
the Senior Default by Senior Debtholder, (2) the cure of the Senior Default, or
(3) the one hundred-eightieth (180th) calendar day after the commencement of the
Standstill Period; if the Senior Debt is totally accelerated, the Standstill
Period shall end on the earlier of (1) recission of the acceleration, or (2)
payment in full of the Senior Debt. No more than one (1) Standstill Period can
be declared in any 360-day period.
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<PAGE> 9
(vi) DISCONTINUANCE OF PAYMENT BLOCK. Immediately following the
expiration of any payment suspension period under Section 10(iv) or any
Standstill Period under Section 10(v), all installments of Note which, but for
such suspension, would have become due and payable, shall become immediately due
and payable. Notwithstanding anything to the contrary contained herein, Borrower
may pay and Holder may demand, sue for, or take and retain any payment on the
Note before notice of a payment suspension is given to Holder in accordance with
Section 10(iv) and before a Standstill Notice is given to Holder in accordance
with Section 10(v).
(vii) FORBEARANCE BY HOLDER. Until the Senior Debt is paid in full,
in cash or cash equivalents, or unless requested by Senior Debtholder, Holder
shall not without Senior Debtholder's prior written consent, given in its sole
and absolute discretion: (i) assert, collect or enforce the Note or any of the
amounts due thereunder, exercise any right of set-off; (ii) exercise its right
of possession of any Collateral securing the Note or attach, seize, or realize
upon any Collateral securing the Note or enforce any lien against the
Collateral; (iii) exercise any right under the California Uniform Commercial
Code, including, but not limited to, the right of strict foreclosure, but
excluding the right of redemption; or (iv) commence, or cause to commence,
prosecute or participate in (other than participate in an action, once
commenced, to protect and pursue its rights and remedies as, for example,
exercising its rights in a bankruptcy proceeding) any administrative, legal or
equitable action against Borrower or any administrative, legal or equitable
action that might adversely affect Borrower or its interest, including, but not
limited to, the entry of a decree or order for relief in respect of Borrower
under the Bankruptcy Code or any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect or the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
Borrower or for any substantial part of the Assets; provided, however, that
Holder may undertake any of the above actions following the passage of one
hundred eighty (180) days after Holder or its agents have given written notice
to Senior Debtholder of the intent to take such action.
(viii) DISPOSITION OF COLLATERAL. Upon any foreclosure upon, or
realization or collection in respect of any Collateral whether such action is
taken by or on behalf of Senior Debtholder or Holder or otherwise, all Senior
Debt shall first by satisfied in full in cash or cash equivalents before Holder
shall be entitled to receive or retain any proceeds or assets from such
foreclosure, realization or collection.
(ix) SUBROGATION. Subject to the payment in full of all Senior Debt
in cash or cash equivalents, Holder shall be subrogated to the Senior
Debtholders' rights (to the extent of the payments or distributions made to the
Senior Debtholders pursuant to the provisions of this Section 10 to receive
payments and Distributions of Assets applicable to the Senior Debt. No such
payments or Distributions of Assets applicable to the Senior Debt shall, as
between Borrower and its creditors, other than the Senior Debtholders and
Holder, be deemed to be a payment by Borrower to or on account of this Note; and
for purposes of such subrogation, no payments or Distributions of Assets to the
Senior Debtholders to which Holder would be entitled except for the provisions
of this Section 10 shall, as between Borrower and its creditors, other than the
Senior Debtholders and Holder, be deemed to be a payment by Borrower to or on
account of the Senior Debt.
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<PAGE> 10
(x) NO IMPAIRMENT. Nothing contained in this Section 10 shall
impair, as between Borrower and Holder, the obligation of Borrower, subject to
the terms and conditions of this Section 10, to pay to Holder the principal
hereof and interest hereon as and when the same become due and payable, or shall
prevent Holder, upon an Event of Default, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, subject to the Senior
Debtholders' rights under this Section 10.
(xi) RELIANCE OF SENIOR DEBTHOLDERS. Holder, by its acceptance
hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each Senior Debtholder, whether such Senior Debtholder's Senior
Debt was created or acquired before or after the creation of the indebtedness
evidenced by this Note, and each such Senior Debtholder shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt.
(xii) NO IMPAIRMENT OF SUBORDINATION. No right of any present or
future Senior Debtholder to enforce the subordination provisions of this Section
10 shall at any time in any way be prejudiced or impaired by any act or failure
to act on Borrower's part or by any act or failure to act, in good faith, by
such Senior Debtholder, or by any noncompliance by Borrower with the terms,
provisions and covenants of this Note or the Purchase Agreement, regardless of
any knowledge thereof which such Senior Debtholder may have or otherwise be
charged with.
(xiii) AMENDMENT RESTRICTIONS. No amendment of this Note shall
directly or indirectly modify the provisions of this Section 10 in any manner
which might terminate or impair the subordination of the Note to the Senior
Debt; provided, however, that such amendments may be effected with the written
consent of the Senior Debtholders.
(xiv) DISGORGEMENT. If, at any time after payment in full of the
Senior Debt any payments of the Senior Debt must be disgorged by a Senior
Debtholder for any reason (including, without limitation, Borrower's
bankruptcy), this Note and the relative rights and priorities set forth herein
shall be reinstated as to all such disgorged payments as though such payments
had not been made and Holder shall immediately pay over to Senior Debtholder all
payments received with respect to the Note to the extent that such payments
would have been prohibited hereunder.
(xv) SENIOR DEBTHOLDER ACTIONS. At any time and from time to time,
without notice to Holder, Senior Debtholders may take such actions with respect
to the Senior Debt as Senior Debtholders, in their sole discretion, may deem
appropriate, including, without limitation, terminating advances to Borrower,
increasing the principal amount, extending the time of payment, increasing
applicable interest rates, renewing, compromising or otherwise amending the
terms of any documents affecting the Senior Debt and any collateral securing the
Senior Debt, and enforcing or failing to enforce any rights against Borrower or
any other party. No such action or inaction shall impair or otherwise affect
Senior Debtholders' rights under the subordination provisions of this Note.
Holder waives the benefits, if any, of California Civil Code Sections 2809,
2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
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<PAGE> 11
(xvi) DEFINITIONS. For purposes of this Section 10, the following
terms shall have the following meanings:
"Distribution of Assets": any distribution of Borrower's
assets of any kind or character, whether in cash, property, or securities, and
whether in respect of repayment of indebtedness or otherwise, including, but not
limited to, adequate protection payments under the Bankruptcy Code.
"Lien": any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge or
other encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge or other encumbrance of any kind.
