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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED 31 DECEMBER 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 95051-0963
(408) 988-3832
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
issuer as of December 31, 1996 was approximately $2,141,149,516. The number of
shares outstanding of the issuer's common stock as of December 31, 1996 was
48,662,489.
Documents incorporated by reference: Items 10, 11, 12, and 13 of Part III are
incorporated by reference from the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held May 28, 1997.
THIS REPORT CONTAINS ___ PAGES. THE EXHIBIT INDEX IS ON PAGE 45.
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This Annual Report on Form 10-K ("Report") contains forward-looking
statements that involve risks and uncertainties. The statements contained in
this Report that are not purely historical are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements are a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this Report.
PART I
ITEM 1. BUSINESS
McAfee develops, markets, distributes and supports network security and
management software products. The Company provides industry-leading network
security products for anti-virus protection as well as client/server network
management tools. Many of the Company's network management products are
available as individual software modules as well as integrated product suites.
The Company is also a leader in electronic software distribution, which is the
principal channel through which it distributes its products to large
corporations, institutions and government entities. The Company generally
utilizes a two-year subscription licensing model for this distribution method.
PRODUCTS
McAfee provides a broad line of network security and management software
products. The following table summarizes McAfee's principal products and lists
the operating system(s) on which each product runs:
<TABLE>
<CAPTION>
PRODUCT PRINCIPAL OPERATING
CATEGORY PRODUCTS SYSTEM(S)
- --------------------------- ------------------------ -------------------------------------------
<S> <C> <C>
Enterprise Management McAfee Enterprise NetWare, Windows NT
Network Security VirusScan DOS, OS/2, Windows 3.X, Mac, Windows 95,
Windows NT, Windows 3.X, DOS, OS/2,
Linux, Solaris, FreeBSD
GroupScan Windows 95, Windows NT, Windows 3.1x, OS/2
Webscan Windows 95
NetShield NetWare, Windows 95
WebShield Dedicated system supports web servers of
any OS
GroupShield Windows NT, Windows 95, OS/2
Bootshield Windows 3.X, DOS
ROMShield Windows 3.X, DOS,OS/2
Desktop DOS, OS/2, Windows 3.X,
Security Suite Mac, Windows 95,
Windows NT, Windows
3.X, DOS, OS/2
NetCrypto Windows NT, Windows 95, Windows 3.1x and
multiple Unix variants
WebWall Dedicated System supports web servers of
any OS
PCCrypto Windows 95, Windows NT, Windows 3.1x
PowerLogin Multiple Unix variants
PowerBroker Multiple Unix variants
PCFirewall Windows 95, Windows NT, Windows 3.1x
Network Management Saber Lan Workstation NetWare, Windows NT
SaberTools Windows 3.X, Windows 95 and
</TABLE>
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<TABLE>
<S> <C> <C>
Windows NT
with a Windows NT or NetWare server
Help Desk McAfee Help Desk Windows 95, Windows NT
McAfee Service Desk NetWare, Windows NT
Storage Management WebStor Windows 95
NT-ssentail Windows NT and NetWare
QuickBackup Windows 95
</TABLE>
ENTERPRISE MANAGEMENT
McAfee Enterprise (ME!). McAfee Enterprise brings together McAfee's anti-virus
and security software with network management, storage management and help desk
components, all supporting NT and integrated under an OLE enabled, active X,
explorer console. The ME! modules share a common scripting language, common
reporting, and common alerting via SNMP and integrate into Unix consoles
including HP Openview, BMC Patrol, and Tivoli TME. McAfee Enterprise on NT is
positioned to help bridge the gap between NetWare and UNIX by managing the
legacy NetWare file and print servers, and the UNIX database and application
servers. ME! integrates into enterprise management systems including HP Openview
for Windows, Novell NMS, BMC Patrol, Tivoli TME and other SNMP consoles. In
addition to ME! availability from the host console menu and/or toolbar, task
management can even further extend the level of integration within the
enterprise management system. The current U.S. list price for a 1,000 node ME!
site license is $120,000.
NETWORK SECURITY PRODUCTS
VirusScan. VirusScan, the Company's flagship product, is a virus protection
program for Windows 3.X, Windows 95, Windows NT, Macintosh, DOS and OS/2
personal computers. VirusScan scans for known and unknown viruses prior to
installation. When the scan is completed, VirusScan becomes memory resident and
protects systems from further infection. VirusScan is able to detect and remove
polymorphic, word macro and boza viruses. The current U.S. list price for a
1,000 user VirusScan site license is $20,500. The single user retail packaged
version of VirusScan sells at an average retail price of approximately $49.00.
GroupScan. GroupScan is a native Lotus Notes application which is designed to
protect the Notes client from popular viruses as well as other known security
threats. GroupScan scans encrypted attachments on the users desk to insure they
are virus-free before they are transmitted over the network. The current U.S.
list price for a 1,000 node GroupScan site license is $10,000.
Webscan. Webscan is designed to provide virus protection for most popular
Internet services, Web browsers and E-mail. Webscan includes Spry's Mosaic
Browser and Pegasus E-mail but is compatible with NetScape Navigator and Lotus
cc:mail and is available for Windows 95 computers. The current U.S. list price
for a 1,000 node Webscan site license is $20,500.
NetShield. NetShield provides virus protection for network file servers.
NetShield blocks viruses from being transferred over networks by scanning files
which are accessed from the server. It can also perform regularly scheduled
scanning of the server. The current U.S. list price for a 1,000 node NetShield
site license is $11,800.
WebShield. WebShield is a complete virus protection product for Internet
gateways. With WebShield, McAfee has deployed its virus detection software to
scan Internet email, file transfers and web traffic. The current U.S. list price
for a 1,000 node WebShield site license is $9,000.
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GroupShield. GroupShield is a native Lotus Notes application that is designed
to protect the Notes server from popular viruses as well as other known security
threats. GroupShield employs McAfee's scanning facilities, which can identify,
stop, and even clean these viruses on user demand, in real-time or during
background processes. The current U.S. list price for a 1,000 node GroupShield
site license is $25,000.
Bootshield. Bootshield is a companion product to Viruscan which provides
pre-boot protection from boot-sector viruses. Bootshield is available for
DOS and Window 3.X computers. The current U.S. list price for a 1,000 node
Bootshield site license is $11,000.
ROMShield. ROMShield is a boot sector anti-virus detection and shielding
product. Boot sector viruses infect the BIOS prior to boot-up and cannot be
shielded by traditional anti-virus programs which run on the operating system.
ROMShield checks the BIOS before the computer boots up and prevents boot-up if
the computer is infected.
Desktop Security Suite (DSS). DSS offers secure, economical desktop
protection combining strong encryption for files and data being stored on a hard
drive or sent over a network, with McAfee's virus detection and removal engine.
Desktop Security Suite stresses ease-of-use and fast, transparent operation
while providing a safe, secure infrastructure for storing or sending
information. The current U.S. list price for a 1,000 node Desktop Security Suite
site license is $72,000.
PCCrypto. PCCrypto lets a user encrypt files before storing them or sending
them to someone else. Files can be encrypted with a password only known to the
user, and then stored on the user's hard drive or sent over a network. The
current U.S. list price for a 1,000 node PCCrypto site license is $31,000.
NetCrypto. NetCrypto provides networks with encryption, preventing hackers
and cyberthieves from sniffing data from the user's network. NetCrypto
transparently encrypts all TCP/IP data, including email, file transfers, web
traffic, remote logins, database access etc. The current U.S. list price for a
1,000 node NetCrypto site license is $34,000.
PowerBroker. PowerBroker allows users to perform appropriate system
administration tasks without bothering an administrator, and without ever
knowing the root password, thereby enhancing system security. PowerBroker also
creates a centrally-maintained indelible audit trail of all the activities it
controls. Users with access to PowerBroker have the power they need without
being able to alter the log files, or disclose the root password. The current
U.S. list price for a 1,000 node PowerBroker site license is $155,000.
PowerLogin. Power Login gives system administrators control over the UNIX
login and password environment, including control over who can log in where,
when, and how, and with what kinds of passwords. Using a flexible login policy
language, system administrators can specify such things as what time of day a
user may log in, who may log in over modem lines or over the network and whether
additional passwords or authentication schemes are used. The current U.S. list
price for a 1,000 node PowerLogin site license is $155,000.
PC Firewall. PCFirewall provides firewall protection for Windows desktops
with a central administration console to manage multiple installations. Acting
as a cookie cutter, individuals are protected from web server tracking of their
activities on the Internet. It also provides access control for modem protocols
to block popular war dialer attacks, often known as the "back doors" around a
main perimeter firewall (i.e. the front door). Completely transparent to users
and applications, PCFirewall is easy to install and manage. The current U.S.
list price for a single copy of PCFirewall is $65.
