<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 31 March 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission file number 0-20558
MCAFEE ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0316593
(State of incorporation) (IRS Employer Identification Number)
2710 Walsh Avenue
Santa Clara, California 95051
(408) 988-3832
(Address and telephone number of principal executive offices)
---------------------
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
31,247,292 shares of the registrant's Common stock, $0.01 par value, were
outstanding as of April 29, 1996.
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MCAFEE ASSOCIATES, INC.
FORM 10-Q, March 31, 1996
---
C O N T E N T S
<TABLE>
<CAPTION>
Item Number Page
- ----------- ----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
March 31, 1996 and December 31, 1995....................................................... 3
Condensed Consolidated Statements of Income:
Three months ended March 31, 1996 and 1995................................................. 4
Condensed Consolidated Statements of Cash Flows:
Three months ended March 31, 1996 and 1995 ................................................ 5
Notes to Consolidated Financial Statements.................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 8
PART II: OTHER INFORMATION
Item 1 Legal Proceedings................................................................................ 16
Item 6 Exhibits and Reports on Form 8-K................................................................. 16
SIGNATURES ................................................................................................. 17
EXHIBIT INDEX................................................................................................. 18
</TABLE>
2
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MCAFEE ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share data)
---
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,500 $ 30,299
Marketable securities 24,658 25,058
Accounts receivable, net of allowances for doubtful
accounts and returns of $2,565 and $2,279 at March 31, 1996
and December 31, 1995 20,476 20,892
Prepaids and other current assets 3,375 3,373
Prepaid taxes 1,513 6,064
Deferred taxes 4,369 4,999
-------- --------
Total current assets 97,891 90,685
Fixed assets, net 4,047 3,399
Intangibles, net 3,491 3,129
Deferred taxes 6,243 6,513
Other assets 424 294
-------- --------
Total assets $112,096 $104,020
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 4,656 $ 2,214
Accrued liabilities 9,219 8,844
Deferred revenue 23,421 24,795
-------- --------
Total current liabilities 37,296 35,853
Deferred revenue, less current portion 2,730 4,625
-------- --------
Total liabilities 40,026 40,478
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized: 5,000,000 shares
Common stock, $.01 par value;
authorized: 40,000,000 shares; issued and
outstanding: 31,245,550 shares at March 31, 1996 and
30,753,258 at December 31, 1995 208 205
Additional paid-in capital 38,608 31,145
Retained earnings 33,254 32,192
-------- --------
Total stockholders' equity 72,070 63,542
-------- --------
Total liabilities and stockholders' equity $112,096 $104,020
======== ========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
3
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MCAFEE ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
---
<TABLE>
<CAPTION>
Three months
Ended March 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Net revenue $33,845 $16,521
------- -------
Operating costs and expenses:
Cost of net revenue 2,067 1,241
Research and development 3,810 2,020
Marketing and sales 9,583 6,113
General and administrative 2,713 1,537
Amoritzation of intangibles 550 264
Acquisition and related costs 8,297 --
------- -------
Total operating costs and expenses 27,020 11,175
------- -------
Income from operations 6,825 5,346
Other income 597 319
------- -------
Income before income taxes 7,422 5,665
Provision for income taxes 6,339 2,252
------- -------
Net income $ 1,083 $ 3,413
======= =======
Net income per share $ 0.03 $ 0.11
======= =======
Shares used in per share calculation 34,530 31,950
======= =======
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
4
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MCAFEE ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
---
<TABLE>
<CAPTION>
Three months
Ended March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,083 $ 3,413
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 996 427
Provision for doubtful accounts receivable
and allowance for returns 320 160
Deferred taxes 900 (766)
Changes in assets and liabilities:
Accounts receivable 96 (1,094)
Prepaids and other assets (132) 226
Accounts payable and accrued liabilities 2,817 157
Prepaid income taxes 4,551 --
Income taxes payable -- 1,103
Deferred revenue (3,269) 4,109
-------- --------
Net cash provided by operating activities 7,362 7,735
-------- --------
Cash flows from investing activities:
Purchased intangibles (911) --
Sale (Purchases) of investment securities 399 (1,440)
Additions to fixed assets (1,094) (527)
-------- --------
Net cash used in investing activities (1,606) (1,967)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit, net -- 340
Effect of exchange rate fluctuations (21) --
Stock option exercises 2,066 1,003
Costs of secondary security offering -- (292)
Tax benefit from exercise of nonqualified stock options 5,400 1,776
-------- --------
Net cash provided by financing activities 7,445 2,827
-------- --------
Net increase in cash and cash equivalents 13,201 8,595
Cash and cash equivalents at beginning of period 30,299 20,499
-------- --------
Cash and cash equivalents at end of period $ 43,500 $ 29,094
======== ========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
5
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MCAFEE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The accompanying consolidated financial statements have been prepared by
the Company without audit in accordance with instructions to Form 10-Q
and Article 10 of Regulation S-X. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation have been included. The accompanying financial statements
should be read in conjunction with the audited financial statements
contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1996. The results of
operations for the three month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
Historically, net revenue from subscription licenses for anti-virus
software was generally recognized ratably over a two year period as the
Company was not able to demonstrate the separate value of the product
license and maintenance agreement. During 1995, the Company was able to
demonstrate the separate value of the product license and maintenance
agreement and, effective July 1, 1995, the Company began generally to
recognize 80% of license fees for electronically distributed anti-virus
software at the time of the licensing transaction and 20% evenly over
the two year subscription period. Under the policy, revenue for
electronically distributed anti-virus software is recognized on a basis
consistent with the revenue recognition of electronically distributed
network management software. As a result of the change in revenue
recognition, period to period results are not directly comparable.
The effect of this change, based on certain assumptions which management
believes are reasonable, was to increase net income and earnings per
share by approximately $1.5 million and $0.04, respectively. The Company
does not believe these amounts accurately reflect what net income and
earnings per share would have been without the change as the Company, in
anticipation of such change, made investments in the quarter which would
not have been made had the change in revenue recognition not occurred.
2. Acquisition:
On March 21, 1996, the Company acquired Vycor Corporation, a developer
of help desk software for $9.0 million in cash. The acquisition was
accounted for as a purchase. Of the total purchase price, $7.8 million
of in-process technology was charged to operations and approximately
$0.4 million of transaction and restructuring costs were expensed in the
three month period ended March 31, 1996.
6
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MCAFEE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---
3. Legal Proceedings:
In April 1996, the Company and William Larson were sued by Cheyenne
Software, Inc. ("Cheyenne") in the United States District Court for the
District of Delaware. The lawsuit alleges that various statements
related to the Company's proposed acquisition of Cheyenne were false and
misleading. The lawsuit as filed seeks only injunctive relief and no
specified monetary damages. The Company believes the lawsuit is without
merit and intends to vigorously defend itself.
4. Stock dividend:
On April 2, 1996 the Company declared a stock dividend, payable to all
holders of record of common stock on April 29, 1996, of one share of
common stock for every two shares of common stock outstanding. The stock
dividend is payable on or about May 16, 1996. All per share data
contained herein has been restated to reflect the increased number of
shares outstanding.
7
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes included elsewhere in this
report. The results shown herein are not necessarily indicative of the results
to be expected for the full year or any future periods.
OVERVIEW
The Company generates net revenue through the licensing of its network
security and management software products. Historically, net revenue from
subscription licenses for anti-virus software was generally recognized ratably
over a two year period, while net revenue from subscription licenses for network
management software was generally recognized 80% at the time of the licensing
transaction with the remaining 20% recognized ratably over a two year period.
Effective July 1, 1995, the Company began to generally recognize 80% of license
fees for electronically distributed anti-virus software at the time of the
licensing transaction with the remaining 20% recognized over the remaining
license period. The deferred revenue from anti-virus subscription licenses
entered into prior to July 1, 1995 continues to be recognized over the original
24 month subscription period. This has resulted in incremental revenue being
recognized over the last three quarters. This incremental revenue will continue
to be recognized over the next five quarters with a corresponding decrease in
the amount of deferred revenue on the Company's balance sheet.
As a result of the change in revenue recognition for anti-virus
subscription licenses, period-to-period results are not directly comparable and
should not be relied upon as indicative of future performance. In addition,
since a decreasing percentage of the Company's net revenue is attributable to
the recognition of previously deferred revenue, the Company's net revenue in
future periods may be subject to greater fluctuations on a quarter to quarter
basis.
In addition to generating net revenue through subscription licenses,
the Company sells its network security and management products with shrink-wrap
licenses through traditional distribution channels. The Company recognizes
revenue from sales to distributors upon shipment, subject to a reserve for
returns.
On March 21, 1996, the Company acquired Vycor Corporation ("Vycor"), a
developer of help desk software for $9.0 million in cash. The acquisition was
accounted for as a purchase. Of the total purchase price, $7.8 million of
in-process technology was charged to operations and approximately $0.4 million
of transaction and restructuring costs were expensed in the three month period
ended March 31, 1996.