"Permitted Liens": means the following:
(a) Any Liens existing on the Closing Date disclosed in the
Merger Agreement or arising under this Agreement;
(b) Leases or subleases and licenses and sublicenses granted
to others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower, and any interest or title of a
lessor or licensor under any such lease or license;
(c) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were or are acquired by
Borrower (including Liens on assets of any corporation that existed at the time
it became or becomes a Subsidiary); provided such Liens are not granted in
contemplation of or in connection with the acquisition of such asset by
Borrower;
(d) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8(vi);
(e) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not materially interfering with the
business of Borrower;
(f) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payments of customs duties in connection with the
importation of goods;
(g) Liens which constitute rights of set-off of a customary
nature or banker's Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with arrangements entered into
with banks in the ordinary course of business;
(h) Liens on insurance proceeds in favor of insurance
companies granted solely as security for financed premiums;
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<PAGE> 12
(i) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings; and
(j) Liens (i) upon or in any equipment acquired or held by
Borrower to secure the purchase price of such equipment or indebtedness incurred
solely for the purpose of financing the acquisition of such equipment, or (ii)
existing on such equipment at the time of its acquisition, provided that the
Lien is confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment.
"Person": any natural person, sole proprietorship, general
partnership, limited partnership, joint venture, trust, unincorporated
organization, association, corporation, governmental or public authority, or any
other organization, irrespective of whether it is a legal entity.
"Senior Debt": the principal of (and premium, if any) and
unpaid interest on and other indebtedness under (i) indebtedness of Borrower,
whether outstanding on the date hereof or hereafter created, to banks, insurance
companies, lease financing institutions, savings and loan associations, credit
unions, or holding companies or subsidiaries thereof, which is for money
borrowed (or purchase or lease of equipment in the case of lease financing) by
Borrower, including any indebtedness incurred after the filing of a petition
with respect to Borrower under the Bankruptcy Code (including any interest
accruing with respect to any such indebtedness after the filing of any such
petition whether or not allowed or allowable as a claim in the bankruptcy
proceeding), and (ii) obligations of Borrower as lessee under leases required to
be capitalized on the balance sheet of the lessee under GAAP and leases of
property or assets made as part of any sale and lease-back transaction to which
Borrower is a party, and (iii) any deferrals, renewals or extensions of any such
indebtedness or any debentures, notes or other evidence of indebtedness issued
in exchange for such Senior Debt; provided, however, that the aggregate
principal amount of the Senior Debt outstanding shall not exceed Six Million
Dollars ($6,000,000).
"Senior Debtholder": any holder of the Senior Debt.
"Senior Default": any event of default or default with
respect to any of the Senior Debt.
"Senior Payment Default": a default in payment of principal,
interest or premium which constitutes a Senior Default.
11. COSTS OF COLLECTION. In the event of any default hereunder,
Borrower shall pay all reasonable attorneys' fees and court costs incurred by
Holder in enforcing and collecting this Note.
12. HOLDER'S RIGHTS; BORROWER WAIVERS. Holder's acceptance of partial
or delinquent payment from Borrower hereunder, or Holder's failure to exercise
any right hereunder, shall not constitute a waiver of any obligation of Borrower
hereunder, or any right of Holder hereunder, and shall not affect in any way the
right to require full performance at any time thereafter. Except as otherwise
specifically provided herein, Borrower waives presentment, diligence,
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<PAGE> 13
demand of payment, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
13. GOVERNING LAW. The terms of this Note shall be construed in
accordance with the laws of the State of California, as applied to contracts
entered into by California residents within the State of California, which
contracts are to be performed entirely within the State of California.
13
<PAGE> 14
14. AMENDMENT. Any term of this Note may be amended or waived with the
written consent of Borrower and Holder.
BORROWER:
CYBERMEDIA, INC.
a Delaware Corporation
By: /s/ Kanwal Rekhi
-----------------------------
Name: Kanwal Rekhi
Title: Chief Executive Officer and
Chairman of the Board
14
<PAGE> 1
EXHIBIT 11
EXECUTIVE EMPLOYMENT POLICY
I PURPOSE
To provide a consistent and fair policy and practice in the event of
employment termination of a Company Executive.
In the event of an Executive termination the Board of Directors of the
Company (the "Board") believes it is in the best interests of the
Company and the Executive to provide for a smooth transition and a well
defined and understood separation policy.
Also, it is expected that the Company from time to time may consider
the possibility of an acquisition by another company or other change of
control. The Board believes that it is in the best interests of the
Company and its shareholders to provide certain Executives with an
incentive to continue employment and to maximize the value of the
Company upon a Change of Control for the benefit of its shareholders.
In order to achieve these above purposes, the Company hereby implements
this Executive Employment Policy.
II ORGANIZATIONAL UNITS AFFECTED
All Company locations and all departments.
III SCOPE
All Executives as defined herein.
IV EFFECTIVE DATE
This Policy is effective as of June 10, 1998, as amended on July 25,
1998 (the "Effective Date").
V DEFINITIONS
A. Executive
"Executive" shall mean an individual employed as a Vice
President with Company at the time of his or her termination,
who, in the event of Change of Control, has been employed as a
Vice President with the Company for at least three (3)
consecutive months immediately prior to a
1
<PAGE> 2
Change of Control.
B. Cause
"Cause" means (i) any act of fraud, misappropriation,
embezzlement, or other act of material and unlawful dishonesty
taken by the Executive against the Company; (ii) the
conviction of a felony which the Company reasonably believes
had or will have a material detrimental effect on the
Company's reputation or business, (iii) any act by the
Executive which constitutes gross misconduct and is injurious
to the Company; and (iv) any act by the Executive which the
Company determines constitutes a breach of security and is
injurious to the Company.
C. Termination without Cause
"Termination without Cause" means 1) any termination of the
Executive initiated by the Company unless Cause is the grounds
for termination, 2) any termination of Executive, initiated by
Executive, for a reason that constitutes a Constructive
Termination, or 3) a termination, initiated by Executive,
because any successor to the Company fails to assume the
obligations under this Policy. Notwithstanding the foregoing,
the term "Termination without Cause" shall not mean any
termination of Executive due to the Executive's death,
retirement, or Permanent Disability.
D. Constructive Termination
"Constructive Termination" means the occurrence of any of the
following conditions, without the Executive's written consent,
which conditions(s) remain(s) in effect 20 days after written
notice to the Board from the Executive of such condition(s):
(a) a decrease in the Executive's base salary, or material
decrease in the Executive's annual target bonus, quarterly
bonus, or employee benefits; (b) a material decrease in
Executive's position, authority, duties and responsibilities;
or (c) the relocation of the Executive to a facility or
location more than thirty (30) miles from the Executive's
then-existing facility or location.
E. Change of Control
"Change of Control" means the occurrence of any of the
following events: (i) a merger or consolidation involving the
Company in which the
2
<PAGE> 3
shareholders of the Company immediately prior to such merger
or consolidation own less than fifty percent of the voting
power of the surviving corporation; (ii) the sale of all or
substantially all, of the assets of the Company; or (iii) any
person, (as defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or group (within the meaning of
Rule 13d of the Exchange Act) becoming the beneficial owner
(within the meaning of Rule 13d-3 of the Exchange Act) of
securities representing more than fifty percent of the voting
power of the Company then outstanding.