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NETWORK MANAGEMENT TOOLS
Saber LAN Workstation ("SLW"). SLW is an integrated suite of network
management software solutions that natively support both Window NT and Novell
NetWare environments. SLW automates time-consuming tasks and reduces costs by
managing network assets more efficiently. SLW includes integrated enterprise
metering, hardware and software inventory, software distribution and desktop
control under a central OLE-enabled explorer console. SLW also includes
customizable reporting, SNMP alerting and supports an open data format, which
facilitates integration of SLW with other systems management products. The
current U.S. list price for a 1,000 user license is $47,300.
SaberTools SMS .SaberTools is an integrated suite of tools designed
specifically for Microsoft SMS users. SaberTools delivers the functionality not
available in SMS such as network menuing, application metering, 32-bit remote
control, scripting, and customizable reporting. Using SaberTools advanced
menuing and desktop control features, users can control Windows NT, Windows 95,
Windows 3.1 and DOS clients running on NetWare or NT networks. Together these
tools are designed to help network administrators centrally manage and control
their Windows environment by restricting access to various features and
resources. Administrators no longer have to visit each workstation to make
changes, saving time and money. SaberTools decreases software costs by
addressing issues such as support, administration, and upgrades. In addition,
SaberTools can help eliminate unnecessary software purchases by providing
accurate tracking of software usage on LANs or WANs. The current U.S. list
price for a 1,000 SaberTools site license is $26,600.
HELP DESK
McAfee Help Desk (MHD). MHD was a native SQL client/server help desk solution
and is a solution for proactive call management and problem resolution.
Important features include asset management, service level agreements, change
management, dynamic call linking, flexible reporting, crisis management, and
enterprise-enabled network integration. MHD includes the industry standard
case-based reasoning engine and 15 hardware and software knowledge-paks. The
current U.S. list price is $1,295 per help desk operator.
McAfee Service Desk (MSD). MSD is a comprehensive service desk solution.
MSD starts by incorporating all of the traditional help desk functionality
found in McAfee HelpDesk. MSD elevates the customer's help desk into a true
"service desk" by adding integrated software distribution, network management,
desktop management, cross-platform asset management, systems diagnostics, push
technology alerting, end user Web access and remote control. MSD includes
network listeners that allow the user to link their help desk to network
management platforms such as Hewlett-Packard's OpenView and Tivoli's TME10. MSD
is available in both workgroup and enterprise editions. A typical MSD-Workgroup
installation with 5 concurrent help desk operators supporting 500 nodes has a
U.S. list price of $30,975. A typical MSD-Enterprise installation with 15
concurrent help desk operators supporting 2,000 nodes has a U.S. list price of
$135,425.
STORAGE MANAGEMENT
WebStor. WebStor is a Windows 95 program that provides automated back up and
file restore capabilities, along with disaster recovery tools using any FTP site
for back-up. The current U.S. list price for a 1,000 user WebStor site license
is $20,500.
NT-ssential. NT-ssential combines anti virus and backup, into one solution.
The product combines McAfee's NetShield with Backup Exec Enterprise Edition from
Seagate to provide both security and protection. Netware-ssential is available
for the Netware environment. The current U.S. list price for a 1,000 user
NT-ssential site license is $13,000.
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QuickBackUp. Designed for Windows 95 and NT, QuickBackup combines an easy to
use Explorer user interface with a broad range of backup media support.
QuickBackup supports SCSI tape drives, writeable CD-ROMs, Iomega Zip and Jazz
drives and the Internet as back up devices. QuickBackup sells at an average
retail price of approximately $49.00.
SUBSCRIPTION LICENSING MODEL
The Company typically licenses its products to corporate, government and
institutional customers for a period of two years during which time they receive
all upgrades, updates and technical support at no additional charge. Upon
expiration of the two-year period, customers are contacted by the Company for
renewal. The Company believes that the two-year subscription licensing model
offers several benefits to its customers. For one initial fee, the customer
receives the software and all upgrades, updates and support for two years. In
addition, the customer only has to make a decision on its investment in the
software every two years. Since the Company is able to distribute its products
and upgrades at a lower cost than do companies using traditional distribution
methods, the Company also has the ability to offer upgrades and address user
feature requirements on a more regular basis. In addition, by offering a
two-year license, as opposed to a traditional perpetual term license, the
Company is able to meet a lower initial cost threshold for customers with annual
budgeting constraints.
The Company's two-year subscription licensing model creates the opportunity
for recurring revenue for the Company through the renewal of existing licenses.
Since the Company typically licenses its products on a per user basis, at the
time of renewal the Company has the potential to increase the number of
computers licensed at existing sites and to expand its licenses to new sites in
an organization. The renewal process also provides an opportunity to cross-sell
new products to existing customers. There can be no assurance that the Company
will be able to sustain current renewal rates in the future.
With the expansion of the Company's distribution channels to include
resellers and distributors, McAfee also provides single user licenses for its
products under traditional, unlimited term licenses with product updates,
upgrades and support available to customers under separate maintenance
contracts.
ELECTRONIC SOFTWARE DISTRIBUTION
McAfee was the first company to successfully utilize electronic software
distribution to reach large corporate, government and institutional customers.
Through the World Wide Web and various online services such as CompuServe,
America Online and The Microsoft Network, the Company is able to electronically
communicate and interact with its customers from pre-sales evaluation through
product delivery and post-sales support. The Company believes that the
electronic channel is becoming an important source of information and support
for IT professionals. By making fully-functioning, unencrypted versions of its
products widely available for evaluation, the Company is seeking to encourage
product sampling among these sophisticated users. Unlike traditional software
evaluation programs where potential customers often are required to identify
themselves (typically resulting in their inclusion in a sales database), go
through a qualification process and then wait for the evaluation copy to be
shipped, potential customers desiring to evaluate McAfee's products for a 30-day
period can anonymously download any of the Company's products from its World
Wide Web site. In 1996, the Company opened the McAfee Store on the World Wide
Web to distribute its own and third party products.
The Company uses electronic software distribution as its primary means of
delivering licensed software, as well as upgrades and updates to its customers.
Electronic software distribution offers a number of advantages to the Company
over traditional software distribution methods including the ability to
distribute its products and upgrades more rapidly and at a lower cost than
traditional distribution methods. Since all of the software and documentation
can be distributed electronically, the cost of internal distribution by the
customer is also lower than with traditional software and printed documentation.
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The Company also seeks to increase awareness of its products, to provide
customer and technical support and to encourage dialogue regarding its products
by maintaining a World Wide Web site and forums on CompuServe, America Online
and The Microsoft Network. The Company also provides support through the World
Wide Web. By providing support electronically, the Company believes that it is
often able to more rapidly identify and solve customer problems.
SALES AND MARKETING
To augment and capitalize upon the awareness of the Company's products
resulting from its electronic distribution model, the Company's sales and
marketing efforts are directed primarily at large corporate, government and
institutional customers as well as to resellers and distributors worldwide
through the following channels:
NORTH AMERICAN DIRECT SALES
The Company has significantly expanded its internal sales organization
through investments in its corporate sales force. The Company's direct sales
organization consists of regional sales directors, national account managers,
territory sales representatives and a corporate telesales organization. McAfee's
national account managers are each responsible for ten to fifteen designated
large enterprise accounts. Territory sales representatives manage accounts
within a specified geographic region with 1,000 or more personal computers. To
augment its sales organization, the Company's executives are involved with sales
to many major accounts. The Company's outbound corporate telesales force
consists of experienced sales personnel who actively market McAfee's products to
customers with less than 1,000 personal computers. The Company's corporate
telesales representatives also respond to prospective customers who contact the
Company as a result of a particular marketing program or after electronically
evaluating a McAfee product. Another significant focus of the Company's
corporate telesales force is to contact existing customers to cross-sell
additional products.
The Company devotes a portion of its corporate telesales force to the renewal
of its existing licenses. Prior to expiration of a license, a corporate
telesales representative contacts the customer and encourages renewal of the
expiring license while determining if increasing the number of computers
licensed is appropriate and, additionally, marketing new products to this
existing customer.
INTERNATIONAL SALES
McAfee has sales and support operations in Europe and Asia. The Company
currently has sales representatives in Paris, France, Bracknell, England,
Frankfurt, Germany, Amsterdam, The Netherlands and Tokyo, Japan. Historically,
McAfee had relied primarily upon independent agents and distributors to market
its products internationally. McAfee is continuing to use independent agents
primarily in smaller markets where a direct sales presence is not currently
warranted. While the Company's agents and distributors include some large
systems integrators, most are small companies that market McAfee's software
along with products of other companies that they represent. The Company
typically enters into agreements with its agents which, among other things,
obligate its agents to provide technical support and the most current versions
of the Company's products to its customers and to provide the Company with
information about its licensees. Such agreements permit either the Company or
the agent to terminate the agreement upon 60 days' prior written notice.
International agents invoice their own orders and collect payment, remitting the
license fee, net of commissions, to the Company in United States dollars.