8
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
The Company's results of operations can fluctuate significantly on a
quarterly basis. Causes of such fluctuations may include the volume and timing
of new orders and renewals, the introduction of new products, product upgrades
or updates released by the Company or its competitors, changes in product
prices, changes in product mix, seasonality, trends in the computer industry,
general economic conditions, extraordinary events such as acquisitions or
litigation and the occurrence of unexpected events. Historically, renewals have
accounted for a significant portion of the Company's net revenue; however, there
can be no assurance that the Company will be able to sustain current renewal
rates in the future.
The Company's future earnings and stock price may be subject to
volatility in any period. Any shortfall in various operating results, including
licensing activity, product sales, net revenue, operating income, net income or
net income per share from historical levels or expectations of securities
analysts may have significant adverse effects on the trading price of the
Company's stock. Furthermore, other factors such as acquisitions or unforeseen
events in the technology or software industry or in the Company's day to day
activities can have a material adverse effect on the Company's stock
performance.
9
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of net revenue represented by certain items in the Company's statements of
operations for the three month periods ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three months ended
March 31
--------
1996 1995
---- ----
<S> <C> <C>
Net revenue 100.0% 100.0%
Operating costs and expenses:
Cost of net revenue 6.1 7.5
Research and development 11.3 12.2
Marketing and sales 28.3 37.0
General and administrative 8.0 9.3
Amortization of intangibles 1.6 1.6
Acquisition and related costs 24.5 --
------ ------
Total operating costs and expenses 79.8 67.6
Income from operations 20.2 32.4
Other income 1.7 1.9
------ ------
Income before income taxes 21.9 34.3
Provision for income taxes 18.7 13.6
------ ------
Net income 3.2% 20.7%
====== ======
</TABLE>
10
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
Net Revenue. Net revenue increased 105% to $33.8 million in the three
months ended March 31, 1996 from $16.5 million in the three months ended March
31, 1995. This increase in net revenue was due primarily to the change in
revenue recognition from anti-virus licenses and increased revenue from
subscription licenses for anti-virus software. In the three months ended March
31, 1996, 80% of the revenue from subscription licenses for anti-virus software
was recognized at the time of the licensing transaction rather than being
recognized ratably over 24 months for licenses sold in the periods prior to July
1, 1995. Net revenue also increased as a result of increased sales of
shrink-wrapped products through traditional distribution channels. As is the
case in many segments of the software industry, the Company may encounter
increasing price competition in the future which could reduce average selling
prices.
The deferred revenue from anti-virus subscription licenses entered into
prior to July 1, 1995 is being recognized over the balance of the 24 month
subscription period. This resulted in incremental license revenue being
recognized in the three months ended March 31, 1995 and will continue to result
in incremental revenue being recognized over the next five quarters with a
corresponding decrease in the amount of deferred revenue on the Company's
balance sheet.
Net revenue from international sales accounted for approximately 18%
and 25% of net revenue for the three months ended March 30, 1996 and 1995,
respectively. The decrease in net revenue from international sales as a
percentage of net revenue between these periods was due to the greater
percentage increase in domestic net revenue. The Company has recently expanded
its international operations, primarily in Europe resulting primarily from the
acquisitions of Saber Software Corporation and its former distributors in the
UK, France, and Germany. As a result of the expansion of its international
operations, the Company now denominates certain international license fees in
local currencies, primarily in Europe. As a result, the Company is subject to
the risks associated with fluctuations in currency exchange rates. The Company
does not currently engage in hedging transactions and there can be no assurance
that it will not incur significant losses related to currency fluctuations.
Risks inherent in the Company's international sales generally include the impact
of fluctuating exchange rates, longer payment cycles, greater difficulty in
accounts receivable collection, unexpected changes in regulatory requirements,
seasonality due to the slowdown in European business activity during the third
quarter, and tariffs and other trade barriers. There can be no assurance that
these factors will not have a material adverse effect on the Company's future
business, financial condition and results of operations. Further, in countries
with a high incidence of software piracy, the Company may experience a higher
11
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
rate of piracy of its products. In addition, a significant portion of the
Company's international sales are generated through independent agents. Since
these agents are not employees of the Company and are not required to offer the
Company's products exclusively, there can be no assurance that they will
continue to market the Company's products. Also, despite the Company's
substantial dependence in the international market upon the marketing, sales and
customer support of its agents, the Company currently has limited control over
its agents. For example, the Company is dependent upon its international agents
to provide it with information regarding licensees and there can be no assurance
that the Company will be able to obtain sufficient information to contact such
licensees, if necessary, regarding renewal. In addition, the Company may be
unaware of the nature and scope of the representations made to customers by
these agents.
Cost of Net Revenue. The Company has historically distributed the
majority of its products electronically, and as a result, its cost of net
revenue has been low relative to other software vendors. The Company's cost of
net revenue includes the cost of media, manuals and packaging for products
distributed through traditional distribution channels and the amortization of
acquired technology. The cost of net revenue does not vary significantly among
the Company's various products, or between international or domestic sales.
For the three months ended March 30, 1996 and 1995, the Company's
cost of net revenue was $2.1 million and $1.2 million, respectively. As a
percentage of net revenue, cost of net revenue decreased to 6.1% in the three
month period ended March 31, 1996 from 7.5% in the same period in 1995. These
decreases were due to the higher percentage of net revenue generated from
products distributed electronically, certain customer support expenses included
in cost of net revenue in the earlier periods which were included in marketing
and sales expenses commencing in the third quarter of 1995, and the fixed amount
of amortization included in cost of net revenue. To the extent that the
percentage of the Company's net revenue which is generated through traditional
distribution channels increases, the Company's cost of net revenue would
increase and, accordingly, gross margins would decrease.
12
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
Research and Development. Research and development expenses consist
primarily of salary and benefits for the Company's software development and
technical support staff. Research and development expenses increased 88.6% to
$3.8 million in the three months ended March 31, 1996 from $2.0 million in same
period in 1994. This increases was primarily due to growth in the Company's
product development staff, third party contractors and increased development
activity. As a percentage of net revenue, research and development expenses
decreased to 11.3% from 12.2% in three months ended March 31, 1996 and 1995,
respectively. This decrease primarily reflects the growth in the Company's net
revenue. The Company anticipates that research and development expenses will
continue to increase in absolute dollars but may fluctuate as a percentage of
net revenue.
The Company's future success depends in large part upon its ability to
continue to offer a broad range of network management and security products, to
continue to enhance its existing products, to develop and introduce in a timely
manner new products that take advantage of technological advances and to respond
to new customer requirements. The Company also believes that providing a high
level of technical support is key to success in the network management market.
Furthermore, while the Company updates its products on a regular basis,
competitors may announce new products with capabilities or technologies that
could have the potential to replace or shorten the life cycles of the Company's
existing products. As a result, the Company believes that significant
investments in product development and technical support are essential. The
timing and amount of research and development expenses may vary significantly
based upon the number of new products and significant upgrades under development
during a given period.
Marketing and Sales. Marketing and sales expenses consist primarily of
salary, commissions and benefits for marketing, sales and customer support
personnel and costs associated with advertising and promotions. Marketing and
sales expenses increased 56.8% to $9.6 million in the three months ended March
31, 1996 from $6.1 million in the three months ended March 31, 1995. This
increase primarily reflects growth in the Company's sales and marketing staff
including the expansion of the Company's international operations and increased
advertising and promotional expenses. In connection with the change in revenue
recognition, the Company made additional investments in marketing and sales
during the quarter.
As a percentage of net revenue, marketing and sales expense decreased
to 28.3% from 37.0% in the three month periods ended March 31, 1996 and 1995,
respectively. This decrease primarily reflects the increase in the Company's net
revenue. The Company is seeking to expand its product line in the future, and
such expansion could contribute to a further increase in marketing and sales
expenses.
13
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
General and Administrative. General and administrative expenses consist
principally of salary and benefit costs for administrative personnel and general
operating costs. General and administrative costs increased 76.5% to $2.7
million in the three months ended March 31, 1996 from $1.5 million in the three
months ended March 31, 1995. This increase reflects increased investment in the
Company's infrastructure including expansion of the Company's domestic and
international operations. General and administrative expenses decreased to 8.0%
in the three months ended March 31, 1996 from 9.3% in the same period in 1995.
This decrease reflects growth in the Company's net revenue. The Company intends
to continue to make investments in its general and administrative
infrastructure, and, as a result, expects general and administrative expenses to
increase in absolute dollars.
Amortization of Intangibles. The Company expensed $0.5 million and $0.3
million of amortization related to intangibles in the three months ended March
31, 1996 and 1995, respectively. Intangibles consist of purchased goodwill and
certain technology acquired through acquisitions.
Acquisition and Related Costs. The Company acquired Vycor in the first
quarter of 1996. The acquisition was accounted for as a purchase. In connection
with this acquisition, the Company expensed $7.8 million of in-process
technology and $0.4 million in transaction and restructuring costs.
Other Income. Other income consists primarily of interest income earned
on the Company's cash and short term investments. Other income totaled $0.6
million and $0.3 million in the three months ended March 31, 1996 and 1995,
respectively. The increase in the Company's other income relates to higher
interest income as a result of higher average balances invested due to net cash
generated from operations.