E. Termination due to Change of Control
"Termination due to Change of Control" means a Termination
without Cause, as defined herein, that occurs within one (1)
year after a Change of Control, as defined herein.
F. Permanent Disability
"Permanent Disability" means that (i) the Executive has been
incapacitated by bodily injury or disease so as to be
prevented thereby from engaging in the performance of the
Executive's duties; (ii) such total incapacity shall have
continued for a period of six (6) consecutive months; and
(iii) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of
the Executive's life.
VI PROCEDURE
A. Eligibility for Severance Benefits
In the event that Executive undergoes (i) Termination due to
Change of Control or (ii) a Termination without Cause in the
event no Change of Control has occurred, then Executive shall
be entitled to the following severance benefits. Only one
instance of each of these severance benefits shall be given
upon termination to each Executive.
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<PAGE> 4
1. Lump sum payment equal to six (6) months of
Executive's annual base salary in effect immediately
prior to termination, reduced as provided in Section
VI(B) of this Policy, if applicable, reduced by the
amount of pay Executive receives in lieu of notice
under the Worker Adjustment and Retraining Act, if
applicable, and subject to all applicable withhold
and employment taxes.
2. If the Executive elects COBRA continuation coverage
pursuant to federal law, Company shall pay
Executive's COBRA premiums for a six (6) month period
after such termination.
3. In addition to any vesting or accelerated vesting
under Company's Stock Plans, all Executive's unvested
stock options shall immediately vest as if the
Executive were employed for an additional twelve (12)
months. Executive shall have ninety (90) days
following the termination date to exercise vested
shares. The period to exercise shall extend, but only
as long as necessary in order to allow Executive to
exercise without violating regulatory trading rules.
4. Within ten (10) days of submission of proper expense
reports by Executive, the Company shall reimburse the
Executive for all expenses reasonably and necessarily
incurred by the Executive in connection with the
business of the Company prior to his/her termination
of employment.
5. The Executive shall receive the benefits, if any,
under the Company's
4
<PAGE> 5
401(k) Plan, employee bonus plans, employee stock
purchase plans and other Company benefit plans to
which the Executive may be entitled pursuant to the
terms of such plans. The Executive's participation
and rights in other benefit plans as may be provided
by the Company at the time of his/her termination of
employment shall be governed solely by the terms and
conditions of such other plans, if any.
6. All other wages and vacation accrued through the date
of termination shall be paid, but there shall be no
proration of incentive bonus unless "earned" under
the provision of the applicable incentive bonus plan.
B. Offsetting Severance Plan Benefits
Notwithstanding any other provision in the Policy to the
contrary, the benefits provided hereunder shall be in lieu of
any other severance plan benefits provided by the Company
under any other plan, policy, or agreement, such that the
severance benefits payable under this Policy shall be reduced
by any severance paid or payable to the Executive by the
Company under any other plan, policy or agreement; provided
however, that if an Executive is entitled under any prior
written and executed agreement to severance benefits that are
greater than the severance benefits provided under this
Policy, Executive shall not forfeit his/her rights to the
difference between the severance benefits provided under such
agreement and the severance benefits provided under this
Policy.
C. Successors and Assigns
The Company shall require any successor to all or
substantially all of the Company's business and/or assets
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to assume the obligations under
this Policy in the same manner and to the same extent as the
Company would be required to perform such obligations in the
absence of a succession. Failure of such successor to assume
and honor the obligations under this agreement shall be a
breach of this agreement and shall entitle Executive to
terminate Executive's employment and receive compensation from
the Company in the same amount and on the same terms to which
Executive would be entitled hereunder in accordance with a
Termination without Cause.
D. Integration
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<PAGE> 6
This Policy, which when countersigned by the Executive shall
be a binding Agreement between the parties, shall supersede
all prior agreements, arrangements and understandings, whether
written or oral, regarding the subject matter of this Policy
and shall be the exclusive agreement for the determination of
any payments and accelerated option vesting due upon the
Executive's termination of employment with Company or its
successors; provided however, that if an Executive is entitled
under any prior written and executed agreement to severance
benefits that are greater than the severance benefits provided
under this Policy, Executive shall not forfeit his/her rights
to that difference between the severance benefits provided
under such agreement and the severance benefits provided under
this Policy.
E. At-Will Employment
Nothing in the foregoing diminishes or alters Company policy
of at-will employment for all employees, where both the
Company and Executive may terminate the employment
relationship at any time and for any reason, with or without
cause or notice.
F. Policy Exceptions
There are no exceptions to this policy unless the policy is
amended in writing and signed by an authorized Company
official.
Approved: Agreed and Accepted by Executive:
- ------------------------------
Nancy M. Tullos Name:
Vice President, Human Resources Title:
Approved: Approved:
- ------------------------------ -------------------------------
Jim Tolonen Kanwal Rekhi
President/Chief Operating Officer Chairman/Chief Executive Officer
6
<PAGE> 1
EXHIBIT 12
[CyberMedia Letterhead]
August 3, 1998
To Our Stockholders:
On behalf of the Board of Directors of CyberMedia, Inc. (the
"Company"), we are pleased to inform you that on July 28, 1998, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Networks Associates, Inc. and Cyclone Acquisition Corp., its wholly owned
subsidiary, pursuant to which Cyclone Acquisition Corp. today has commenced a
cash tender offer (the "Offer") to purchase all of the outstanding shares (the
"Shares") of the Common Stock of the Company at $9.50 per share. Under the
Merger Agreement, upon satisfaction of certain conditions, the Offer will be
followed by a merger (the "Merger") in which any remaining shares of the Common
Stock of the Company will be converted into the right to receive $9.50 per share
in cash, without interest (except any Shares as to which the holder has properly
exercised dissenter's rights of appraisal). Stockholders owning approximately
21% of the Company's outstanding Shares have agreed to tender their Shares in
the Offer.
THE COMPANY BOARD HAS UNANIMOUSLY (A) DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE
OFFER AND MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS OF THE
SHARES, (B) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, AND (C) RESOLVED TO RECOMMEND THAT THE STOCKHOLDERS OF
THE COMPANY ACCEPT THE OFFER AND APPROVE AND ADOPT THE MERGER AGREEMENT AND
APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Solicitation/
Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") that is being
filed today with the Securities and Exchange Commission. Among other things, the
Board of Directors considered the opinion of its financial advisor, Hambrecht &
Quist LLC, that the consideration to be received by the holders of Shares in the
Offer and Merger is fair to such holders from a financial point of view.
In addition to the attached Schedule 14D-9, enclosed also is the Offer
to Purchase dated August 3, 1998, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
shares pursuant to the Offer.
On behalf of the Board of Directors,
Kanwal Rekhi
Chief Executive Officer and
Chairman of the Board
<PAGE> 1
EXHIBIT 13
[HAMBRECHT & QUIST LLC LETTERHEAD]
July 28, 1998
Confidential
The Board of Directors
CyberMedia, Inc.