CHANNEL SALES
To complement its direct sales, McAfee markets its products through corporate
resellers and distributors, and indirectly through retailers. While historical
sales through these distribution channels have generated a relatively small
portion of McAfee's net revenue, over the past two years the Company's
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presence in these channels has expanded significantly. The Company currently
utilizes corporate resellers, including STREAM, Software Spectrum, Softmart and
ASAP, which focus primarily on selling site licenses for the Company's software
to corporate customers.
Independent software distributors who market the Company's products include
Ingram Micro, Merisel America and Tech Data. These distributors stock McAfee's
products in inventory for redistribution primarily to large retailers, VARs and
mail order companies. Through its authorized distributors, the Company sells its
retail packaged products to several of the large computer and software retailers
in the United States, including Egghead Discount Software, CompUSA, Computer
City, Software Etc. and Best Buy. Several members of the Company's channel sales
force work closely with the Company's major reseller and distributor accounts on
the management of orders and inventory level, as well as on promotion and
selling activities.
The Company's distributors generally are permitted stock balancing and stock
rotation rights but are typically required to place offsetting orders of equal
value. The Company expects to increasingly rely on resellers and distributors,
including retail outlets, to market and support its products. The Company's
agreements with its distributors are not exclusive and may be terminated by
either party without cause. There can be no assurance that any distributors will
continue to represent the Company's products.
OEMS
OEMs license the Company's products and bundle them with personal computer
hardware or software. OEMs typically sublicense a single version of the
Company's products to end users who must contact McAfee in order to license
updates. The Company typically receives a per copy royalty from its OEMs.
OTHER MARKETING ACTIVITIES
McAfee promotes its products through advertising activities in trade
publications and direct mail campaigns. The Company also attends trade shows,
sponsors conferences and publishes a quarterly newsletter which is mailed to
existing and prospective customers. In addition, the Company solicits
prospective customers by providing marketing material through the World Wide Web
and allows customers to purchase the Company's products directly through the
Company's World Wide Web Page. The Company also maintains forums on CompuServe,
America Online and The Microsoft Network which provide electronic forums for
subscribers of these services to discuss issues related to computer viruses and
make inquiries regarding McAfee's products.
CUSTOMERS
The Company primarily markets its products directly to large corporate,
government and institutional customers as well as to resellers and distributors.
Ingram Micro Devices accounted for 17%, 12% and 12% of net revenue in 1996, 1995
and 1994, respectively. No other customer accounted for more than 10% of the
Company's net revenue.
CUSTOMER AND TECHNICAL SUPPORT
McAfee believes that a high level of customer and technical support is
important for success in corporate, government and institutional markets.
Customer support representatives answer product inquiry, customer support and
routine technical support calls. If a customer service representative receives a
call requiring more complex technical or professional support, the call is
transferred to the Company's technical or professional support personnel. The
Company intends to continue to invest in customer and technical support.
Technical support representatives handle technical support calls and respond
to inquiries addressed to the Company's World Wide Web Page and various online
services such as CompuServe, America Online
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and The Microsoft Network. If a call or inquiry involves more complex strategic
or implementation issues, the customer is referred to the Company's product
development staff.
The Company also provides specialized assistance to customers in detecting
and eradicating viruses. The Company has the ability to receive uploaded
programs containing suspect virus infections through the World Wide Web.
Alternatively, customers can send a copy of the virus to the Company via disk.
The Company believes that its ongoing exposure to a large number of new viruses
contributes to the virus detection rate of the Company's anti-virus products.
McAfee also offers on-site training and consulting services to its customers
on an hourly or packaged rate basis. On-site and regional training for the full
range of McAfee's products is conducted by McAfee's technical personnel. In
addition, McAfee offers a wide variety of consulting services to assist
customers in the installation, customization and deployment of its products.
PRODUCT DEVELOPMENT AND ACQUISITION
The Company is seeking to continually enhance and expand its network security
and management product offerings. Over the past year, the Company has made a
substantial investment in product development by significantly increasing the
size of its product development staff. In addition, the Company has expanded its
product line through the acquisition of Vycor Corporation, a provider of help
desk products, on March 21, 1996, the acquisition of a controlling interest in
FSA Corporation, a developer of security products, on August 30, 1996 and the
acquisition of Jade KK of Japan, a vendor of anti-virus software, on February
28, 1997. While the Company does not currently have any agreements or
understanding related to material acquisitions of products or companies, the
Company intends to continue to evaluate strategic acquisitions of complementary
products that will enable McAfee to offer more comprehensive network security
and management solutions.
McAfee believes that its ability to maintain its competitiveness will depend
in large part upon its ability to enhance existing products, develop and acquire
new products and develop and integrate acquired products. The market for
personal computer software is characterized by low barriers to entry and rapid
technological change, and is highly competitive with respect to timely product
introductions. There can be no assurance that new products will be developed or
acquired on a timely basis or at all. See "Risk Factors - Rapid Technological
Change; Risks Associated with Product Development and Acquisitions."
In addition to developing new products, the Company's internal development
staff is also focused on developing updates to existing products and modifying
and enhancing any acquired products. Future updates may, among other things,
include additional functionality, respond to user problems or address issues of
compatibility with changing operating systems and environments. The Company
believes that the ability to provide these updates to users frequently and at a
low cost is key to its success. Failure to release such updates on a timely
basis could have a material adverse impact on the Company. There can be no
assurance that the Company will be successful in these efforts. In addition,
there can be no assurance that future changes in Windows 95, Windows NT, NetWare
or other popular operating systems would not result in incompatibility with the
Company's products. The Company's failure to introduce new products on a timely
basis that are compatible with operating systems and environments preferred by
desktop computer users would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company expended $22.2 million, $9.4 million and $6.9 million in 1996,
1995 and 1994, respectively, on research and development.
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COMPETITION
The market for the Company's products is intensely competitive and the
Company expects competition to increase in the future. The Company believes that
the principal competitive factors affecting the market for its products include
performance, functionality, quality, customer support, breadth of product line,
frequency of updates, brand name recognition, company reputation and price.
Certain of the criteria upon which the performance and quality of the Company's
anti-virus products compete include the number and types of viruses detected,
the speed at which the products run and ease of use. Certain of the criteria
upon which the Company's network management tools compete include the number of
functions performed, the range of products offered, the cost of the product and
ease of use. While the Company believes that it generally competes favorably
with respect to each of these factors, there can be no assurance that it will be
able to continue to compete successfully against current and future competitors.
Competitive pressures could result not only in a decline in sales volume but
also in sustained price reductions, which could adversely affect the Company's
business, financial condition and results of operations.
The network security and management market is highly fragmented with many
vendors. The Company's principal competitor is the Peter Norton Group of
Symantec in the network security market and Intel's LanDesk in the network
management market. Other competitors include Computer Associates/Cheyenne
Software, Intel, Seagate and the Dr. Solomon Group, as well as numerous smaller
companies and shareware authors that may in the future develop into stronger
competitors or become consolidated into larger competitors. The Company also
faces competition from large and established computer software companies such as
Microsoft and Novell, which offer network management products as enhancements to
their network operating systems. The Company believes that as the network
management market develops, it may face increased competition from these large
companies, as well as other companies seeking to enter the market. With the
acquisition of Vycor, the Company faces new competition from vendors in the help
desk market. The Company's principal competitors in the help desk market are
Remedy, Corp. and Software Artistry. The Company also has competitors in the
storage management market. There can be no assurance that the Company will
continue to compete effectively against existing and potential competitors, many
of whom have substantially greater financial, technical, marketing and support
resources and name recognition than the Company. In addition, there can be no
assurance that software vendors who currently use traditional distribution
methods will not in the future decide to compete more directly with the Company
by utilizing electronic software distribution.
The competitive environment for anti-virus software internationally is
similar to that in North America, although there are local competitors in
specific markets which present strong competition and also shareware authors
control a more significant portion of the European market. The international
market for network management software has developed more slowly than the North
American market, although larger competitors such as Intel and Symantec have
begun to penetrate European markets. Asian markets have significantly lagged
North America and Europe in their adoption of networking technology. There can
be no assurance that McAfee will be able to compete successfully in
international markets.
The widespread inclusion of the network security and management functionality
of the Company's products as standard features of computer hardware or operating
systems could render the Company's products obsolete and unmarketable. If the
Company were unable to develop new network management and security tools to
further enhance hardware or operating systems and to replace successfully any
obsolete products, the Company's business, financial condition and results of
operations would be materially and adversely affected.
PROPRIETARY TECHNOLOGY
McAfee's success is heavily dependent upon its proprietary software
technology. McAfee relies on a combination of contractual rights, trademarks,
trade secrets and copyrights to establish and protect proprietary rights in its
software. McAfee has not to date applied for or obtained any patents or
registered any of its copyrights and has only registered selected trademarks.