Provision for Income Taxes. The provision for income taxes is recorded
at the Company's effective tax rate which, for the three month periods ended
March 31, 1996 and 1995, was 85.4% and 39.8%, respectively. The provision for
income taxes for each period presented include the effect of a net deferred tax
asset arising from the different treatment of revenue recognition for tax and
financial reporting purposes and differing treatment of purchased intangible
assets and in-process technology. In addition, the Company's effective tax rate
reflects the non-deductibility for tax purposes of acquisition costs expensed
during the period. The Company has not reduced the deferred tax asset by a
valuation allowance as it is likely that all of the deferred tax asset will be
realized due to sufficient taxable income available through carryback to prior
years and to carryforward to future years.
14
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MCAFEE ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $43.5 million in cash and cash
equivalents and $24.7 in marketable securities.
Net cash provided by operating activities was $7.4 million and $7.7
million for the three months ended March 31, 1996 and 1995, respectively. Net
cash provided by operating activities for the three months ended March 31, 1996
consisted primarily of net income plus an increase in accounts payable and
accrued liabilities offset by decreases in prepaid income taxes and deferred
revenue. Net cash provided by operating activities for the three months ended
March 31, 1995 was comprised primarily of net income, the increases in deferred
revenue and income taxes payable offset by increases in accounts receivable and
deferred taxes.
Net cash used in investing activities was $1.6 million in the three
months ended March 31, 1996, primarily reflecting investments in fixed and
intangible assets. Net cash provided by investing activities in the three months
ended March 31, 1995 was $2.0 million, consisting primarily of purchases of
marketable securities which were offset by additions to fixed assets.
Net cash provided by financing activities was $7.4 million and $2.8
million in the three months ended March 31, 1996 and 1995, respectively,
consisting primarily of the proceeds and tax benefits associated with the
exercise of nonqualified stock options.
The Company believes that its available cash and anticipated cash flow
from operations will be sufficient to fund the Company's working capital and
capital expenditure requirements for at least the next twelve months.
15
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MCAFEE ASSOCIATES, INC.
FORM 10-Q, March 31, 1996
---
PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
In April 1996, the Company and William Larson were sued by Cheyenne
Software, Inc. in the United States District Court for the District of Delaware.
The lawsuit alleges that various statements related to the Company's proposed
acquisition of Cheyenne were false and misleading. The lawsuit as filed seeks
only injunctive relief and no specified monetary damages. The Company believes
the lawsuit is without merit and intends to vigorously defend itself.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed or
incorporated by reference as part of this Report.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarterly period
ended March 31, 1996.
16
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MCAFEE ASSOCIATES, INC.
FORM 10-Q, March 31, 1996
---
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, and the
results and regulations promulgated thereunder, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
McAFEE ASSOCIATES, INC.
/s/ Prabhat K. Goyal
-------------------------------------------------
Date: May 3, 1996 Name: Prabhat K. Goyal
Title: Vice President Finance and Controller
17
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McAFEE ASSOCIATES, INC.
Form 10-Q, March 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.5 1992 Stock Option Plan, incorporated by reference from
Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 ("1994 Form 10-K"), as
amended.
10.7 Outside Directors Stock Option Plan, incorporated by
reference from Exhibit 10.7 to the Company's Report on Form
10-K for the fiscal year ended December 31, 1992.
10.8 Lease Agreement for facility at 2710 Walsh Avenue dated May
10, 1993, between the Company and John Arillaga and Richard
T. Peery Separate Property Trusts, incorporated by
reference from Exhibit 10.8 to the Company's Report on Form
10-Q for the fiscal quarter ended June 30, 1993.
10.10 Asset Acquisition Agreement among the Company and
Brightwork, Jack Bell, Thomas Dolan, Rosemarie Dubrowsky,
Greg Gianforte, Kerry Giftos, Roman Michalowski and Philip
Raffiani dated March 16, 1994, together with the Escrow
Agreement among the Company, Brightwork, BDI Partners, and
Silicon Valley Bank as Escrow Agent, dated March 30, 1994
(Exhibit 2.3(b) to the Asset Acquisition Agreement) and the
Employment Agreement, dated March 30, 1994 between the
Company and Greg Gianforte (Exhibit 8.5 to the Asset
Acquisition Agreement) incorporated by reference from
Exhibit 2.1 to the Company's Report on Form 8-K dated March
30, 1994, as filed with the Securities and Exchange
Commission on April 12, 1994.
10.11 Asset Acquisition Agreement by and between the Company and
ADS dated April 19, 1994, incorporated by reference from
Exhibit 2.1 to the Company's Report on Form 8-K, dated
May 6, 1994, as filed with the Securities and Exchange
Commission on May 20, 1994.
</TABLE>
18
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McAFEE ASSOCIATES, INC.
Form 10-Q, March 31, 1996
EXHIBIT INDEX
10.12 Confidential Resignation Agreement and Mutual General
Release of Claims between the Company and William S.
McKiernan dated April 18, 1994, incorporated by reference
from Exhibit 10.12 to the Company's Report on Form 10-Q for
the fiscal quarter ended June 30, 1994.
10.14 Employment Agreement between the Company and Gregory
Gianforte dated March 31, 1994, as amended September 28,
1994, incorporated by reference to Exhibit 10.14 of the
1994 Form 10-K.
10.15 Lease Agreement between Jerral Office Associates, a New
Jersey limited partnership, and Brightwork Development,
Inc. dated October 19, 1992, as amended May 26, 1994 to
substitute the Company as the tenant, incorporated by
reference to Exhibit 10.15 of the 1994 Form 10-K.
10.16 Employee Stock Purchase Plan, incorporated by reference
from Exhibit 10.16 of the 1994 Form 10-K.
10.17 Lease Agreement between John Arrillaga, Trustee, UTA dated
7/20/77 (John Arrillaga Separate Property Trust), Richard
Peery, Trustee, UTA dated 7/20/77 (Richard T. Peery
Separate Property Trust) and the Company dated November 2,
1994, incorporated by reference to Exhibit 10.17 of the
1994 Form 10-K.
10.18 Offer letter to Richard Kreysar dated December 16, 1994,
incorporated by reference to Exhibit 10.18 of the 1994
Form 10-K.
10.19 Offer letter to Dennis Cline dated September 21, 1994,
incorporated by reference to Exhibit 10.19 of the 1994
Form 10-K.
10.20 401(k) Plan, incorporated by reference to Exhibit 10.20 of
the 1994 Form 10-K.
10.21 Change in control agreement between McAfee and Robert S.
Chappelear dated April 14, 1995, incorporated by reference
from Exhibit 10.1 of the Company's Registration Statement
No. 33-93296 on Form S-4 ("the S-4").
10.22 Change in control agreement between McAfee and Dennis
Cline dated April 14, 1995 incorporated by reference to
Exhibit 10.2 of the S-4.
19
<PAGE> 20
McAFEE ASSOCIATES, INC.
Form 10-Q, March 31, 1996
EXHIBIT INDEX
10.23 Change in control agreement between McAfee and Richard D.
Kreysar dated April 14, 1995, incorporated by reference to
Exhibit 10.3 of the S-4.
10.24 Change in control agreement between McAfee and Robert J.
Schwei dated April 14, 1995, incorporated by reference to
Exhibit 10.4 of the S-4.
10.25 Change in control agreement between McAfee and R. Terry
Duryea dated May 1, 1995, incorporated by reference to
Exhibit 10.5 of the S-4.
10.26 Change in control agreement between McAfee and Peter
Watkins dated May 1, 1995, incorporated by reference to
Exhibit 10.6 of the S-4.
10.27 Change in control agreement between McAfee and William L.
Larson dated April 14, 1995, incorporated by reference to
Exhibit 10.7 of the S-4.
10.28 Management Agreement between McAfee and Saber Software
Corporation dated July 20, 1995, incorporated by reference
to Exhibit 10.8 of the S-4
10.29 Cross Distribution Agreement between McAfee and Saber
Software Corporation dated July 21, 1995, incorporated by
reference to Exhibit 10.9 of the S-4.
10.30 Dilg Settlement Agreement and Release and Covenant Not to
Sue dated as of October 24, 1995 between Saber Software
Corporation and Dilg Properties, Inc. ("Dilg"),
ContactPerfect Corporation ("CPC"), Jerry D. Blackburn, J.
Robert Dilg, and Alvin D. Gilbert, incorporated by
reference to Exhibit 10.30 of the Company's Form 10-Q for
the Quarter Ended September 30, 1995 (the "September 30,
1995 10-Q").
10.31 Sale and Purchase Agreement Relating to 850 shares between
Patrick Legranche and the Company dated July 27, 1995
incorporated by reference to Exhibit 10.31 of the
Company's September 30, 1995 10-Q.
10.32 Sales and Purchase Agreement Relating to 1,650 shares
between Serge Gauthron, Patrick Legranche, Valorisation
Informatique de Fichiers and the Company dated July 27,
1995 incorporated by reference to Exhibit 10.32 of the
Company's September 30, 1995 10-Q.
10.33 Common Stock Purchase Warrant to purchase 10,000 shares of
the Company's Common Stock held by RT Software dated July
27,1995 incorporated by reference to Exhibit 10.33 of the
Company's September 30, 1995 10-Q.