2850 Ocean Park Blvd.
Santa Monica, CA 90405
Gentlemen:
You have requested our opinion as to the fairness from a financial
point of view to the holders of the outstanding shares of common stock (the
"Common Stock") of CyberMedia, Inc. ("CyberMedia" or the "Company") of the
consideration to be received by such shareholders in connection with a proposed
transaction as set forth below.
We understand that CyberMedia, Network Associates, Inc. ("Network
Associates") and Cyclone Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of Network Associates, propose to enter into an Agreement and Plan of
Merger (the "Agreement") dated as of July 28, 1998. The terms of the Agreement
provide, among other things, that (i) Merger Sub will promptly commence a tender
offer (the "Offer") to purchase for cash all of the outstanding shares of Common
Stock at a purchase price of $9.50 per share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Agreement and certain
ancillary documents to be filed with the Securities and Exchange Commission; and
(ii) the Merger Sub will subsequently be merged (the "Merger") with and into the
Company in a transaction which will provide the remaining holders of shares of
Common Stock (other than Network Associates, CyberMedia, the Merger Sub or their
respective subsidiaries, and holders who have perfected their appraisal rights,
if any, under Delaware law) with $9.50 per share in cash. The Offer and the
Merger constitute the "Proposed Transaction."
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and
<PAGE> 2
The Board of Directors
CyberMedia, Inc.
July 28, 1998
Page 2
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of CyberMedia in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
In the past, we have provided investment banking and other financial
advisory services to CyberMedia and have received fees for rendering these
services. In particular, Hambrecht & Quist acted as lead managing underwriter in
the Company's initial public offering in 1996. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of CyberMedia and receives customary compensation in
connection therewith, and also provides research coverage for CyberMedia. In the
ordinary course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of CyberMedia for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Network Associates.
In connection with our review of the Proposed Transaction, and in
arriving at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
of Network Associates for recent years and interim periods to date and certain
other relevant financial and operating data of Network Associates made available
to us from published sources;
(ii) reviewed the publicly available consolidated financial statements
of CyberMedia for recent years and interim periods to date and certain other
relevant financial and operating data of CyberMedia made available to us from
published sources and from the internal records of CyberMedia;
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to CyberMedia prepared by the management
of CyberMedia;
(iv) discussed the business, financial condition and prospects of
CyberMedia with certain of its officers;
(v) reviewed the recent reported prices and trading activity for the
common stocks of CyberMedia and compared such information and certain financial
information for CyberMedia with similar information for certain other companies
engaged in businesses we consider comparable;
<PAGE> 3
The Board of Directors
CyberMedia, Inc.
July 28, 1998
Page 3
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vii) reviewed the Agreement; and
(viii) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of all of the information concerning Network Associates or
CyberMedia considered in connection with our review of the Proposed Transaction,
and we have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of Network Associates or CyberMedia; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections made available
to us and used in our analysis, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of Network Associates and CyberMedia. For purposes of this opinion,
we have assumed that neither Network Associates nor CyberMedia is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board
of Directors in connection with its review of the Proposed Transaction and may
not be used for any other purpose without our prior written consent; provided,
however, that this letter may be reproduced in full in any filings with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934. This letter does not constitute a recommendation to any stockholder as
to whether such stockholder should accept the Offer.
Based upon and subject to the foregoing and after considering such
other matters as we deem relevant, we are of the opinion that as of the date
hereof the consideration to be received by the holders of the Common Stock in
the Proposed Transaction is fair to such holders from a financial point of view.
We express no opinion, however, as to the adequacy or financial fairness of any
consideration received in the Proposed Transaction by Network Associates or its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ David G. Golden
----------------------------
David G. Golden
Managing Director
<PAGE> 1
EXHIBIT 14
[Hambrecht & Quist LLC Letterhead]
June 9, 1998
Confidential
Network Associates, Inc.
3965 Freedom Circle
Santa Clara, CA 95054
Attention: Bill Larson
Chairman & CEO
Dear Bill:
In connection with your consideration of a possible transaction
involving CyberMedia, Inc. (the "Company"), you have received or may at your
request receive from the Company or its advisors following the date hereof
certain non-public, proprietary information containing valuable and confidential
trade secrets and other technical and financial data about the Company (the
"Confidential Information"). Unauthorized disclosure of the Confidential
Information would cause substantial and irreparable damage to the business and
competitive position of the Company. The Confidential Information is being
provided to you in confidence for the term of this Letter in accordance with the
following terms and conditions:
1. The Confidential Information is being provided to you solely for
the purpose of enabling you to make an evaluation of your possible participation
in a transaction currently under consideration involving the Company (the
"Permitted Use").
2. Without the prior written consent of the Company, you shall not
(a) disclose to any third party the fact that the Company has provided any
Confidential Information to you or that you are exploring the possibility of
participating in a possible transaction involving the Company or that such a
transaction is the subject of consideration (such information set forth in this
subparagraph (a) being herein included as Confidential Information); (b)
disclose to any third party any or all of the Confidential Information or permit
any such third party to have access to the Confidential Information or (c) use
the Confidential Information for any purpose other than the Permitted Use. You
shall only disclose the Confidential Information to those of your employees,
agents and advisors who shall reasonably need to know and who agree to be bound
by the terms of this Letter. Such disclosure shall be made only to the extent
necessary in
<PAGE> 2
Network Associates, Inc.
June 9, 1998
Page 2
order to prepare the above-mentioned evaluation or to make decisions or render
advice in connection therewith.
3. The aforesaid obligations assumed by you hereunder shall not apply
to any of the Confidential Information (except as contained in paragraph 2(a))
which falls within either of the following:
a. Confidential Information which has come within the public domain
through no fault of or action by you; or
b. Confidential Information which is in your possession on
the date hereof or is obtained, after the date hereof, by you from any third
party, provided that such Confidential Information was obtained by or provided
to you lawfully and not in violation of any contractual or legal obligation of
any person to the Company.
Notwithstanding the above, nothing herein shall prevent you from disclosing
Confidential Information which you are required to disclose by court order or
pursuant to the rules and regulations of a governmental agency or body, in
either case having jurisdiction over you, to the extent so required by such
court order or the published rules and regulations of such governmental
authority; provided, however, that prior to any such disclosure you shall (i)
notify the Company promptly in writing of any order or request to disclose and
of the facts and circumstances surrounding such order or request so that the
Company may seek an appropriate protective order and (ii) cooperate with the
Company at the Company's expense in any proceeding to obtain an appropriate
protective order.
4. You agree to use all reasonable efforts to keep the Confidential
Information confidential. Such efforts shall not be less than those which you
employ for the protection of your corresponding trade secrets and other
confidential information. You will promptly provide the Company with notice of
any known breach of the terms of this Letter or unauthorized disclosure of the
Confidential Information.