SABER is a trademark of a subsidiary of
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the SABRE Group, Inc. and is licensed to McAfee pursuant to a non-exclusive
worldwide, royalty free license. McAfee is not otherwise affiliated with the
SABRE Group, Inc. or SABRE Travel Information Network. In the event that the
license of the Saber trademark were to expire, or be terminated, McAfee could be
required to cease using the trademark on its products, which could involve
significant expense and the possibility of customer confusion. Any loss of
McAfee's ability to use this trademark could have a material adverse effect on
McAfee's business, financial condition or results of operations.
In 1996, the Company increased its reliance on licensed technology,
principally through its acquisitions. Also, the Vycor products are dependent on
third party technology. There can be no assurance that the Company will be able
to renew such licenses in the future.
In the third quarter of 1996 the Company entered into agreements that enabled
entry into the anti-virus market for Lotus Notes and the market for server
backup applications. There can be no assurance that the Company will be able to
renew such agreements in the future.
McAfee does not typically obtain signed license agreements from its
corporate, government and institutional customers who license products directly
from McAfee. McAfee includes an electronic version of a "shrink-wrap" license in
all of its electronically distributed software and a printed license in the box
for its products distributed through traditional distribution channels in order
to protect its copyrights and trade secrets in those products. Since none of
these licenses are signed by the licensee, they may not be enforceable under
many state laws and the laws of many foreign jurisdictions.
In addition, the laws of some foreign countries either do not protect
McAfee's proprietary rights or offer only limited protection for those rights.
Furthermore, McAfee has obtained only one foreign registration of its "McAfee"
trademark, and publication in two jurisdictions, due to the significant costs
involved. As a result, McAfee may not be able to prevent a third party from
using its trademarks in many foreign jurisdictions.
There can be no assurance that the steps taken by McAfee to protect its
proprietary software technology will be adequate to deter misappropriation of
this technology. McAfee is aware that a substantial number of users of its
anti-virus products have not paid any registration or license fees to McAfee.
Changing legal interpretations of liability for unauthorized use of McAfee's
software, or lessened sensitivity by corporate, government or institutional
users to avoiding copyright infringement, would have a material adverse effect
on McAfee's business, financial condition and results of operations.
There has also been substantial industry litigation regarding intellectual
property rights of technology companies. Although McAfee does not believe that
it is infringing the intellectual property rights of others, it receives claims
from time to time, and McAfee has in the past been subject to litigation related
to its intellectual property. There can be no assurance that such claims will
not be asserted against McAfee in the future or that the outcome of any such
claims would not have a material adverse effect on McAfee's business, financial
condition and results of operations. In addition, as McAfee may acquire a
portion of the software included in its future products from third parties, its
exposure to infringement actions may increase because McAfee must rely upon such
third parties for information as to the origin and ownership of any software
being acquired. In the future, litigation may be necessary to enforce and
protect trade secrets and other intellectual property rights owned by McAfee.
McAfee may also be subject to litigation to defend it against claimed
infringement of the rights owned by McAfee. McAfee may also be subject to
litigation to defend it against claimed infringement of the rights of others or
to determine the scope and validity of the proprietary rights of others. Any
such litigation could be costly and cause diversion of management's attention,
either of which could have a material adverse effect on McAfee's business,
financial condition and results of operations. Adverse determinations in such
litigation could result in the loss of McAfee's proprietary rights, subject
McAfee to significant liabilities, require McAfee to seek licenses from third
parties or prevent McAfee from manufacturing or selling its products, any one of
which could have a material adverse effect on McAfee's business, financial
condition and results of operations.
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Furthermore, there can be no assurance that any necessary licenses will be
available on reasonable terms, or at all.
EMPLOYEES
From December 31, 1995 to December 31, 1996, the number of people employed by
the Company increased from 250 to 481 employees. Competition for qualified
management and technical personnel is intense in the software industry. The
Company's continued success will depend in part upon its ability to attract and
retain qualified personnel. None of the Company's employees is represented by a
labor union and the Company believes that its employee relations are good.
RISK FACTORS
The following risk factors should be considered by holders and prospective
purchasers of McAfee Common Stock:
Rapid Technological Change; Risks Associated with Product Development and
Acquisitions. The network security and management market is highly fragmented
and is characterized by ongoing technological developments, evolving industry
standards and rapid changes in customer requirements. McAfee's success depends
upon the ability to offer a broad range of network security and management
software products, to continue to enhance existing products, to develop and
introduce in a timely manner new products that take advantage of technological
advances, and to respond promptly to new customer requirements. While McAfee
believes that it currently offers one of the broadest product lines in the
network management and security market, this market is continuing to evolve and
customer requirements are continuing to change. As the market continues to
evolve and competitive pressures increase, McAfee believes that it will need to
continue to expand its product offerings. McAfee has identified a number of
enhancements to its existing product offerings which it believes are important
to its continued success in the network security and management market. There
can be no assurance that McAfee will be successful in developing and marketing,
on a timely basis, enhancements to its existing products or new products, or
that its new products will adequately address the changing needs of the
marketplace. Failure by McAfee in any of these areas could materially and
adversely affect its business, financial condition and results of operations. In
addition, from time to time, McAfee or its competitors may announce new products
with capabilities or technologies that could have the potential to replace or
shorten the life cycles of McAfee's existing products. There can be no assurance
that announcements of new products will not cause customers to defer purchasing
McAfee's existing products.
McAfee has in the past experienced delays in software development, and there
can be no assurance that McAfee will not experience delays in connection with
its current or future product development activities. Software products as
complex as those offered by McAfee may contain undetected errors or version
compatibility issues, particularly when first introduced or when new versions
are released, resulting in loss of or delay in market acceptance. For example,
McAfee's anti-virus software products have in the past falsely detected viruses
that did not actually exist. See "-- Risk of False Detection of Viruses." Delays
and difficulties associated with new product introductions or product
enhancements could have a material adverse effect on McAfee's business,
financial condition and results of operations.
In addition to developing new products, McAfee's internal development staff
is focused on developing upgrades and updates to existing products and modifying
and enhancing acquired products. Future upgrades and updates may, among other
things, include additional functionality, respond to user problems or address
issues of compatibility with changing operating systems and environments. McAfee
believes that the ability to provide these upgrades and updates to users
frequently and at a low cost is key to its success. In particular, the
proliferation of new and changing viruses makes it imperative to update
anti-virus products frequently in order for the products to avoid obsolescence.
Failure to release such upgrades and updates on a timely basis could have a
material adverse effect on McAfee's business, financial condition and results of
operations. There can be no assurance that McAfee will be successful in these
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efforts. In addition, there can be no assurance that future changes in Windows
95, Windows NT, NetWare or other popular operating systems would not result in
incompatibility with McAfee's products. McAfee's failure to introduce new
products on a timely basis that are compatible with operating systems and
environments preferred by desktop computer users would have a material adverse
effect on McAfee's business, financial condition and results of operations. See
"Business -- Product Development and Acquisition."
Competition. The market for McAfee's products is intensely competitive and
McAfee expects competition to increase in the future. McAfee believes that the
principal competitive factors affecting the market for its products include
performance, functionality, quality, customer support, breadth of product line,
frequency of upgrades and updates, brand name recognition, company reputation
and price. Certain of the criteria upon which the performance and quality of
McAfee's anti-virus software products compete include the number and types of
viruses detected, the speed at which the products run and ease of use. Certain
of McAfee's competitors have been in the network management market longer than
McAfee and other competitors, such as Symantec, Intel and Seagate, are larger
and have greater name recognition than McAfee. In addition, certain larger
competitors such as Intel, Microsoft and Novell have established relationships
with hardware vendors related to their other product lines. These relationships
may provide them with a competitive advantage in penetrating the OEM market with
their network management products. As is the case in many segments of the
software industry, McAfee may encounter increasing price competition in the
future. This could reduce average selling prices and, therefore, profit margins.
Competitive pressures could result not only in sustained price reductions but
also in a decline in sales volume, which could materially and adversely affect
McAfee's business, financial condition and results of operations.
The network security and management market is highly fragmented with products
offered by many vendors. McAfee's principal competitor is the Peter Norton Group
of Symantec in the network security market and Intel's LanDesk in the network
management market. Other competitors include Computer Associates/Cheyenne
Software, Intel, Seagate and the Dr. Solomon Group, as well as numerous smaller
companies and shareware authors that may in the future develop into stronger
competitors or be consolidated into larger competitors. McAfee also faces
competition from large and established software companies such as Microsoft and
Novell which offer network management products as enhancements to their network
operating systems. McAfee believes that as the network management market
develops, McAfee may face increased competition from these large companies, as
well as other companies seeking to enter the market. The trend toward
enterprise-wide network management and security solutions may result in a
consolidation of the network management and security market around a smaller
number of vendors who are able to provide the necessary software and support
capabilities. With the acquisition of Vycor, the Company faces new competition
from vendors in the help desk market. The Company's principal competitors in the
help desk market are Remedy, Corp. and Software Artistry. The Company also has
competitors in the storage management market. There can be no assurance that
McAfee will continue to compete effectively against existing and potential
competitors, many of whom have substantially greater financial, technical,
marketing and support resources and name recognition than McAfee. In addition,
there can be no assurance that software vendors who currently use traditional
distribution methods will not in the future decide to compete more directly with
McAfee by utilizing electronic software distribution. See "Business -
Competition."