20
<PAGE> 21
McAFEE ASSOCIATES, INC.
Form 10-Q, March 31, 1996
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
10.34 Share Purchase Agreement between International Data
Security Limited (an Australian company), the Company and
International Data Security Limited (an English company)
dated September 13, 1995 incorporated by reference to
Exhibit 10.34 of the Company's September 30, 1995 10-Q.
10.35 Agreement and Plan of Merger dated March 6, 1996 and among
McAfee Associates, Inc., McCor Acquisition Corporation and
Vycor Corporation, incorporated by reference to Exhibit
10.35 of the Company's Form 10-K file for the year ended
December 31, 1995 (the "1995 10-K").
10.36 Change of Control Agreement between McAfee and Mark
Woodward dated November 10, 1995, incorporated by
reference to Exhibit 10.36 of the Company's 1995 10-K.
10.37 Confidential Agreement and Release of Claims between
McAfee and Robert Chappaelear dated January 30, 1996
incorporated by reference to Exhibit 10.37 of the
Company's 1995 10-K.
10.38 Sublease Agreement dated November 15, 1995 between the
Company and Digital Video Systems incorporated by
reference to Exhibit 10.38 of the Company's 1995 10-K.
10.39 Amendment No. 1 to Lease dated September 27, 1995 by and
between the Company and Arilliga Family Trust and
Richard T. Perry Separate Property Trust, incorporated by
reference to Exhibit 10.39 of the Company's 1995 10-K.
10.40 1995 Stock Incentive Plan
11.1 Computation of Net Income Per Share. 22
27 Financial Data Schedule 59
</TABLE>
21
<PAGE> 1
EXHIBIT 10.40
MCAFEE ASSOCIATES, INC.
1995 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN
1.1 Establishment.................................................................... 1
1.2 Purpose.......................................................................... 1
1.3 Term of Plan..................................................................... 1
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions...................................................................... 1
2.2 Construction..................................................................... 4
ARTICLE 3. ADMINISTRATION AND ELIGIBILITY
3.1 Administration by the Board...................................................... 4
3.2 Powers of the Board.............................................................. 4
3.3 Disinterested Administration..................................................... 5
3.4 Committee Complying with Section 162(m).......................................... 6
3.5 Eligibility...................................................................... 6
ARTICLE 4. SHARES SUBJECT TO PLAN
4.1 Maximum Number of Shares Issuable................................................ 6
4.2 Adjustments for Changes in Capital Structure..................................... 6
ARTICLE 5. STOCK OPTIONS
5.1 Limitations on Options........................................................... 7
5.2 Terms and Conditions of Options.................................................. 8
5.3 Standard Forms of Stock Option Agreement......................................... 10
5.4 Nontransferability of Options.................................................... 10
ARTICLE 6. PERFORMANCE AWARDS
6.1 Performance Awards Authorized.................................................... 10
6.2 Terms and Conditions of Performance Awards....................................... 11
6.3 Standard Form of Performance Award Agreement; Authority to
Vary Terms....................................................................... 14
6.4 Nontransferability of Performance Awards......................................... 14
ARTICLE 7. RESTRICTED STOCK AWARDS
7.1 Terms and Conditions of Restricted Stock Awards.................................. 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
7.2 Standard Form of Restricted Stock Agreement; Authority to Vary
Terms............................................................................ 15
7.3 Nontransferability of Restricted Stock Awards.................................... 15
ARTICLE 8. GENERAL PROVISIONS
8.1 Transfer of Control.............................................................. 15
8.2 Dividends and Other Distributions................................................ 17
8.3 Provision of Information......................................................... 18
8.4 Indemnification.................................................................. 18
8.5 Unfunded Obligation.............................................................. 18
8.6 Termination or Amendment of Plan................................................. 19
</TABLE>
ii
<PAGE> 4
MCAFEE ASSOCIATES, INC.
1995 STOCK INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN
1.1 ESTABLISHMENT. The McAfee Associates, Inc. 1995 Stock Incentive
Plan (the "PLAN") is hereby established effective as of April 14, 1995 (the
"EFFECTIVE DATE"). The Plan amends and restates in its entirety the McAfee
Associates, Inc. 1992 Stock Option Plan.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
and Awards granted under the Plan have lapsed. However, all Incentive Stock
Options shall be granted, if at all, within ten (10) years from the Effective
Date. Notwithstanding the foregoing, if the maximum number of shares of Stock
issuable pursuant to the Plan as provided in Section 4.1 has been amended at any
time, all Incentive Stock Options shall be granted, if at all, no later than the
last day preceding the tenth (10th) anniversary of the earlier of (a) the latest
date on which any amendment of the maximum number of shares of Stock issuable
under the Plan was approved by the stockholders of the Company or (b) the date
such amendment was adopted by the Board.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "AWARD" means a Performance Award or Restricted Stock
granted pursuant to the terms of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).
(c) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
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<PAGE> 5
(d) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(e) "COMPANY" means McAfee Associates, Inc., a Delaware
corporation, or any successor corporation thereto.
(f) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(g) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(h) "DIVIDEND EQUIVALENT" means an amount equal to any
cash dividend or other cash distribution actually paid by the Company with
respect to a share of Stock.
(i) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(j) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value
of a share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either (i) an Option intended to be (as set forth in
the Option Agreement), and which qualifies as, an "INCENTIVE STOCK OPTION"
within the meaning of Section 422(b) of the Code or (ii) a "NONSTATUTORY STOCK
OPTION" which is not intended to be (as set forth in the Option Agreement), or
which does not qualify as, an Incentive Stock Option.
2
<PAGE> 6
(n) "OPTIONEE" means a person who has been granted one or
more Options.
(o) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee.
(p) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPANT" means a person who has been granted one
or more Awards.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "PERFORMANCE AWARD" means Performance-Based
Restricted Stock, Performance Shares, or Performance Units as such terms are
defined in Section 6.1.
(u) "PERFORMANCE AWARD AGREEMENT" means a written
agreement between the Company and a Participant setting forth the terms,
conditions and restrictions of the Performance Award granted to the Participant.
(v) "PERFORMANCE GOAL" means a threshold level of
performance established by the Board with respect to a Performance Measure.
(w) "PERFORMANCE MEASURE" means a measure of business
performance, as described in Section 6.2(b).
(x) "PERFORMANCE PERIOD" means a period of three (3)
consecutive fiscal years of the Company, or such other number of consecutive
fiscal years of the Company (but not less than one (1)) as the Board shall
establish, at the end of which the attainment of the Performance Goals is
determined. Performance Periods for different Performance Awards, including
Performance Awards made to the same Participant, need not be consecutive.
(y) "RESTRICTED STOCK AWARD" or "RESTRICTED STOCK" means
shares of Stock awarded pursuant to the terms and conditions of Article 7.
(z) "RESTRICTED STOCK AGREEMENT" means a written
agreement between the Company and a Participant setting forth the terms,
conditions and restrictions of the Restricted Stock Award granted to a
Participant.
3
<PAGE> 7
(aa) "RULE 16b-3" means Rule 16b-3 as promulgated under
the Exchange Act, as amended from time to time, or any successor rule or
regulation.
(ab) "SECTION 162(m)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(ac) "STOCK" means the common stock, par value $0.01, of
the Company, as adjusted from time to time in accordance with Section 4.2.
(ad) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(ae) "TEN PERCENT OWNER OPTIONEE" means an Optionee who,
at the time an Option is granted to the Optionee, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular.
Use of the term "or" is intended to include the conjunctive as well as the
disjunctive.
ARTICLE 3. ADMINISTRATION AND ELIGIBILITY
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board, including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Option or Award shall be determined by the
Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option or Award. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 POWERS OF THE BOARD. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options or Awards shall be granted and the number of shares of
Stock to be subject to each Option, the number of shares of Stock or units to be
subject to each Award and the value of a unit;
(b) to determine the type of Award granted and to
designate Options as Incentive Stock Options or Nonstatutory Stock Options;
4
<PAGE> 8
(c) to determine the Fair Market Value of shares of stock
or other property;
(d) to determine the terms and conditions of each Option
and Award (which need not be identical), including, without limitation, the
exercise price of the Option, the method of payment for shares purchased upon
the exercise of the Option, the method for satisfaction of any tax withholding
obligation arising in connection with the Option or Award, including by the
withholding or delivery of shares of stock, the timing and terms of the
exercisability or vesting of the Option or Award, the Performance Goals and
other conditions, if any, for the settlement of any Performance Award and
whether such Performance Goals and conditions have been satisfied, the time of
the expiration of the Option or Award, the effect of the Optionee's termination
of employment or service with the Participating Company Group, and all other
terms and conditions of the Option or Award not inconsistent with the terms of
the Plan;
(e) to determine whether a Performance Award shall be
settled in shares of Stock, in cash, or in any combination thereof;
(f) to approve one or more forms of Option Agreement,
Performance Award Agreement or Restricted Stock Agreement;
(g) to amend, modify, extend, or renew, or grant a new
Option or Award in substitution for, any Option or Award or to waive any
restrictions or conditions applicable to any Option or Award or any shares
acquired upon the exercise thereof;
(h) to accelerate, continue, extend or defer the
exercisability or vesting of any Option or Award or any shares acquired upon the
exercise or settlement thereof, including with respect to the period following
an Optionee's termination of employment or service with the Participating
Company Group;
(i) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(j) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement, Performance
Award Agreement, or Restricted Stock Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option or Award as the Board may deem advisable to the extent consistent with
the Plan and applicable law.