5. You agree to indemnify the Company for damages arising from any
breach of the terms of this Letter by you, including, without limitation,
unauthorized use (i.e., use for any purpose other than the Permitted Use) or
disclosure of the Confidential Information by you, your present or future
employees, agents or advisors. In addition to any and all remedies available to
the Company, at law or in equity, respecting a breach hereof, you agree to take
all reasonable measures, including, but not limited to, court proceedings at
your own expense, to restrain current or future employees, agents or advisors
from unauthorized use or disclosure of the Confidential Information.
<PAGE> 3
Network Associates, Inc.
June 9, 1998
Page 3
6. Except as may otherwise be expressly set forth in a definitive
agreement between you and the Company, neither the Company nor Hambrecht & Quist
LLC shall be deemed to make or have made any representation or warranty as to
the accuracy or completeness of the Confidential Information, or any item or
items thereof. It is understood that this Letter does not obligate you or the
Company to enter into any further agreement.
7. You shall, when requested by the Company, within 30 days destroy
or return and deliver to the Company Confidential Information, any copies
thereof, and all notes, correspondence, documents or other records relating to
the Confidential Information or the above-mentioned transaction then in your
possession.
8. In the event that the above-mentioned transaction is not
completed, you agree not to solicit or offer employment to any employees of the
Company before 18 months from the date of this Letter; provided, however, that
the foregoing shall not prohibit you from employing any individuals who have
received notice of termination from, or ceased to be employed by, the Company
prior to the first time such individuals discussed, directly or with any
representatives, employment by you.
9. You expressly acknowledge that damages alone will not be an
adequate remedy for any breach by you of the covenants or agreements set forth
herein and that the Company, in addition to any other remedies which it may
have, shall be entitled, as a matter of right, to injunctive relief, including
specific performance, in any court of competent jurisdiction with respect to any
actual or threatened breach by you of any said covenants.
10. You acknowledge that in your examination of the Confidential
Information you may be exposed to material nonpublic information concerning the
business and financial condition of the Company and consequently you agree that
prior to 18 months from the date of this Letter, without the prior written
approval of the Board of Directors of the Company you will not as such term is
defined in the rules and regulation of the Securities Exchange Act of 1934 (and
any person acting on behalf of or in concern with you will not) purchase or
otherwise acquire (or enter into any agreement or make any proposal to purchase
or otherwise acquire) any securities of the Company, any warrant or option to
purchase such securities, any securities convertible into any such securities or
any other right to acquire such securities.
11. This Letter shall remain in effect for a period of 18 months from
the date hereof.
12. This Letter shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to that State's
conflicts of laws principles.
13. Nothing in this Letter is intended to grant any rights under any
copyright or
<PAGE> 4
Network Associates, Inc.
June 9, 1998
Page 4
trademark of the Company, nor shall this Letter grant any rights in or to the
Confidential Information, except for the Permitted Use.
14. This Letter shall be binding upon and inure to the benefit of the
undersigned parties and to their respective successors, agents and assigns,
provided that the Confidential Information may not be disclosed or transferred
except as provided herein, without the prior written consent of the Company. If
any provision of this Letter is deemed void by law, the remaining provisions
shall continue in full force and effect. Failure to enforce any provision of
this Letter shall not constitute a waiver of any term hereof. This Letter may be
executed in counterparts, each of which shall be deemed an original and each of
which together shall constitute one and the same instrument.
If the foregoing is acceptable to you, please sign so indicate by
signing and returning to the Company as soon as possible a copy of this Letter.
Very truly yours,
HAMBRECHT & QUIST LLC
By: /s/ David Golden
-----------------------------
as agent for CyberMedia, Inc.
Agreed and accepted:
NETWORK ASSOCIATES, INC.
By /s/ Terence Davis
---------------------------------
Title Manager of Corporate Development
---------------------------------
<PAGE> 1
EXHIBIT 15
CYBERMEDIA, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the
___ day of __________, 1996 by and between CyberMedia, Inc., a Delaware
corporation (the "COMPANY") and [__________________] ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitees to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or are threatened to be made a party to or
witness or other participant in, any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believe might
<PAGE> 2
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other (hereinafter a "CLAIM") by reason of (or arising in part
out of) any event or occurrence related to the fact that Indemnitee is or was a
director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "INDEMNIFIABLE EVENT") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitees as a result of the actual
or deemed receipt of any payments under this Agreement (collectively,
hereinafter "EXPENSES"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than twenty days after written demand by Indemnitees therefor is
presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agree to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commence legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). The Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged thereon.
If there has not been a Change in Control (as defined in Section 10(c) hereof),
the Reviewing Party shall be selected by the Board of Directors, and if there
has been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the
<PAGE> 3
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitees and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than
twenty days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In
<PAGE> 4
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
<PAGE> 5
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. The Company shall, from time to time, make
the good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or
<PAGE> 6
policies of insurance with reputable insurance companies providing the officers
and directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall
<PAGE> 7
be asserted by or in the right of the Company against Indemnitee, Indemnitee's
estate, spouse, heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall
govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if, on or after the date of this Agreement, (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the
<PAGE> 8
Company's stockholders was approved by a vote of at least two thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitees within the last three years (other than
with respect to matters concerning the rights of Indemnitees under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
<PAGE> 9
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of Expenses with respect
to such action, unless, as a part of such action, a court having jurisdiction
over such action determines that each of Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if delivered by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at the Indemnitee's address as set forth beneath
Indemnitee's signature to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Secretary) or at such other address
as such party may designate by ten days' advance written notice to the other
party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be
<PAGE> 10
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CYBERMEDIA, INC.
a Delaware corporation
By:
Unnikrishnan Warrier, President
Address: 3000 Ocean Park Boulevard
Santa Monica, California 90405
AGREED TO AND ACCEPTED BY:
Address:
<PAGE> 11
PROVISIONS REGARDING INDEMNIFICATION
Article VIII of the Certificate of Incorporation reads as follows:
"EIGHTH. A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Law as the same exists or may hereafter be
amended. Any repeal or modification of this Article EIGHTH shall not
adversely affect any right or protection of a director of the
corporation existing hereunder with respect to any act or omission
occurring prior to such repeal or modification."
Article VI of the Bylaws reads as follows:
"ARTICLE VI INDEMNIFICATION
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
<PAGE> 12
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or an executive committee by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) or if
such quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the
-2-
<PAGE> 13
other subsections of this section shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corporation, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers, so that any person who is or
was a director or Agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article VI (including, without limitation the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND
Upon resolution passed by the Board, the corporation may establish a
trust or other designated account, grant a security interest or use other means
(including, without limitation, a
-3-
<PAGE> 14
letter of credit), to ensure the payment of certain of its obligations arising
under this Article VI and/or agreements which may be entered into between the
corporation and its officers and directors from time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an Agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Agent against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated, or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person."