The competitive environment for anti-virus software internationally is
similar to that in North America, although there are local competitors in
specific markets which present strong competition and also shareware authors
control a more significant portion of the European market. The international
market for network management software has developed more slowly than the North
American market, although larger competitors such as Intel and Symantec have
begun to penetrate European markets. Asian markets have significantly lagged
North America and Europe in their adoption of networking technology. There can
be no assurance that McAfee will be able to compete successfully in
international markets.
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Risk of Inclusion of Network Security and Management Functionality in System
Software. In the future, vendors of operating system software may continue to
enhance their products to include functionality that is currently provided most
often by network security and management software. The widespread inclusion of
the functionality of McAfee's products, and of the functionality of the network
security or management products, as standard features of operating system
software could, particularly if the quality of such functionality were
comparable to that of McAfee's products, render McAfee's products obsolete and
unmarketable. Furthermore, even if the network security and/or management
functionality provided as standard features by operating systems is more limited
than that of McAfee's products, there can be no assurance that a significant
number of customers would not elect to accept such functionality in lieu of
purchasing additional software. If McAfee was unable to develop new network
security and management products to further enhance operating systems and to
replace successfully any obsolete products, McAfee's business, financial
condition and results of operations would be materially and adversely affected.
See "Business - Competition."
McAfee's Dependence on Anti-Virus Product Revenue. McAfee derived a
substantial majority of its net revenue in 1996 from licensing its anti-virus
software products, and these products are expected to continue to account for a
substantial portion of McAfee's net revenue for the foreseeable future. Because
of this concentration of revenue, a decline in demand for, or in the prices of,
McAfee's anti-virus software products as a result of competition, technological
change or otherwise, could have a material adverse effect on McAfee's business,
financial condition and results of operations. In addition, while McAfee will
continue to focus on growing its anti-virus revenue, factors such as increased
competition or technological change may affect the rate of growth in the future.
See " Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business Products."
Dependence on Emergence of Network Management Market. The market for McAfee's
network management products is evolving, and its growth depends upon broader
market acceptance of network management software, including help desk software.
Although the number of LAN-attached personal computers ("PCs") has increased
dramatically, the network management market continues to be an emerging market
and there can be no assurance that the market will continue to develop or that
further market development will be rapid enough to significantly benefit McAfee.
In addition, there are a number of potential approaches to network management,
including management tools incorporated into network operating systems.
Therefore, even if network management tools gain broader market acceptance,
there can be no assurance that McAfee's products will be chosen by organizations
which acquire network management tools. Furthermore, to the extent that the
network management market does continue to develop, McAfee expects that
competition will increase. See "Competition," "Risk of Inclusion of Network
Security and Management Functionality in System Software" and "Business -
Competition."
Variability of Quarterly Operating Results. McAfee's licensing activity and
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, upgrades or updates by McAfee 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. Because of the nature of their distribution methods, McAfee generally
cannot predict when a user will license its products. Historically, renewals
have accounted for a significant portion of McAfee's net revenue; however, there
can be no assurance that McAfee will be able to sustain historic renewal rates
in the future.
McAfee historically recognized substantially all license revenue ratably over
a two-year license period, during which time users generally received all
product upgrades, updates and technical support at no additional charge. As a
result, quarterly fluctuations in licensing activity have had a reduced
quarter-to-quarter impact on McAfee's net revenue and net income. However, since
July 1, 1995, McAfee generally recognizes 80% of its revenue from subscription
licenses at the time of the initial licensing transaction which more directly
impacts net revenue and net income in the quarters in which the licensing
activity occurs. Furthermore, since McAfee's cost of net revenue is low, and
operating expenses are relatively
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fixed, any revenue shortfall in a quarter will result in a substantially similar
shortfall in net income. As a result of this change in revenue recognition in
July 1995, McAfee believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The operating results of many software companies reflect seasonal trends, and
McAfee's business, financial condition and results of operations may be affected
by such trends in the future. Such trends may include higher net revenue in the
fourth quarter as many customers complete annual budgetary cycles, and lower net
revenue in the summer months when many businesses experience lower sales,
particularly in the European market.
Volatility of Stock Price. The trading price of McAfee Common Stock has been
and may continue to be, subject to wide fluctuations in response to quarterly
variations in financial performance, shortfalls in revenue or earnings from
levels forecast by securities analysts, changes in estimates by such analysts,
market conditions in the computer software or hardware industries, product
introductions by McAfee or its competitors, announcements of extraordinary
events such as acquisitions or litigation or general economic conditions. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. These fluctuations have had a substantial effect on the
market prices for many high technology and emerging growth companies, often
unrelated to the operating performance of the specific companies. On several
occasions during 1995 and 1996, the closing sales prices for McAfee Common Stock
on successive days fluctuated in excess of 10%.
Risks Associated with Failure to Manage Growth; Potential Future
Acquisitions. McAfee has undergone a period of rapid growth and expansion due in
part to acquisitions. McAfee has also experienced significant growth in its
employee base, including growth through these acquisitions. McAfee's ability to
compete effectively and execute its strategies will depend in part upon its
ability to continue to improve its operational, management and financial systems
and controls. The failure of McAfee's management team to effectively manage any
further growth could have a material adverse effect on McAfee's business,
financial condition and results of operations.
McAfee may in the future undertake acquisitions that could present challenges
to McAfee's management, such as integrating and incorporating new operations,
product lines, technologies and personnel. If McAfee's management is unable to
manage these challenges, McAfee's business, financial condition and results of
operations could be materially and adversely affected. Any acquisition,
depending on its size, could result in the use of a significant portion of
McAfee's available cash, or if such acquisition is made utilizing McAfee's
securities, could result in significant dilution to McAfee's stockholders.
Furthermore, there can be no assurance that any acquired products will gain
acceptance in McAfee's markets.
Reliance on Indirect Channels of Distribution. McAfee markets a significant
portion of its products to end-users through distributors. In particular, Ingram
Micro Devices has accounted for 17%, 12% and 12% of net revenue in 1996, 1995,
and 1994, respectively. These distributors also sell other products that are
complementary to, or compete with, those of McAfee. While McAfee encourages its
distributors to focus on their respective products through marketing and support
programs, there can be no assurance that these distributors will not give
greater priority to products of other suppliers, including competitors.
Distributors have no long-term obligations to purchase products from McAfee. In
addition, McAfee has begun to recognize revenue for products sold through
distributors upon sales to distributors. Since McAfee's agreements with its
distributors provide for a right of return, revenue recognized upon sales to
distributors is subject to a reserve for returns. There can be no assurance that
any future reserves for returns will be adequate.
Proprietary Technology. McAfee's success is heavily dependent upon its
proprietary software technology. McAfee relies on a combination of contractual
rights, trademarks, trade secrets and copyrights to establish and protect
proprietary rights in its software. McAfee has not to date applied for or
obtained
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any patents or registered any of its copyrights and has only registered selected
trademarks. SABER is a trademark of a subsidiary of the SABRE Group, Inc. and is
licensed to McAfee pursuant to a non-exclusive worldwide, royalty free license.
McAfee is not otherwise affiliated with the SABRE Group, Inc. or SABRE Travel
Information Network. In the event that the license of the trademark were to
expire, or be terminated, McAfee could be required to cease using the trademark
on its products, which could involve significant expense and the possibility of
customer confusion. Any loss of McAfee's ability to use this trademark could
have a material adverse effect on McAfee's business, financial condition and
results of operations. See "Business -- Proprietary Technology."
McAfee does not typically obtain signed license agreements from its
corporate, government and institutional customers who license products directly
from McAfee. McAfee includes an electronic version of a "shrink-wrap" license in
all of its electronically distributed software and a printed license in the box
for its products distributed through traditional distribution channels in order
to protect its copyrights and trade secrets in those products. Since none of
these licenses are signed by the licensee, many authorities believe that they
may not be enforceable under many state laws and the laws of many foreign
jurisdictions.
In addition, the laws of some foreign countries either do not protect
McAfee's proprietary rights or offer only limited protection for those rights.
Furthermore, McAfee has obtained only one foreign registration of its "McAfee"
trademark, and publication in two jurisdictions, due to the significant costs
involved. As a result, McAfee may not be able to prevent a third party from
using its trademarks in many foreign jurisdictions.
There can be no assurance that the steps taken by McAfee to protect its
proprietary software technology will be adequate to deter misappropriation of
this technology. McAfee is aware that a substantial number of users of its
anti-virus products have not paid any registration or license fees to McAfee.