3.3 DISINTERESTED ADMINISTRATION. With respect to participation
by Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered by the
5
<PAGE> 9
Board in compliance with the "disinterested administration" requirements of Rule
16b-3.
3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating Company
is a "publicly held corporation" within the meaning of Section 162(m), the Board
may establish a Committee of "outside directors" within the meaning of Section
162(m) to approve the grant of any Option or Award which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
3.5 ELIGIBILITY. Options and Awards may be granted only to Employees
and Consultants. For purposes of the foregoing sentence, "Employees" shall
include prospective Employees to whom Options or Awards are granted in
connection with written offers of employment with the Participating Company
Group, and "Consultants" shall include prospective Consultants to whom Options
or Awards are granted in connection with written offers of engagement with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option or Award.
ARTICLE 4. SHARES SUBJECT TO PLAN
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Six Million Nine Hundred Thousand
(6,900,000) and shall consist of authorized but unissued shares or treasury
shares of Stock or a combination thereof. In the event that (a) any outstanding
Option for any reason expires or is terminated or canceled or shares of Stock
acquired, subject to repurchase, upon the exercise of an Option are repurchased
by the Company or (b) any Award granted under the Plan denominated in shares of
Stock for any reason expires or is canceled, terminated, or paid in cash, or
shares of Stock subject to forfeiture are forfeited to the Company, the shares
allocable to the unexercised portion of such Option or to such Award, or such
repurchased or forfeited shares, as the case may be, shall again be available
for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and Awards (other than Performance
Units as defined in Section 6.1), in the Section 162(m) Grant Limit set forth in
Section 5.1(b), in the Maximum Share Award Limit set forth in Section 6.2(e),
and in the exercise price of any outstanding Options. If a majority of the
shares which are of the same class as the shares that are subject to outstanding
Options and Awards are exchanged for, converted into, or otherwise become
(whether or not pursuant to a Transfer of Control (as defined in Section 8.1)
shares of another corporation (the "NEW SHARES"),
6
<PAGE> 10
the Board may unilaterally amend the outstanding Options and Awards to provide
that such Options are exercisable for New Shares and that such Awards may be
settled in New Shares, as the case may be. In the event of any such amendment,
the number of shares subject to and the exercise price of the outstanding
Options and the number of shares subject to the outstanding Awards shall be
adjusted in a fair and equitable manner as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 4.2 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
exercise price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
ARTICLE 5. STOCK OPTIONS
5.1 LIMITATIONS ON OPTIONS.
(a) OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the date an Option is granted to such person may be granted only a
Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted on the date such person commences service with a Participating Company,
with an exercise price determined as of such date in accordance with Section
5.2(a).
(b) SECTION 162(m) GRANT LIMIT. Subject to adjustment as
provided in Section 4.2, at any such time as a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), no Employee
shall be granted one or more Options within any fiscal year of the Company which
in the aggregate are for the purchase of more than Seven Hundred Fifty Thousand
(750,000) shares (the "SECTION 162(m) GRANT LIMIT").
(c) FAIR MARKET VALUE LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time the Option is granted) of
stock with respect to which Incentive Stock Options are exercisable by an
Optionee for the first time during any calendar year (under all stock option
plans of the Participating Company Group, including the Plan) exceeds One
Hundred Thousand Dollars ($100,000), the portions of such options which exceed
such amount shall be treated as Nonstatutory Stock Options. This Section 5.1(c)
shall be applied by taking Incentive Stock Options into account in the order in
which they were granted. If the Code is amended to provide for a different
limitation from that set forth in this Section 5.1(c), such different limitation
shall be deemed incorporated herein effective as of the date and with respect to
such Options as required by such amendment to the Code. If an Option is treated
as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part
by reason of the limitation set forth in this Section 5.1(c), the Optionee may
designate which portion of such Option the Optionee is exercising and may
request that separate certificates representing each such portion be issued upon
the exercise of the Option. In the absence of such designation, the Optionee
shall be deemed to have exercised the Incentive Stock Option portion of the
Option first.
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<PAGE> 11
5.2 TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (i)
the exercise price per share for an Incentive Stock Option shall be not less
than the Fair Market Value of a share of Stock on the date the Option is
granted, (ii) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the date the Option is granted, and (iii) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall have an exercise price per share
less than one hundred ten percent (110%) of the Fair Market Value of a share of
Stock on the date the Option is granted. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying with the provisions of Section 424(a) of
the Code.
(b) EXERCISE PERIOD. Options shall be exercisable at such time
or times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (i) no Incentive Stock
Option shall be exercisable after the expiration of ten (10) years after the
date such Option is granted, (ii) no Incentive Stock Option granted to a Ten
Percent Owner Optionee shall be exercisable after the expiration of five (5)
years after the date such Option is granted, and (iii) no Option granted to a
prospective Employee or prospective Consultant may become exercisable prior to
the date on which such person commences service with a Participating Company.
(c) PAYMENT OF EXERCISE PRICE.
(i) FORMS OF PAYMENT AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (1) in cash, by
check, or cash equivalent, (2) by tender to the Company of shares of Stock owned
by the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (3) by the assignment of the proceeds
of a sale of some or all of the shares being acquired upon the exercise of the
Option (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "SAME-DAY SALE"), (4) by the
Optionee's promissory note in a form approved by the Company, (5) by such other
consideration as may be approved by the Board from
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<PAGE> 12
time to time to the extent permitted by applicable law, or (6) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 5.3, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(ii) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company of shares of
Stock to the extent such tender of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(iii) SAME-DAY SALE. The Company reserves, at
any and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Same-Day Sale.
(iv) PAYMENT BY PROMISSORY NOTE. No promissory
note shall be permitted if the exercise of an Option using a promissory note
would be a violation of any law. Any permitted promissory note shall be on such
terms as the Board shall determine at the time the Option is granted. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by the Board, in the event the Company at any
time is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
(d) TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of shares of
Stock having a Fair Market Value, as determined by the Company, equal to all or
any part of the federal, state, local and foreign taxes, if any, required by law
to be withheld by the Participating Company Group with respect to such Option.
Alternatively, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding or otherwise, to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option. The Company shall have no
obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied.
9
<PAGE> 13
5.3 STANDARD FORMS OF STOCK OPTION AGREEMENT.
(a) INCENTIVE STOCK OPTIONS. Unless otherwise provided for by
the Board at the time an Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Incentive Stock Option Agreement adopted by
the Board, as amended from time to time, and designated as the standard form of
Incentive Stock Option Agreement for use under the Plan.
(b) NONSTATUTORY STOCK OPTIONS. Unless otherwise provided for
by the Board at the time an Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement adopted
by the Board, as amended from time to time, and designated as the standard form
of Nonstatutory Stock Option Agreement for use under the Plan.
(c) STANDARD TERM FOR OPTIONS. Except as provided in
Section 5.2(b) or by the Board in the grant of an Option, any Option granted
hereunder shall be exercisable for a term of ten (10) years.
(d) AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 5.3 either in connection with the
grant or amendment of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the terms
and conditions of any such new, revised or amended standard form or forms of
Option Agreement shall be in accordance with the terms of the Plan. Such
authority shall include, but not by way of limitation, the authority to grant
Options which are immediately exercisable subject to the Company's right to
repurchase any unvested shares of Stock acquired by an Optionee upon the
exercise of an Option in the event such Optionee's employment or service with
the Participating Company Group is terminated for any reason, with or without
cause.
5.4 NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
ARTICLE 6. PERFORMANCE AWARDS
6.1 PERFORMANCE AWARDS AUTHORIZED. The Board, in its sole discretion
may grant Performance Awards which are Performance-Based Restricted Stock,
Performance Shares or Performance Units, as defined below.
(a) "PERFORMANCE-BASED RESTRICTED STOCK" shall mean
shares of Stock awarded to a Participant which, in accordance with the terms of
a Performance
10
<PAGE> 14
Award Agreement, are subject to forfeiture in full or in part or with respect to
which additional shares of Stock may be issued on the basis of the attainment of
one or more Performance Goals within a Performance Period. Shares of
Performance-Based Restricted Stock shall be evidenced in such manner as the
Board may deem appropriate, including by book-entry registration or issuance of
one or more stock certificates. Any certificate issued in respect of shares of
Performance-Based Restricted Stock shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award. The Board may require
that such certificates be held in the custody of the Company or other escrow
agent until the restrictions thereon lapse.
(b) "PERFORMANCE SHARES" shall mean bookkeeping units,
denominated in shares of Stock, awarded to a Participant which, in accordance
the terms of a Performance Award Agreement, are subject to forfeiture in full or
in part or with respect to which additional shares of Stock may be issued on the
basis of the attainment of one or more Performance Goals within a Performance
Period.