-4-
<PAGE> 1
EXHIBIT 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Shares as of the Record Date by:
(i) each persons (or group of affiliated persons) known to the Company to be the
beneficial owner of more than 5% of the Company's Common Shares, (ii) each
director of the Company, (iii) each of the Company's executive officers named in
the Summary Compensation Table appearing herein, and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
- -------------------------------------------------------------- --------- ----------
<S> <C> <C>
Suhas Patil(2) 1,948,729 15.3%
c/o Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538
Pilgrim Baxter & Associates, Ltd.,(3) 1,358,200 10.6%
825 Duportail Rd
Wayne, PA 19087
Unni S. Warrier(4) 831,964 6.2%
c/o Cybermedia, Inc.
3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
Leonard L. Backus(5) 4,281 *
Jeffrey W. Beaumont(6) 78,167 *
Robert Davis -- *
Kanwal Rekhi(7) 291,375 2.3%
Ronald S. Posner(8) 264,200 2.1%
James R. Tolonen(9) 32,812 *
All Directors and Executive Officers as a group (8 persons) (10) 3,406,363 26.7%
</TABLE>
- -------------------------------
* Less than 1%
(1) Percent Ownership is based on 12,773,348 Common Shares outstanding as
of April 20, 1998. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Common Shares subject to options that
are currently exercisable or exercisable within 60 days of the Record
Date are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing
the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Includes 75,000 shares of Common Stock registered to Personal Urban
Transport Corporation of which Mr. Patil is one of two directors. Mr.
Patil disclaims beneficial ownership as to these shares. Mr. Patil is
the individual owner of 1,723,968 shares subject to the community
property laws of the State of California with respect to the Reporting
Persons's spouse, Jayshree Patil. Additionally, 149,761 shares of
Common Stock are held jointly with Mayashree Patil. Includes 28,125
shares subject to the Company's repurchase option which lapses over
time.
(3) This information was obtained from filings made with the Securities and
Exchange Commission pursuant to Section 13(g) of the Securities
Exchange Act of 1934 ("Exchange Act"). Of such 1,358,200, shares,
Pilgrim Baxter & Associates, Ltd. has sole voting power over 1,333,500
shares, shared voting power over 1,358,200 shares and sole dispositive
power over 1,358,200 shares.
(4) Includes 80,000 shares held by Unnikrishnan S. Warrier, Trustee of the
Anne Lam 1996 Children's Trust UTA dated August 26, 1996, of which Mr.
Warrier disclaims beneficial ownership. Includes 156,508 shares subject
to options that are currently exercisable or exercisable within 60 days
of the Record Date.
<PAGE> 2
(5) Includes 4,167 shares subject to options that are currently exercisable
or exercisable within 60 days of the Record Date.
(6) Includes 75,375 shares subject to options that are currently
exercisable or exercisable within 60 days of the Record Date.
(7) Represents 37,836 shares held by Kanwal Rekhi, Ann Holt Rekhi and
Navinder Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89,
37,837 shares held by Kanwal Rekhi, Ann Holt Rekhi and Navinder Jain,
Trustees of the Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 208,559
shares held by Kanwal Rekhi as Trustee of the Rekhi Family Trust dated
12/15/89 and 7,143 shares held by Mr. Rekhi. Includes 28,125 shares
subject to the Company's repurchase option which lapses over time.
(8) Includes 28,125 shares subject to the Company's repurchase option which
lapses over time.
(9) Includes 32,812 shares subject to options that are currently
exercisable or exercisable within 60 days of the Record Date.
(10) Includes 268,862 shares subject to outstanding options which are
currently exercisable or exercisable within \60 days of the Record Date
as referenced in footnotes (2) through (9).
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, as to the Chief Executive Officer and each
of the other most highly compensated executive officers who earned in excess of
$100,000 in annual salary or bonus (the "Named Officers"), information
concerning compensation awarded to, earned by or paid for services to the
Company in all capacities during 1997, 1996 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---- ------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Unni S. Warrier 1997 150,000 169,228 229,000 --
President and Chief 1996 203,461 150,050 2,053
Executive Officer 1995 123,461 500 1,623
Leonard L. Backus 1997 120,000 44,944 -- --
Vice-President, International 1996 76,154 33,120 50,000 2,851
Sales and Marketing 1995 -- -- -- --
Jeffrey W. Beaumont 1997 120,000 5,373 16,000 --
Chief Financial Officer 1996 100,000 -- -- --
1995 4,046 -- 75,000 --
Robert Davis 1997 76,033 34,447 100,000 --
Vice-President, Marketing 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
<PAGE> 3
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth the number and terms of options granted
to the persons named in the Summary Compensation Table during the fiscal year
ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION FOR OPTION
UNDERLYING TO EMPLOYEES EXERCISE TERM(1)
OPTIONS IN PRICE EXPIRATION ------------------------------
GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Unni S. Warrier 20,000 1.5% 9.00 03/13/07 113,201 286,874
209,000 15.5% 14.75 07/30/07 1,938,725 4,913,110
Leonard L. Backus -- -- -- -- -- --
Jeffrey W. Beaumont 16,000 1.2% 9.00 03/13/07 90,561 229,499
Robert Davis 100,000 7.4% 14.75 07/30/97 927,620 2,350,770
</TABLE>
- ------------------------------
(1) Under rules promulgated by the Securities and Exchange Commission, the
amounts in these two columns represent the hypothetical gain or "option
spread" that would exist for the options in this table based on assumed
stock price appreciation from the date of grant until the end of such
options' ten-year term at assumed annual rates of 5% and 10%. The 5% and
10% rates of appreciation are specified by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The Company does not necessarily
agree that this method properly values an option. Actual gains, if any, on
option exercises are dependent on the future performance of the Company's
Common Stock and overall market conditions and the timing of option
exercises, if any.
The following table provides information concerning option exercises by
the persons named in the Summary Compensation Table during the fiscal year ended
December 31, 1997 and the value of unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS FISCAL
SHARES VALUE YEAR-END(#)(2) YEAR-END($)(3)
ACQUIRED ON REALIZED ------------------------------- ------------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ----------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Unni S. Warrier -- -- 116,975 262,125 1,126,181 1,140,639
Leonard L. Backus -- -- 20,833 29,167 240,892 337,258
Jeffrey W. Beaumont -- -- 53,500 37,500 656,621 551,613
Robert Davis -- -- -- 100,000 -- 31,300
</TABLE>
- -----------------------
(1) Calculated by determining the difference between the estimated fair market
value of the security underlying the options on the date of exercise and
the exercise price of the options.
(2) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the options at year end ($15.063 per share as of
December 31, 1997) and the exercise price of the options.
<PAGE> 4
EMPLOYMENT AGREEMENTS
In April, 1998, the Company entered into employment agreements with
each of Mr. Rekhi and Mr. Tolonen in connection with their appointments as Chief
Executive Officer, and President and Chief Operating Officer, respectively.
The agreements provide, among other things, for annual base salaries of
$275,000 and $250,000 for Messrs. Rekhi and Tolonen, respectively, with bonus
targets of 100% of base salary based upon achievement of performance objectives
and additional sign-on and two subsequent annual bonuses of $356,000, $300,000
and $300,000 for Mr. Rekhi, and $227,500, $200,000 and $200,000 for Mr. Tolonen,
based upon continued employment.