Changing legal interpretations of liability for unauthorized use of McAfee's
software, or lessened sensitivity by corporate, government or institutional
users to avoiding copyright infringement, would have a material adverse effect
on McAfee's business, financial condition and results of operations.
There has also been substantial industry litigation regarding intellectual
property rights of technology companies. Although McAfee does not believe that
it is infringing the intellectual property rights of others, it receives claims
from time to time, and McAfee has in the past been subject to litigation related
to its intellectual property. There can be no assurance that such claims will
not be asserted against McAfee in the future or that the outcome of any such
claims would not have a material adverse effect on McAfee's business, financial
condition and results of operations. In addition, as McAfee may acquire a
portion of the software included in its future products from third parties, its
exposure to infringement actions may increase because McAfee must rely upon such
third parties for information as to the origin and ownership of any software
being acquired. In the future, litigation may be necessary to enforce and
protect trade secrets and other intellectual property rights owned by McAfee.
McAfee may also be subject to litigation to defend it against claimed
infringement of the rights of others or to determine the scope and validity of
the proprietary rights of others. Any such litigation could be costly and cause
diversion of management's attention, either of which could have a material
adverse effect on McAfee's business, financial condition and results of
operations. Adverse determinations in such litigation could result in the loss
of McAfee's proprietary rights, subject McAfee to significant liabilities,
require McAfee to seek licenses from third parties or prevent McAfee from
manufacturing or selling its products, any one of which could have a material
adverse effect on McAfee's business, financial condition and results of
operations. Furthermore, there can be no assurance that any necessary licenses
will be available on reasonable terms, or at all. See "Business -- Proprietary
Technology."
Risks Related to International License Revenue. In 1996, 1995 and 1994 net
revenue from international licenses (license revenue from outside the United
States and Canada) represented approximately 19%, 29% and 23%, respectively, of
McAfee's net revenue. McAfee expects that net revenue from international
licenses will continue to account for a significant portion of net revenue. With
the acquisition of European distributors in late 1995, a significant portion of
McAfee's international revenue in 1997 is expected to be
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denominated in local currency. The Company has not engaged in any material
attempt to offset or "hedge" U.S. foreign currency transaction exposure. To
date, the Company's results of operations have not been significantly affected
by currency fluctuation, however, there can be no assurance that the Company's
future results of operations will not be adversely affected by such
fluctuations. Risks inherent in McAfee's international revenue 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 McAfee's
future international license revenue. Further, in countries with a high
incidence of software piracy, McAfee may experience a higher rate of piracy of
its products. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In addition, a significant portion of McAfee's international revenue is
generated through independent agents. Since these agents are not employees of
McAfee and are not required to offer McAfee's products exclusively, there can be
no assurance that they will continue to market McAfee's products. Also, McAfee
currently has limited control over its agents. For example, McAfee is dependent
upon its international agents to provide it with information regarding licensees
and there can be no assurance that McAfee will be able to obtain sufficient
information to contact such licensees, if necessary, regarding renewal. In
addition, McAfee may be unaware of the nature and scope of the representations
made to customers by these agents. For example, independent agents could make
representations to customers about McAfee's current and future products which
are inaccurate or incomplete, which could result in the products not meeting
customers' expectations or requirements
Dependence upon Key Personnel. McAfee's success will depend to a significant
extent upon a number of key technical and management employees. While McAfee's
employees are required to sign standard agreements concerning confidentiality
and ownership of inventions, the employees are generally not otherwise subject
to employment agreements and McAfee employees are generally not subject to
noncompetition covenants. The loss of the services of any of McAfee's key
employees could have a material adverse effect on its business, financial
condition and results of operations. McAfee does not maintain life insurance
policies on its key employees. McAfee's success will also depend in large part
upon its ability to attract and retain highly-skilled technical, managerial,
sales and marketing personnel. Competition for such personnel is intense. There
can be no assurance that McAfee will be successful in retaining its existing key
personnel and in attracting and retaining the personnel it requires.
Risk of Sabotage. Given McAfee's high profile in the anti-virus software
market, McAfee has been a target of computer "hackers" who have created viruses
to sabotage McAfee's products. While to date these viruses have been discovered
quickly and their dissemination has been limited, there can be no assurance that
similar viruses will not be created in the future, that they will not cause
damage to users' computer systems and that demand for McAfee's software products
will not suffer as a result. In addition, since McAfee does not control diskette
duplication by distributors or its independent agents, there can be no assurance
that diskettes containing McAfee's software will not be infected.
Risk of False Detection of Viruses. McAfee's anti-virus software products
have in the past and may at times in the future falsely detect viruses that do
not actually exist. Such "false alarms," while typical in the industry, may
impair the perceived reliability of McAfee's products and may therefore
adversely impact market acceptance of McAfee's products. In addition, McAfee has
in the past been subject to litigation claiming damages related to a false
alarm, and there can be no assurance that similar claims will not be made in the
future.
Effect of Certain Provisions; Anti-Takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law; Limitation of Liability of Directors.
The McAfee Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any further
vote or action by its stockholders. The rights of the holders of McAfee common
stock will be subject to, and may be adversely
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affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of McAfee. McAfee has no
present plans to issue shares of Preferred Stock. Further, certain provisions of
Delaware law and McAfee's Certificate of Incorporation and Bylaws, such as a
classified board, could delay or make more difficult a merger, tender offer or
proxy contest involving McAfee. While such provisions are intended to enable the
McAfee Board of Directors to maximize stockholder value, they may have the
effect of discouraging takeovers which could be in the best interest of certain
stockholders. There is no assurance that such provisions will not have an
adverse effect on the market value of McAfee common stock in the future. In
addition, McAfee's charter provides that its directors shall not be personally
liable to McAfee or its stockholders for monetary damages in the event of a
breach of fiduciary duty to the extent permitted by Delaware law.
ITEM 2. PROPERTIES
The Company's headquarters currently occupy approximately 62,000 square feet
in facilities located in Santa Clara, California under leases expiring in 2000.
The Company is also the tenant for the remaining 13,000 square feet of its
headquarters building, but has subleased that space through 1997. The Company's
east coast offices occupy approximately 12,000 square feet in a facility located
in Tinton Falls, New Jersey under a lease which expires in 1997. The Company's
Dallas offices occupy approximately 32,000 square feet under a lease which
expires in 2002. The Company's Virginia offices occupy approximately 10,000
square feet under a lease which expires in 2001. The Company also leases sales
offices on a monthly basis. On April 1st, 1997, the Company expects to enter
into a lease agreement for property in Santa Clara, California of 105,000 square
feet with a total value of approximately $6.0 million over four years. The
Company has also agreed to purchase personal property in connection with this
lease for approximately $3.0 million. The Company believes that its existing
facilities are adequate for the present and that additional space will be
available as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Since the Company's initial public offering on October 6, 1992, the
Company's Common Stock has traded on the NASDAQ National Market under the symbol
MCAF. The following table sets forth, for the period indicated, the high and low
closing sales prices for the Common Stock for the last eight quarters, all as
reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter $ 8.85 $ 4.48
Second Quarter 9.96 8.08
Third Quarter 16.37 8.41
Fourth Quarter 22.89 12.67
YEAR ENDED DECEMBER 31, 1996
First Quarter $28.50 $14.33
Second Quarter 35.00 23.78
Third Quarter 46.92 30.83
Fourth Quarter 52.50 41.75
</TABLE>
The above prices per share are adjusted to reflect 3:2 stock splits (effected as
stock dividends) distributed to stockholders in October 1995, April 1996 and
October 1996.
As of December 31, 1996, there were approximately 250 stockholders of record of
the Company's Common Stock. On August 30, 1996 the Company acquired a
controlling interest in FSA Corporation through a transaction in which FSA
Corporation issued, to its sole shareholder, shares which are exchangeable at
any time into 375,000 shares of McAfee common stock. The transaction was exempt
from the registration requirements of Section 5 of the Securities Act pursuant
to Section 4 (2).
DIVIDEND POLICY
The Company has not paid any cash dividends since its reorganization into
a corporate form in October 1992. The Company intends to retain future earnings
for use in its business and does not anticipate paying cash dividends in the
foreseeable future.