(c) "PERFORMANCE UNITS" shall mean bookkeeping units,
denominated in dollar amounts, awarded to a Participant which, in accordance
with the terms of a Performance Award Agreement, are subject to forfeiture in
full or in part or with respect to which the dollar value of additional such
units may be paid on the basis of the attainment of one or more Performance
Goals within a Performance Period.
6.2 TERMS AND CONDITIONS OF PERFORMANCE AWARDS. Performance Awards
shall be evidenced by Performance Award Agreements, in such form as the Board
shall from time to time establish, specifying the number of shares of Stock or
units covered thereby, and the number of shares of Stock or dollar value, as the
case may be, represented by a unit, the Performance Goals and Performance Period
established by the Board, and the other terms, conditions and restrictions of
the Performance Award, and which agreements may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
(a) PERFORMANCE GOALS AND PERFORMANCE PERIOD. The Board, in
its sole discretion, shall establish the Performance Period applicable to each
Performance Award. Prior to the commencement of the applicable Performance
Period, or such later date as may be permitted with respect to
"performance-based compensation" under Section 162(m), the Board shall select
one or more of the Performance Measures, as set forth below, and establish with
respect to such Performance Measures one or more Performance Goals which, when
measured at the end of the Performance Period, shall determine the number of
shares of Stock, if any, which shall become nonforfeitable or issuable with
respect to such Performance Award or the dollar amount, if any, payable with
respect to such Performance Award.
(b) PERFORMANCE MEASURES. A "PERFORMANCE MEASURE" shall mean
a measure of business performance, as set forth below. Such Performance Measures
shall have the same meaning as used in the Company's financial statements, or if
11
<PAGE> 15
such terms are not used in the Company's financial statements, they shall have
the meaning applied pursuant to generally accepted accounting principles, or as
used generally in the Company's industry. As used in connection with a
Performance Award, Performance Measures may be absolute or relative to a
standard selected by the Board. Performance Measures shall be calculated with
respect to the Company and each Parent Corporation and Subsidiary Corporation
consolidated therewith for financial reporting purposes or such division or
other business unit thereof as may be selected by the Board. For purposes of the
Plan, the Performance Measures applicable to a Performance Award shall be
calculated before the effect of changes in accounting standards, restructuring
charges and similar extraordinary items, determined according to criteria
established by the Board, occurring after the establishment of the Performance
Goals applicable to a Performance Award. Performance Measures may be one or
more of the following:
(i) bookings,
(ii) revenue,
(iii) operating income,
(iv) pre-tax profit,
(v) net income,
(vi) gross margin,
(vii) operating margin,
(viii) earnings per share,
(ix) return on stockholder equity,
(x) return on capital,
(xi) return on assets, and
(xii) cash flow.
(c) NO MONETARY PAYMENT. The Board shall not require a
Participant to make any monetary payment (other than applicable tax withholding)
as a condition of receiving a Performance Award. Therefore, for purposes of Rule
16b-3(a)(1) with respect to any Performance Award, the "price at which
securities may be offered" shall be zero (0) dollars.
(d) SETTLEMENT OF PERFORMANCE AWARDS. As soon as
practicable following the completion of the Performance Period for each
Performance Award, the Board shall certify in writing the extent to which the
Performance Goals have been
12
<PAGE> 16
attained and the number of shares of Stock, if any, which shall be
nonforfeitable or issued, or the dollar amount, if any, earned upon settlement
of the Performance Award in accordance with its terms. The Board, in its sole
discretion, may elect to pay the Performance Shares or Performance Units earned
in shares of Stock, cash or any combination thereof. Payment of Performance
Shares in cash or payment of Performance Units in shares of Stock shall be based
on the Fair Market Value of a share of Stock. The Company shall promptly notify
the Participant of the determination of the Board and deliver to the Participant
the appropriate cash payment or shares of Stock, subject to satisfaction of the
Participating Company Group's tax withholding obligations, if any, and subject
to any additional conditions or restrictions on such shares of Stock as set
forth in the Performance Award Agreement. The Board shall have no discretion to
increase the number of shares of Stock nonforfeitable or issuable or the dollar
amount payable upon settlement of a Performance Award in excess of the amount
called for by the terms of such Award with respect to the degree of attainment
of the Performance Goals as certified by the Board.
(e) MAXIMUM PERFORMANCE AWARDS. Subject to adjustment as
provided in Section 4.2, no Participant may be granted Performance-Based
Restricted Stock or Performance Shares which could result in such Participant
receiving more than One Hundred Fifty Thousand (150,000) shares of Stock for
each full fiscal year of the Company contained in the Performance Period for
such Award (the "MAXIMUM SHARE AWARD LIMIT") or Performance Units which could
result in such Participant receiving more than One Million dollars ($1,000,000)
for each full fiscal year of the Company contained in the Performance Period for
such Award. No Participant may be granted more than one Performance Award for
the same Performance Period.
(f) DISCRETION TO REDUCE PERFORMANCE AWARDS. Notwithstanding
the attainment of any Performance Goal, if provided in the Performance Award
Agreement evidencing a Performance Award, the Board shall have the discretion,
on the basis of such criteria as may be established by the Board, to reduce some
or all of a Performance Award that would otherwise be paid or become
nonforfeitable.
(g) TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the payment of any Performance Award, including
by withholding shares of Stock which have become nonforfeitable or issuable
thereunder, the federal, state, local or foreign taxes, if any, required by law
to be withheld by the Participating Company Group with respect to such payment.
Alternatively, in its sole discretion, the Company shall have the right to
require the Participant, through payroll withholding or otherwise, to make
adequate provision for any such tax withholding obligations of the Participating
Company Group arising in connection with such Performance Award. The Company
shall have no obligation to deliver cash or shares of Stock in payment of a
Performance Award or to release shares of Stock from an escrow established
pursuant to the Performance Award Agreement until the Participating Company
Group's tax withholding obligations have been satisfied.
13
<PAGE> 17
(h) VOTING RIGHTS. A Participant issued shares of Stock
pursuant to an award of Performance-Based Restricted Stock shall be entitled to
vote such shares. A Participant awarded Performance Shares shall not be entitled
to vote any shares of Stock represented by such Performance Shares until the
date of issuance of shares of Stock upon settlement of such Award.
6.3 STANDARD FORM OF PERFORMANCE AWARD AGREEMENT; AUTHORITY TO VARY
TERMS. The Board shall have the authority from time to time to approve one or
more standard forms of Performance Award Agreement and to vary the terms of any
such standard forms of Performance Award Agreement either in connection with the
grant or amendment of an individual Performance Award or in connection with the
authorization of a new standard form or forms; provided, however, that the terms
and conditions of such revised or amended Performance Award Agreements shall be
in accordance with the terms of the Plan.
6.4 NONTRANSFERABILITY OF PERFORMANCE AWARDS. During the lifetime of
the Participant, all rights with respect to a Performance Award shall be
exercisable only by the Participant. Prior to the settlement and termination of
all restrictions with respect to a Performance Award as provided in Section
6.2(d), neither the Performance Award nor any rights or interests therein may be
assigned or transferred in any manner except by will or by the laws of descent
and distribution.
ARTICLE 7. RESTRICTED STOCK AWARDS
7.1 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. The Board may from
time to time grant Restricted Stock Awards. Restricted Stock Awards shall be
evidenced by Restricted Stock Agreements, in such form as the Board shall from
time to time establish, specifying the number of shares of Stock covered thereby
and the other terms, conditions and restrictions of the Restricted Stock Award,
and which agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
(a) NO MONETARY PAYMENT. The Board shall not require a
Participant to make any monetary payment (other than applicable tax withholding)
as a condition of receiving a Restricted Stock Award. Therefore, for purposes of
Rule 16b-3(a)(1) the "price at which securities may be offered" shall be zero
(0) dollars.
(b) CERTIFICATES. Shares of Restricted Stock shall be
evidenced in such manner as the Board may deem appropriate, including by
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of the Participant and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Award. The Board may
require that such certificates be held in the custody of the Company or other
escrow agent until the restrictions thereon lapse.
14
<PAGE> 18
(c) TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to apply any shares of Stock issued pursuant to a Restricted
Stock Award as to which all restrictions on transfer have lapsed to satisfy the
federal, state, local or foreign taxes, if any, required by law to be withheld
with respect to such shares. Alternatively, in its sole discretion, the Company
shall have the right to require the Participant, through payroll withholding or
otherwise, to make adequate provision for any such tax withholding obligations
of the Participating Company Group arising in connection with a Restricted Stock
Award. The Company shall have no obligation to deliver shares of Restricted
Stock or to release such shares of Stock from an escrow established pursuant to
the Restricted Stock Agreement until the Participating Company Group's tax
withholding obligations have been satisfied.
(d) VOTING RIGHTS. A Participant issued shares of Stock
pursuant to a Restricted Stock Award shall be entitled to vote such shares.