The agreements also provide for the fair market value purchase of
150,000 and 100,000 restricted shares of the Company's common stock by Messrs.
Rekhi and Tolonen respectively, in exchange for full-recourse, interest-bearing
notes. Such shares are subject to a thirty-six month declining repurchase right
by the Company that lapses in the event of certain share price attainment or
certain revenue and profitability achievement.
The agreements also provide for the grant to Mr. Rekhi of an option to
acquire 528,000 shares of the Company's common stock at a $10 per share price,
(a 57% premium over the fair market value on the date of grant); and for the
grant to Mr. Tolonen of an option to acquire 100,000 shares of the Company's
common stock at fair market value on the date of grant, and an option to acquire
306,000 shares at a $10 per share price, (a 57% premium over the fair market
value on the date of grant), all such options vesting over four years.
Certain elements of the salary, bonus, notes, stock option vesting and
lapsing of the Company's repurchase rights, accelerate in the event of
termination either following a change of control or not for cause.
The options and restricted shares granted in connection with these
agreements are not shown in the table of Security Ownership of Certain
Beneficial Owners, Directors, and Management on Page 6 because they were granted
after the record date.
1993 STOCK OPTION PLAN, AS AMENDED
On April 22, 1998 the Board of Directors approved the one-for-one
repricing of stock options granted to optionees who were employees, but not
executive officers ("eligible optionees"), on April 22, 1998. The repricing will
be offered to eligible optionees in exchange for their giving up vesting of 1)
six months, or 2) their length of service as employees of the Company, whichever
is less. The new exercise price of $6.375 per share was the closing sales price
and fair market value of the Company's common stock on the Nasdaq National
Market System on April 21, 1998. The number of stock options potentially
affected is 946,627.
<PAGE> 5
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, the Company granted options to purchase 75,000 shares
(after the two-for-one reverse stock split which occurred in 1996) of Common
Stock each to Mr. Patil, Mr. Posner and Mr. Rekhi. Such options had a four-year
vesting term but were exercisable immediately, subject to the Company's right to
repurchase which lapsed as the shares vested. These options were exercised by
Mr. Patil, Mr. Posner and Mr. Rekhi, and are included in the table of Security
Ownership of Certain Beneficial Owners, Directors, and Management on page 6.
The Company has entered into indemnification agreements with each of
its directors and officers. These agreements require the Company to indemnify
such individuals to the fullest extent allowed by Delaware law for certain
liabilities to which they may be subject as a result of their affiliation with
the Company.
The Company has a policy whereby all transactions between the Company
and its officers, directors and affiliates will be on terms no less favorable to
the Company than could be obtained from unrelated third parties and will be
approved by a majority of the disinterested members of the Company's Board of
Directors. The Company believes that all transactions set forth above were made
on terms no less favorable to the Company than would have been obtained from
unaffiliated third parties.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Exchange Act of 1933, as
amended, or the Securities Act of 1934, as amended, that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
following report and the Performance Graph shall not be incorporated by
reference into any such filings.
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the chief executive officer and other
executive officers. The Committee currently is comprised of two independent,
non-employee members of the Board of Directors, none of whom have interlocking
relationships as defined by the Securities and Exchange Commission. The
Committee has available to it such external compensation advice and data as the
Committee deems appropriate to obtain.
Compensation Philosophy and Relationship of Performance. This report
reflects the Compensation Committee's executive officer compensation philosophy
for the year ended December 31, 1997 as endorsed by the Board of Directors. The
resulting actions taken by the Company are shown in the compensation tables
supporting this report. The Compensation Committee either approves or recommends
to the Board of Directors compensation levels and compensation components for
the executive officers. With regard to compensation actions affecting the Chief
Executive Officer, all of the non-employee members of the Board of Directors are
required to approve all elements of the Chief Executive Officer's compensation.
The Compensation Committee's executive compensation policies are
designed to enhance the financial performance of the Company, and thus
stockholder value, by aligning the financial interests of the key executives
with those of stockholders.
The executive compensation program is viewed in total considering all
of the component parts: base salary, annual performance bonus, benefits and
long-term incentive opportunity in the form of stock options and stock
ownership. The annual compensation components consist generally of equal or
lower base salaries than those of companies within the industry combined with
incentive plans based on the Company's financial performance that can result in
total compensation generally in line with those at comparable companies.
Long-term incentives are tied to stock performance through the use of stock
options. Overall, the intent is to have more significant emphasis on variable
compensation components and less on fixed cost components. The Committee
believes this philosophy and structure are in the best interests of the
stockholders.
<PAGE> 6
Executive compensation for fiscal 1997 primarily consisted of base
salary and performance incentives awarded in the form of stock options for such
period.
Annual Incentive Arrangements. The Company has adopted a program which
provides annual incentive compensation in the form of cash bonuses to key
employees, including the Named Officers, who by the nature of their positions
are deemed sufficiently accountable to impact directly the financial results of
the Company. The program is approved by the Compensation Committee, whose
members are not eligible to participate in the program.
The Committee believes that key executives should have a significant
proportion of total cash compensation subject to specific strategic and
financial measurements. At the beginning of each fiscal year, or upon an
individual being appointed an executive officer, the Committee sets a target
bonus range for each executive officer expressed as a percentage of the
executive's base salary. Performance goals for purposes of determining annual
incentive compensation are established, which include sales, profitability and
other strategic and financial measurements. Senior management, including the
Named Officers, have the potential to earn significantly higher levels of
incentive compensation if the Company exceeds its targets.
The performance goals established at the beginning of 1997 were based
on several strategic and financial measurements including a target level of
profitability and sales and attainment of certain other objectives.
Stock Options. The Compensation Committee of the Board of Directors
generally determines stock option grants to eligible employees including the
Named Officers. The Committee believes that options granted to management
reinforce the Committee's philosophy that management compensation should be
closely linked with stockholder value. Stock options have been granted to all of
the Company's management and key employees.
Other Compensation Plans. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the Named Officers, are
permitted to participate on the same terms and conditions relating to
eligibility and generally subject to the same limitations on the amounts that
may be contributed or the benefits payable under those plans. Under the
Company's 401(k) Plan, which is a defined contribution plan qualified under
Sections 401(a) and 401(k) of the Code, participants, including the Named
Officers, can contribute a percentage of their annual compensation. Although the
401(k) Plan allows for the Company to make matching contributions, the Company
did not make a matching contribution for participants in 1997.
Mr. Warrier's 1997 Compensation. Compensation for the Chief Executive
Officer aligns with the philosophies and practices discussed above for executive
officers in general. All compensation determinations and stock option grants to
the Chief Executive Officer are required to be reviewed and approved by the
Compensation Committee and then ratified by the Board of Directors.