19
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the five-year period ended December 31, 1996, have been derived
from the financial statements of the Company. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the audited financial statements, related
notes and other financial information appearing elsewhere. In 1996, the Company
acquired a controlling interest in FSA Corporation, in a transaction accounted
for as a pooling of interests. FSA Corporation's 1996 results have been included
in the Company's consolidated results, however, 1995 results have not been
restated as the effect was not material. In 1995, the Company acquired Saber
Software Corporation ("Saber") in a transaction accounted for as a pooling of
interests. All amounts have been restated to reflect the combined operations of
Saber for all periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net revenue.................... $181,126 $90,065 $52,937 $31,039 $20,836
Income from operations......... 67,269 24,258 3,285 13,350 11,463
Income before income taxes..... 70,730 25,971 4,158 14,144 7,193
Net income .................... 39,017 14,916 2,605 8,506 11,790
Net income per share (1)....... $0.73 $0.30 $0.06 $0.19 -
Shares used in per share
calculation (1).............. 53,207 49,365 46,175 43,920 -
UNAUDITED PRO FORMA STATEMENTS OF INCOME
DATA(2):
Net revenue.................... $20,836
Income from operations......... 11,463
Income before income taxes..... 11,737
Net income..................... 7,062
Net income per share........... $0.17
Shares used in per
share calculation............ 40,928
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $122,653 $54,832 $31,594 $22,994 $13,123
Total assets.......... 194,485 104,020 73,757 44,095 31,791
Deferred revenue...... 23,845 29,420 31,549 19,494 16,112
Total equity ......... 149,527 63,542 36,911 17,989 9,142
</TABLE>
- ----------
(1) See pro forma amounts for 1992.
(2) The pro forma statement of income data for 1992 reflects an estimate of
the Company's financial results that would have been reported had the Company
been a corporation since inception and had the Company's outstanding debentures
been exchanged for the Company's common stock upon issuance. The pro forma
adjustments to the Company's historical statements of income include the
reversal of the interest expense associated with the debentures and a provision
for income taxes.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company licenses network security and management products, including help
desk and storage management software. Historically, net revenue from
subscription licenses for anti-virus software was generally recognized ratably
over the two year license period because there was no basis for unbundling the
separate maintenance portion of the license, 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% , representing the
maintenance portion of the license fee, recognized ratably over the two year
license period. Effective July 1, 1995, the Company established a basis for
unbundling the maintenance portion of the anti-virus subscription license and
began to generally recognize 80% of license fees for electronically distributed
anti-virus software at the time of the licensing transaction. 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
results in incremental license revenue being recognized over the eight quarters
beginning July 1, 1995 with a corresponding decrease in the amount of deferred
revenue on the Company's balance sheet. Revenue from perpetual licenses, for
which maintenance is sold separately, is recognized in full upon the initial
sale.
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 direct subscription and perpetual licenses, the Company sells
its network security and management products with shrink-wrap licenses through
traditional distribution channels. Historically, net revenue generated from
sales of these shrink-wrapped products through traditional channels was
recognized 100% at the time of sell-through of the products. However, based upon
the history that the Company has now developed with indirect distribution,
effective July 1, 1995, the Company began to recognize revenue from sales to
distributors upon shipment, subject to a reserve for returns. The impact of this
change on the consolidated financial statements was not material.
21
<PAGE> 22
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The following table sets forth for the periods indicated the percentage of
net revenue represented by certain items in the Company's Statements of Income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenue............................................................ 100% 100% 100%
Operating costs and expenses:
Cost of net revenue.................................................. 6 5 9
Research and development............................................. 12 10 13
Marketing and sales.................................................. 29 33 34
General and administrative........................................... 8 9 11
Amortization of intangibles.......................................... 2 2 1
Acquisition and other unusual costs.................................. 6 14 26
-- -- --
Total operating costs and expenses........................... 63 73 94
-- -- --
Income from operations..................................... 37 27 6
Other income, net...................................................... 2 2 2
-- -- --
Income before provision for income taxes................... 39 29 8
Provision for income taxes............................................. 18 12 3
Net income................................................. 21% 17% 5%
=== === ==
</TABLE>
Net Revenue. Net revenue increased 101% to $181.1 million in 1996 from $90.1
million in 1995, and 70% from $52.9 million in 1994. The increases in net
revenue were primarily due to increases in the licensing of anti-virus software
products to new customers and renewing expiring anti-virus licenses. The
increase is also attributable to a lessor extent to the licensing of network
management, security and help desk software to new and existing customers.
Finally, the change in revenue recognition described below contributed to the
increases in both 1996 and 1995. See Note 2 of Notes to the Company's financial
statements for a discussion of the effects of the change in revenue recognition.
International licenses accounted for approximately 19%, 29% and 23% of net
revenue for 1996, 1995 and 1994, respectively. The decrease in international net
revenue as a percentage of net revenue from 1995 to 1996 was due primarily to
domestic revenue growing at a faster rate. International net revenue grew in
absolute dollars in 1996. The increase in international net revenue as a
percentage of net revenue from 1994 to 1995 was due primarily to the Company
establishing operations in Europe and the acquisition by the Company of its
former European distributors. The Company considers the local currency to be the
functional currency for its international subsidiaries. As a result, a
significant portion of the Company's revenue from international license fees is
denominated in local currencies. The Company has engaged in minimal efforts to
attempt to offset or "hedge" its foreign currency transaction exposure. However,
with the increasing volatility in world currency markets it is likely that the
Company's hedging activities will increase. To date, the Company's results of
operations have not been significantly affected by currency fluctuations,
however, there can be no assurance that the Company's future results of
operations will not be adversely affected by such fluctuations. Risks inherent
in the Company's international sales also generally include the impact of
fluctuating exchange rates on demand for its products, 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 international license revenue. Further, in countries
with a high incidence of software piracy, the Company may experience a higher
rate of piracy of its products.
22
<PAGE> 23
Cost of Net Revenue. The Company has historically distributed the majority of
its products electronically, and as a result, its cost of net revenue is low
relative to traditional software vendors. The Company's cost of net revenue
consists primarily of the cost of media, manuals and packaging for products
distributed through traditional channels, and royalties, amortization of
software development costs and customer support pertaining to Saber. In 1996,
cost of net revenue increased 130% to $11.1 million from $4.8 million in 1995.
This increase is largely due to a corresponding increase in net revenue. In
1995, the cost of net revenue increased 2% to $4.8 million from $4.7 million in
1994. As a percentage of net revenue, cost of net revenue increased in 1996 to
6% compared to 5% in 1995. The increase is largely attributable to an increase
in revenue from packaged product sold through the retail channel. In 1995, the
cost of net revenue decreased to 5% from 9% in 1994. This decrease resulted from
decreased royalty obligations and decreases in the amortization of software
development costs. 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 will increase and, accordingly, gross margins
will decrease. In addition, to the extent that the Company increases its
reliance on retail distribution, it may encounter problems related to product
returns and limited shelf space availability.
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 137% to $22.2 million
in 1996 from $9.4 million in 1995. From 1994 to 1995, research and development
expenses increased 36% from $6.9 million. These increases were primarily a
result of the expansion of the Company's product development and technical
support staff and, to a lesser extent, the increased use of independent
contractors. In addition, in 1996, the Company increased development spending
associated with help desk products in connection with the Vycor acquisition and
increased its investment in security and encryption products associated with the
FSA acquisition. As a percentage of net revenue, research and development
expenses increased to 12% in 1996 from 10% in 1995. Research and development
spending decreased as a percentage of net revenue in 1995 to 10% from 13% in
1994. This decrease primarily reflected the increase in net revenue that
occurred in 1995. 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 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 72% to $51.3 million in 1996 from $29.8 million in
1995. From 1994 to 1995, marketing and sales expenses increased 67% from $17.8
million in 1994. These increases were primarily the result of an increase in
marketing and sales personnel and, to a lesser extent, increased advertising and
promotional expenses. As a percentage of net revenue, marketing and sales
expense decreased to 29% in 1996 from 33% in 1995 and 34% in 1994. This decrease
primarily reflects growth 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.
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 93% to $14.9 million
in 1996 from $7.8 million in 1995. From 1994 to 1995, general and administrative
expenses increased 35% from $5.7 million. The increase in 1996 is largely a
result of a concerted effort to strengthen the infrastructure of the Company
both domestically and internationally to accommodate the growth in revenue.
Additionally, the Company reserved $1.5 million in connection with a dispute
with respect to the timing of prior tax payments and also incurred additional
expense related to
23
<PAGE> 24
the acquisition of FSA Corporation. As a percentage of net revenue, general and
administrative expenses decreased to 8% in 1996 from 9% in 1995 and 11% in 1994.
These decreases primarily reflect growth in the Company's net revenue. The
Company intends to continue to make investments in its finance and
administrative infrastructure, and, as a result, expects general and
administrative expenses will increase in absolute dollars, but may fluctuate as
a percentage of net revenue.
Acquisition and Other Unusual Costs
On August 30, 1996, the Company acquired a controlling interest in FSA
Corporation of Calgary, Canada, a developer of security software for 534,000
shares and options to purchase shares of McAfee common stock. The combination
was accounted for as a pooling of interests. FSA's 1996 results have been
included in the Company's consolidated results, however 1995 results have not
been restated as the effect was not material.
During the second quarter of 1996, the Company acquired in-process technology
from Interactive Distributed Systems Software GmbH of Linz, Austria. The
purchase price and related transaction costs of approximately $2.1 million were
charged to operations during this period.