7.2 STANDARD FORM OF RESTRICTED STOCK AGREEMENT; AUTHORITY TO VARY
TERMS. The Board shall have the authority from time to time to approve one or
more standard forms of Restricted Stock Agreement and to vary the terms of any
such standard forms of Restricted Stock Agreement either in connection with the
grant or amendment of an individual Restricted Stock Award or in connection with
the authorization of a new standard form or forms; provided, however, that the
terms and conditions of such revised or amended Restricted Stock Agreements
shall be in accordance with the terms of the Plan.
7.3 NONTRANSFERABILITY OF RESTRICTED STOCK AWARDS. During the lifetime
of the Participant, all rights with respect to a Restricted Stock Award shall be
exercisable only by the Participant. Prior to the lapse of all restrictions with
respect to a Restricted Stock Award, neither the Restricted Stock Award nor any
rights or interests therein may be assigned or transferred in any manner except
by will or by the laws of descent and distribution.
ARTICLE 8. GENERAL PROVISIONS
8.1 TRANSFER OF CONTROL.
(a) DEFINITION. A "TRANSFER OF CONTROL" shall be deemed
to have occurred in the event any of the following occurs with respect to the
Company.
(i) the direct or indirect sale or exchange by
the stockholders of the Company of all or substantially all of the voting stock
of the Company wherein the stockholders of the Company immediately before such
sale or exchange do not retain in substantially the same proportions as their
ownership of shares of the Company's voting stock immediately before such event,
directly or indirectly (including, without limitation, through their ownership
of shares of the voting stock of a corporation which, as a result of such sale
or exchange, owns the Company either directly or through one or more
subsidiaries), at least a majority of the
15
<PAGE> 19
beneficial interest in the voting stock of the Company immediately after such
sale or exchange;
(ii) a merger or consolidation wherein the
stockholders of the Company immediately before such merger or consolidation do
not retain in substantially the same proportions as their ownership of shares of
the Company's voting stock immediately before such event, directly or indirectly
(including, without limitation, through their ownership of shares of the voting
stock of a corporation which, as a result of such merger or consolidation, owns
the Company either directly or through one or more subsidiaries), at least a
majority of the beneficial interest in the voting stock of the Company
immediately after such merger or consolidation;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more corporations (the "TRANSFEREE CORPORATION(S)") wherein
the stockholders of the Company immediately before such sale, exchange, or
transfer retain in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before such event, directly or
indirectly (including, without limitation, through their ownership of shares of
the voting stock of a corporation which owns the Transferee Corporation(s)
either directly or through one or more subsidiaries), at least a majority of the
beneficial interest in the voting stock of the Transferee Corporation(s)
immediately after such event); or
(iv) a liquidation or dissolution of the Company.
(b) EFFECT ON OPTIONS. In the event of a Transfer of Control,
the surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall
either assume the Company's rights and obligations under outstanding Options or
substitute substantially equivalent options for the Acquiring Corporation's
stock for outstanding Options. In the event the Acquiring Corporation elects not
to assume or substitute for outstanding Options in connection with a Transfer of
Control, any unexercisable or unvested portion of the outstanding Options shall
be immediately exercisable and vested in full as of the date ten (10) days prior
to the date of the Transfer of Control, and the Company shall provide each
Optionee holding an outstanding Option with at least ten (10) days advance
written notice of the pending Transfer of Control prior to the consummation
thereof. Notwithstanding the foregoing, the Board may, in its sole discretion,
provide in Option Agreements evidencing one or more Options that such Options
shall be immediately exercisable and vested in full as of the date ten (10) days
prior to the date of the Transfer of Control notwithstanding that the Acquiring
Corporation has agreed to assume or substitute substantially equivalent options
for the Acquiring Corporation's stock for such outstanding Options. The exercise
or vesting of any Option that was permissible solely by reason of this Section
8.1(b) shall be conditioned upon the consummation of the Transfer of Control.
Any Options which are neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control shall terminate and cease to be outstanding
effective as of the date of the
16
<PAGE> 20
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement. If
the corporation the stock of which is subject to the outstanding Options
immediately prior to a Transfer of Control described in Section 8.1(a)(i) is the
surviving or continuing corporation, the outstanding Options shall be deemed to
have been assumed by the Acquiring Corporation for purposes of this Section
8.1(b).
(c) EFFECT ON PERFORMANCE AWARDS. In the event of a Transfer
of Control, each Participant granted a Performance Award for a Performance
Period that will not be completed as of the date of the Transfer of Control
shall be deemed to have earned and shall receive no later than the day prior to
the date of the Transfer of Control, free of any transfer restrictions thereon,
payment of the Performance Award in an amount equal to the product of (i) the
target amount that may be earned in accordance with the terms of the Performance
Award Agreement evidencing such Performance Award and (ii) a fraction, the
numerator of which is the number of days that have elapsed since the beginning
of such Performance Period to the date of the Transfer of Control, and the
denominator of which is the total number of days in such Performance Period. Any
Performance Award payment that was permissible solely by reason of this Section
8.1(c) shall be conditioned upon the consummation of the Transfer of Control.
Notwithstanding the foregoing, if the Board determines that all or any portion
of the payment to be made to the Participant pursuant to this Section 8.1(c)
shall be made in cash, such cash payment shall be made no later than thirty (30)
days following the date of the Transfer of Control.
(d) EFFECT ON RESTRICTED STOCK AWARD. In the event of a
Transfer of Control, any restrictions to which the outstanding Restricted Stock
Awards remain subject shall terminate and such Restricted Stock shall become
fully vested as of the day prior to the date of the Transfer of Control. The
termination of any restrictions with respect to a Restricted Stock Award that
was permissible solely by reason of this Section 8.1(d) shall be conditioned
upon the consummation of the Transfer of Control.
8.2 DIVIDENDS AND OTHER DISTRIBUTIONS. Except as provided in this
Section 8.2 and in Section 4.2, no Optionee or Participant shall be entitled to
dividends or other distributions (collectively, "DIVIDENDS") with respect to
shares of Stock for which the record date is prior to the date such shares are
issued.
(a) OPTIONS, PERFORMANCE-BASED RESTRICTED STOCK AND RESTRICTED
STOCK. With respect to shares of Stock issued pursuant to the exercise of
Options or the award of Performance-Based Restricted Stock or Restricted Stock,
the Board may, in its sole discretion, provide either for the current payment of
Dividends or the accumulation and payment of Dividends to the extent that such
shares become nonforfeitable.
17
<PAGE> 21
(b) PERFORMANCE SHARES. With respect to Performance Shares,
the Board may, in its sole discretion, provide that Dividend Equivalents shall
not be paid or provide either for the current payment of Dividend Equivalents or
the accumulation and payment of Dividend Equivalents to the extent that the
Performance shares become nonforfeitable.
(c) PERFORMANCE UNITS. Dividend Equivalents shall not be
paid with respect to Performance Units.
8.3 PROVISION OF INFORMATION. Each Optionee and Participant shall be
given access to information concerning the Company equivalent to that
information generally made available to the Company's common stockholders.
8.4 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such person
is liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.
8.5 UNFUNDED OBLIGATION. Any amounts payable to Participants pursuant
to the Plan are unfunded obligations. No Participating Company shall be required
to segregate any monies from its general funds, or to create any trusts, or
establish any special accounts with respect to such obligations. The Company
shall retain at all times beneficial ownership of any investments, including
trust investments, which the Company may make to fulfill its payment obligations
hereunder. Any investments or the creation or maintenance of any trust or any
Participant account shall not create or constitute a trust or fiduciary
relationship between the Board or any Participating Company and a Participant,
or otherwise create any vested or beneficial interest in any Participant or the
Participant's creditors in any assets of any Participating Company. The
Participants shall have no claim against any Participating Company for any
changes in the value of any assets which may be invested or reinvested by the
Company with respect to the Plan.
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<PAGE> 22
8.6 TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options and (c) no expansion in the class of persons eligible to
receive Nonstatutory Stock Options or Awards. In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option or Award,
or any unexercised portion thereof, without the consent of the Optionee or
Participant, as the case may be, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or unless such termination or amendment otherwise
is necessary to comply with any applicable law or government regulation.
19
<PAGE> 23
STANDARD FORM OF
MCAFEE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTIION AGREEMENT
<PAGE> 24
MCAFEE ASSOCIATES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of______________,19___ by and between McAfee
Associates, Inc. and__________________________(the "OPTIONEE").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following
terms shall have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means_______________.
(b) "NUMBER OF OPTION SHARES" means____________
shares of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $___________per share
of Stock, as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Initial
Vesting Date.
(e) "INITIAL VESTING DATE" means the date
occurring one (1) year after (check one):
__ the Date of Option Grant.
__ ____________________, 19 __.
(f) "VESTED RATIO" means, on any relevant date,
the ratio determined as follows:
1
<PAGE> 25
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee's Service is continuous from the
later of the Date of Option Grant or the
Optionee's Service commencement date until
the Initial Vesting Date
Plus
For each full month of the Optionee's 1/48
continuous Service from the Initial Vesting
Date until the Vested Ratio equals 1/1, an
additional
</TABLE>
The Company may make a pro rata reduction in the Vested Ratio to account for any
periods of part-time Service by the Optionee.
(g) "OPTION EXPIRATION DATE" means the date ten
(10) years after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee
or other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted in the Plan, including, without limitation, the
power to amend or terminate the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law.