COMPENSATION COMMITTEE
Suhas Patil
Ronald Posner
<PAGE> 1
EXHIBIT 17
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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STANLEY SCHNEIDER, |
|
Plaintiff, |
|
v. |
|
SUHAS PATIL, RICHARD S. POSNER, KANWAL | C.A. No. 16565NC
REKHI, JAMES R. TOLONEN, CYBERMEDIA, | ---------------
INC. and NETWORK ASSOCIATES, INC. |
|
Defendants. |
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CLASS ACTION COMPLAINT
Plaintiff alleges upon information and belief, except for paragraph 1
hereof, which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of the common stock of CyberMedia, Inc.
("CyperMedia" or the "Company") since prior to the transaction herein
complained of and continuously to date.
2. Defendant CyberMedia is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a pioneer in
"self-healing" technology and software for personal resolve problems
automatically without resort to costly and scarce technology support services
of computer and software companies. The Company maintains its principal offices
at 2850 Ocean Park Boulevard, Santa Monica, California.
3. Defendant Network Associates, Inc. ("Network Associates") is a
Delaware corporation and is a leading supplier of enterprise security and
management solutions.
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4. Defendant Kanwal Rekhi is Chairman of the Board of Directors and
Chief Executive Officer of the Company.
5. Defendant James R. Tolonen is President, Chief Operating Officer and
a Director of the Company.
6. Defendants Suhas Patil and Richard S. Posner are Directors of the
Company.
7. The Individual Defendants are in a fiduciary relationship with
Plaintiff and the other public stockholders of CyberMedia and owe them the
highest obligations of good faith and fair dealing.
CLASS ACTION ALLEGATIONS
8. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
9. This action is properly maintainable as a class action because:
(a) The class is so numerous that joinder of all members is
impracticable. As of April 20, 1998, there were approximately 12,733,348 shares
of CyberMedia common stock outstanding owned by hundreds, if not thousands, of
record and beneficial, holders;
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<PAGE> 3
(b) There are questions of law and fact which are common to the
class including, inter alia, the following: (i) whether defendants have
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the class; and (ii) whether the class is entitled to
injunctive relief or damages as a result of the wrongful conduct committed by
defendants.
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the class and
plaintiff has the same interests as the other members of the class. Plaintiff
will fairly and adequately represent the class.
(d) Defendants have acted in a manner which affects plaintiff
and all members of the class alike, thereby making appropriate injunctive
relief and/or corresponding declaratory relief with respect to the class as a
whole.
(e) The prosecution of separate actions by individual members
of the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
individual members of the Class which would, as a practical matter, be
dispositive of the interests of other members or substantially impair or impede
their ability to protect their interests.
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SUBSTANTIVE ALLEGATIONS
10. On July 27, 1998, defendants CyberMedia and Network Associates
announced that CyberMedia and Network Associates had entered into a definitive
merger agreement pursuant to which Network Associates will acquire CyberMedia
in a transaction valued at approximately $130 million. Under the terms of the
transaction as presently proposed Network Associates will commence a cash
tender offer for all of the Company's outstanding common shares at $9.50 per
share. The tender offer will be followed by a merger in which shares of
CyberMedia not tendered will be converted into right to receive $9.50 per share
in cash.
11. By entering into the agreement with Network Associates, the
CyberMedia Board has initiated a process to sell the Company which imposes
heightened fiduciary responsibilities and requires enhanced scrutiny by the
Court. However, the terms of the proposed transaction were not the result of an
auction process or active market check; they were arrived at without full and
thorough investigation by the Individual Defendants; and they are intrinsically
unfair and inadequate from the standpoint of the CyberMedia shareholders.
12. The Individual Defendants failed to make an informed decision, as no
market check of the Company's value was obtained. In agreeing to the merger,
the Individual Defendants failed to properly inform themselves of CyberMedia's
highest transactional value.
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<PAGE> 5
13. The Individual Defendants have violated the fiduciary duties owed to
the public shareholders of CyberMedia. The Individual Defendants' agreement to
the terms of the transaction, its timing, and the failure to auction the
Company and invite other bidders, and defendants' failure to provide a market
check demonstrate a clear absence of the exercise of due care and of loyalty to
CyberMedia's public shareholders.
14. The Individual Defendants' fiduciary obligations under these
circumstances require them to:
(a) Undertake an appropriate evaluation of CyberMedia's net worth as
a merger/acquisition candidate; and
(b) Engage in a meaningful auction with third parties in an attempt
to obtain the best value for CyberMedia's public shareholders.
15. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
decision to merge with Network Associates without making the requisite effort
to obtain the best offer possible.
16. Plaintiff and other members of the Class have been and will be
damaged in that they have not and will not receive their fair proportion of the
value of CyberMedia's assets and business, and will be prevented from obtaining
fair and adequate consideration for their shares of CyberMedia common stock.
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17. The consideration to be paid to class members in the proposed
merger is unfair and inadequate because, among other things:
(a) The intrinsic value of CyberMedia's common stock is materially
in excess of the amount offered for those securities in the merger giving due
consideration to the anticipated operating results, net asset value, cash flow,
and profitability of the Company;
(b) The merger price is not the result of an appropriate
consideration of the value of CyberMedia because the CyberMedia Board approved
the proposed merger without undertaking steps to accurately ascertain
CyberMedia's value through open bidding or at least a "market check mechanism";
and
(c) By entering into the agreement with Network Associates, the
Individual Defendants have allowed the price of CyberMedia stock to be capped,
thereby depriving plaintiff and the Class of the opportunity to realize any
increase in the value of CyberMedia stock.
18. By reason of the foregoing, each member of the Class will suffer
irreparable injury and damages absent injunctive relief by this Court.
19. Defendant Network Associates knowingly aided and abetted the breaches
of fiduciary duty by the Individual Defendants by agreeing to the transaction as
structured. Network Associates so agreed to enable it to acquire CyberMedia at
the lowest possible price.
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20. Plaintiff and other members of the Class have no adequate remedy at
law.
WHEREFORE, plaintiff and members of the Class demand judgment against
defendants as follows:
a. Declaring that this action is properly maintainable as a class action
and certifying plaintiff as the representative of the Class;
b. Preliminarily and permanently enjoining defendants and their counsel,
agents, employees and all persons acting under, in concert with, or for
them, from proceeding with, consummating, or closing the proposed
transaction;
c. In the event that the proposed transaction is consummated, rescinding
it and setting it aside, or awarding rescissory damages to the Class;
d. Awarding compensatory damages against defendants, individually and
severally, in an amount to be determined at trial, together with
pre-judgment and post-judgment interest at the maximum rate allowable
by law, arising from the proposed transaction;
e. Awarding plaintiff its costs and disbursements and reasonable
allowances for fees of plaintiff's counsel and experts and
reimbursement of expenses; and
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f. Granting plaintiff and the Class such other and further relief as the
Court may deem just and proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/
---------------------------------
Suite 1401, Mellon Bank Center
P. O. Box 1070
Wilmington, Delaware 19899-1070
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, NY 10016
(212) 779-1414
Dated: July 28, 1998
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