(k) "COMPANY" means McAfee Associates, Inc., a
Delaware corporation, or any successor corporation thereto.
2
<PAGE> 26
(l) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(m) "DIRECTOR" means a member of the Board or of
the board of directors of any other Participating Company.
(n) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
(o) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for this purpose.
(p) "EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
(q) "FAIR MARKET VALUE" means, as of any date,
the value of a share of stock or other property as determined by the Board, in
its sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(r) "INSIDER" means an officer or a Director of
the Company or any other person whose transactions in Stock are subject to
Section 16 of the Exchange Act.
(s) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of the
Code.
(t) "PARTICIPATING COMPANY" means the Company or
any Parent Corporation or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(v) "PLAN" means the McAfee Associates, Inc.
1995 Stock Incentive Plan.
(w) "RULE 16B-3" means Rule 16b-3 as promulgated
under the Exchange Act, as amended from time to time, or any successor rule or
regulation.
3
<PAGE> 27
(x) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(y) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company.
(z) "STOCK" means the common stock, par value
$0.01, of the Company, as adjusted from time to time in accordance with Section
9.
(aa) "SUBSIDIARY CORPORATION" means any present
or future "subsidiary corporation" of the Company, as defined in Section 424(f)
of the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is intended to include the conjunctive as well as
the disjunctive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning
this Option Agreement shall be determined by the Board, including any duly
appointed Committee of the Board. All determinations by the Board shall be final
and binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
4
<PAGE> 28
(a) Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
(b) Notwithstanding the foregoing, in the event
that the adoption of the Plan or any amendment of the Plan is subject to the
approval of the Company's stockholders in order for the Plan or the grant of the
Option to comply with the requirements of Rule 16b-3, the Option shall not be
exercisable prior to such stockholder approval if the Optionee is an Insider,
unless the Board, in its sole discretion, approves the exercise of the Option
prior to such stockholder approval.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased and (ii) an executed copy, if required herein, of the then current
form of security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreement.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF PAYMENT AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Same-Day Sale, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the
5
<PAGE> 29
par value of the shares being acquired and the Optionee's promissory note for
the balance of the aggregate Exercise Price, or (v) by any combination of the
foregoing.
(b) TENDER OF STOCK. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company of shares of
Stock to the extent such tender of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. The Option may not be exercised by tender to the Company of
shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
(c) SAME-DAY SALE. A "SAME-DAY SALE" means the
assignment in a form acceptable to the Company of the proceeds of a sale of some
or all of the shares of Stock acquired upon the exercise of the Option pursuant
to a program or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve or terminate any such
program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory
note shall be permitted if an exercise of the Option using a promissory note
would be a violation of any law. Unless otherwise specified by the Board at the
time the Option is granted, the promissory note permitted in clause (iv) of
Section 4.3(a) shall be a full recourse note in a form satisfactory to the
Company, with principal payable in equal annual installments with the last
installment due five (5) years after the date the Option is exercised. Interest
on the principal balance of the promissory note shall be payable in annual
installments at the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security agreement as approved by the Company. At any time the Company
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee,
6
<PAGE> 30
and otherwise agrees to make adequate provision for, any sums required to
satisfy the federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired upon exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option. The
Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares or release such shares from any escrow
provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the
Exercise Price is paid by means of a Same-Day Sale, the certificate for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
7
<PAGE> 31
4.7 FRACTIONAL SHARES. The Company shall not be required
to issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution. Following the
death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may
no longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
8
<PAGE> 32
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with
the Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within ninety (90) days after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within ninety (90) days (or such
other longer period of time as determined by the Board, in its sole discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
Section 7.1 following termination of the Optionee's Service may not be made by
delivery of a promissory note as provided in Section 4.3(a).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
9
<PAGE> 33
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale, within the applicable time periods set
forth in Section 7.1, of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company (or required by law), a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Company:
(i) the direct or indirect sale or
exchange by the stockholders of the Company of all or substantially all of the
voting stock of the Company;
(ii) a merger or consolidation in which
the Company is a party;
(iii) the sale, exchange, or transfer of
all or substantially all of the assets of the Company (other than a sale,
exchange, or transfer to one or more corporations (the "TRANSFEREE
CORPORATION(S)") wherein the stockholders of the Company immediately before such
sale, exchange, or transfer retain in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately before such
event, directly or indirectly (including, without limitation, through their
ownership of shares of the voting stock of a corporation which owns the
Transferee Corporation(s) either directly or through one or more subsidiaries),
at least a majority of the beneficial interest in the voting stock of the
Transferee Corporation(s) immediately after such event); or
10
<PAGE> 34
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean
(i) an Ownership Change described in
Sections 8.1(a)(i) or 8.1(a)(ii) wherein the stockholders of the Company
immediately before such Ownership Change do not retain in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before such Ownership Change, directly or indirectly (including,
without limitation, through their ownership of shares of the voting stock of a
corporation which, as a result of such Ownership Change, owns the Company either
directly or through one or more subsidiaries), at least a majority of the
beneficial interest in the voting stock of the Company immediately after such
Ownership Change; or
(ii) an Ownership Change described in
Sections 8.1(a)(iii) or 8.1(a)(iv).
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), shall either assume the Company's rights and obligations under
the Option or substitute a substantially equivalent option for the Acquiring
Corporation's stock for the Option. In the event the Acquiring Corporation
elects not to assume the Company's rights and obligations under the Option or
substitute for the Option in connection with the Transfer of Control, any
unexercised portion of the Option shall be immediately exercisable and vested in
full as of the date ten (10) days prior to the Transfer of Control, and the
Company shall provide the Optionee with at least ten (10) days advance written
notice of the pending Transfer of Control prior to the consummation thereof. Any
exercise of the Option that was permissible solely by reason of this Section 8.2
shall be conditioned upon the consummation of the Transfer of Control. The
Option shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control to the extent that the Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of the Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of this Option Agreement except as otherwise provided herein. If the
corporation the stock of which is subject to the Option immediately prior to the
Transfer of Control is the surviving or continuing corporation in an Ownership
Change described in Section 8.1(a)(i), the Option shall be deemed to have been
assumed by the Acquiring Corporation for purposes of this Option Agreement.
11
<PAGE> 35
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. ESCROW.
11.1 ESTABLISHMENT OF ESCROW. To ensure that shares securing
any promissory note will be available for repurchase, the Company may require
the Optionee to deposit the certificate evidencing the shares which the Optionee
purchases upon exercise of the Option with an agent designated by the Company
under the terms and conditions of a security agreement approved by the Company.
If the Company does not require such deposit as a condition of exercise of the
Option, the Company reserves the right at any time to require the Optionee to so
deposit the certificate in escrow. The Company shall bear the expenses of the
escrow.
11.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after full repayment of any promissory note secured by the shares in escrow, the
agent shall deliver to the Optionee the shares no longer securing any promissory
note.
12
<PAGE> 36
12. STOCK DIVIDENDS SUBJECT TO OPTION AGREEMENT. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new, substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to any security interest held by the
Company with the same force and effect as the shares subject to such security
interest immediately before such event.
13. LEGENDS. The Company may at any time place legends
referencing any applicable federal, state or foreign securities law restrictions
on all certificates representing shares of stock subject to the provisions of
this Option Agreement. The Optionee shall, at the request of the Company,
promptly present to the Company any and all certificates representing shares
acquired pursuant to the Option in the possession of the Optionee in order to
carry out the provisions of this Section.
14. BINDING EFFECT. Subject to the restrictions on transfer set
forth herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
15. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group other than those as set forth
or provided for herein. To the extent contemplated herein, the provisions of
this Option Agreement shall survive any exercise of the Option and shall remain
in full force and effect.
13
<PAGE> 37
17. APPLICABLE LAW. This Option Agreement shall be governed by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
the State of California.
MCAFEE ASSOCIATES, INC.
By:
Title:
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
14
<PAGE> 1
EXHIBIT 11.1
MCAFEE ASSOCIATES, INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
---
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average common shares outstanding 31,045 29,651
for the period
Dilutive effect of options, net 3,485 2,299
------- -------
Shares used in per share calculation 34,530 31,950
======= =======
Net income $ 1,083 $ 3,413
======= =======
Net income per share $ 0.03 $ 0.11
======= =======
</TABLE>
Note: Fully diluted net income per share is substantially the same as net
income per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 43,500
<SECURITIES> 24,658
<RECEIVABLES> 23,041
<ALLOWANCES> 2,565
<INVENTORY> 0
<CURRENT-ASSETS> 97,891
<PP&E> 4,047
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,096
<CURRENT-LIABILITIES> 37,296
<BONDS> 0
0
0
<COMMON> 208
<OTHER-SE> 71,862
<TOTAL-LIABILITY-AND-EQUITY> 112,096
<SALES> 33,845
<TOTAL-REVENUES> 33,845
<CGS> 2,067
<TOTAL-COSTS> 18,723
<OTHER-EXPENSES> 8,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,422
<INCOME-TAX> 6,339
<INCOME-CONTINUING> 1,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,083
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