In the first quarter of 1996, the Company acquired Vycor Corporation for
$9.0 million in cash. 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 quarter ended March 31,
1996.
The Company acquired Saber Software Corporation, Inc. in the third quarter of
1995. The acquisition was accounted for as a pooling of interests. In connection
with this acquisition, the Company expensed approximately $2.5 million in
transaction costs and approximately $4.3 million in other costs primarily
relating to severance costs, allowances for sales returns and inventory
valuation, the write-off of certain capitalized software development costs, the
cancellation of certain contractual obligations, and the elimination of certain
duplicative facilities. The Company also incurred other unusual costs during the
three months ended September 30, 1995 consisting of an accrual for approximately
$1.7 million in settlement and other legal costs associated with a lawsuit filed
against Saber which was settled in October 1995.
During the third quarter of 1995, the Company acquired Assurdata, its former
French distributor and received a fully paid up worldwide perpetual license to
certain in-process technology from an affiliate of Assurdata for approximately
$0.8 million in cash, an earnout providing for additional payments of up to
approximately $0.8 million and a warrant to purchase 33,750 shares of the
Company's common stock at the fair market value on the date of issuance.
Approximately $0.6 million of the purchase price was allocated to in-process
technology which was expensed during the third quarter.
During the third quarter of 1995, the Company also acquired IPE , its former
UK distributor for $2.5 million in cash. At the effective date, IPE's only
assets consisted of a distribution agreement and a distribution agreement with
the Company. Approximately $2.0 million was charged to operations to write off
the value of the agreement and related legal costs in the third and fourth
quarter of 1995.
In the fourth quarter of 1995, the Company repurchased distribution rights
and customer lists from its three major German distributors for approximately
$1.9 million including legal fees. The entire amount was expensed in the
quarter.
In the first quarter of 1994, the Company acquired substantially all of the
assets and assumed certain liabilities of Brightwork for $10.3 million in cash
and related acquisition costs of $0.5 million. The acquisition was accounted for
as a purchase. Of the $7.8 million of the purchase price allocated to
technology, $7.1 million was attributed to in-process technology and expensed in
1994. Certain other acquisition costs related to the Brightwork acquisition
aggregating $0.1 million were also expensed in the three months ended March 31,
1994. In the second quarter of 1994, the Company acquired certain net assets of
ADS for $5.0 million in cash and related acquisition costs of $0.7 million. In
addition, the
24
<PAGE> 25
Company paid an additional $0.3 million in 1995 in connection with the
acquisition. Of the $6.8 million allocated to acquired technology, $5.5 million
was allocated to in-process technology and expensed together with other costs of
approximately $0.2 million in the three months ended June 30, 1994. In addition,
$3.9 million of related intangible assets as a result of the Brightwork and ADS
acquisitions are being amortized over three to five years.
In the third quarter of 1994, Saber acquired certain products from Technology
Works, Inc. for approximately $0.8 million. This amount was allocated to
in-process technology and expensed. As a result of the acquisition, the Company
also expensed previously capitalized software and transaction costs which
totaled $0.1 million.
Interest and Miscellaneous Income. Interest and miscellaneous income
increased to $3.5 million in 1996 from $1.7 million in 1995 and $0.9 million in
1994. Interest and miscellaneous income increased from 1995 to 1996 and from
1994 to 1995 due to the investment of cash generated from operating activities.
Provision for Income Taxes. The Company's effective tax rate for 1996, 1995
and 1994 was 44.9%, 42.6% and 37.4% respectively. The provision for income taxes
for each year presented includes the effect of a net deferred tax asset arising
from the different treatment of revenue recognition for tax and financial
reporting purposes and for differing treatment of purchased intangible assets
and in-process technology. The increase in the effective rate from 1994 to 1995
relates principally to permanent differences arising from the non-deductibility
of certain acquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
Since inception the Company has financed its operations primarily from
internally generated funds. As of December 31, 1996, the Company had $140.8
million in cash and cash equivalents and investments and no borrowings.
Net cash provided by operating activities was $46.4 million, $10.6 million
and $15.0 million in 1996, 1995 and 1994, respectively. Net cash provided by
operating activities in 1996 consisted primarily of net income plus accounts
payable and accrued liabilities which were offset primarily by an increase in
accounts receivable and deferred revenue. In 1995, net cash provided by
operating activities consisted primarily of net income plus accounts payable and
accrued liabilities which was offset primarily by increases in accounts
receivable and refundable income taxes. In 1994, net cash provided by operating
activities consisted primarily of net income, the non-cash write-off of
in-process technology and deferred revenue offset primarily by increases in
accounts receivable.
Net cash used in investing activities was $47.0 million, $12.4 million and
$18.8 million in 1996, 1995 and 1994, respectively, primarily reflecting
investments in marketable securities, also for 1996, additions to fixed assets
and for 1994, acquired assets.
Net cash provided by financing activities was $46.4 million, $11.7 million
and $12.9 million in 1996, 1995, and 1994 respectively, consisting primarily of
the proceeds and tax benefits associated with the exercise of non-qualified
stock options, and for 1994, the proceeds of the initial public stock offering
of Saber.
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.
25
<PAGE> 26
QUARTERLY OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1996 1996 1995 1995 1995 1995
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
AND OTHER DATA:
Net revenue ................ $ 59,224 $ 47,290 $ 40,767 $ 33,845 $ 29,362 $ 25,613 $ 18,569 $ 16,521
--------- --------- --------- --------- --------- --------- --------- ---------
Operating costs and
expenses:
Cost of net revenue ...... 3,837 2,703 2,450 2,067 1,262 877 1,421 1,241
Research and development . 7,979 5,650 4,752 3,810 2,394 2,572 2,368 2,020
Marketing and sales ...... 16,662 13,485 11,596 9,583 9,135 7,580 6,934 6,113
General and
administrative ......... 5,073 4,202 2,961 2,713 2,223 2,256 1,735 1,537
Amortization of
intangibles ........... 874 646 1,099 550 414 414 264 264
Acquisition and
other unusual costs .... -- -- 2,868 8,297 1,999 10,784 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating
costs and expenses . 34,425 26,686 25,726 27,020 17,427 24,483 12,722 11,175
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations ........ 24,799 20,604 15,041 6,825 11,935 1,130 5,847 5,346
Interest income ............ 1,297 922 645 597 454 518 422 319
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
income taxes ..... 26,096 21,526 15,686 7,422 12,389 1,648 6,269 5,665
Provision for income taxes . 10,460 8,628 6,286 6,339 5,079 1,218 2,506 2,252
--------- --------- --------- --------- --------- --------- --------- ---------
Net income ......... $ 15,636 $ 12,898 $ 9,400 $ 1,083 $ 7,310 $ 430 $ 3,763 $ 3,413
========= ========= ========= ========= ========= ========= ========= =========
Net income per share ....... $ 0.29 $ 0.24 $ 0.18 $ 0.02 $ 0.14 $ 0.01 $ 0.08 $ 0.07
========= ========= ========= ========= ========= ========= ========= =========
PERCENTAGE OF NET
REVENUE:
Net revenue ................ 100% 100% 100% 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating costs and
expenses:
Cost of net revenue ...... 6 6 6 6 4 3 8 8
Research and development . 13 12 12 11 8 10 13 12
Marketing and sales ...... 28 28 28 28 31 30 37 37
General and
administrative ......... 9 9 7 8 8 9 9 9
Amortization of
intangibles ........... 2 1 3 2 1 2 1 2
Acquisition and other
unusual costs .......... -- -- 7 25 7 42 -- -
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating
costs and
expenses ......... 58 56 63 80 59 96 68 68
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations ..... 42 44 37 20 41 4 32 32
Interest income ............ 2 2 2 2 2 2 2 2
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
income taxes ........... 44 46 38 22 43 6 34 34
Provision for income taxes . 18 18 15 19 17 5 13 14
--------- --------- --------- --------- --------- --------- --------- ---------
Net income ......... 26% 28% 23% 3% 26% 1% 21% 20%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
26
<PAGE> 27
Variability of Quarterly Operating Results. In view of the Company's
acquisitions in various quarters of 1996 and 1995 and the changes in revenue
recognition in 1995, the growth in revenues and operating income experienced by
the Company in 1996 and 1995 are not necessarily indicative of future results.
In addition, the Company believes that period-to-period comparisons of its
financial results should not be relied upon as an indication of future
performance.
The Company's licensing activity and 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
or upgrades by the Company or its competitors, 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. Because of the nature of the Company's distribution methods,
it generally cannot predict when a user will license its products. Historically,
renewals have accounted for a significant portion of the Company's net revenue,
however, there can be no assurance that renewal rates will not decline in the
future.
Significant quarterly fluctuations in licensing activity will cause
significant fluctuations in the Company's cash flows and the cash and cash
equivalents, accounts receivable and deferred revenue accounts on the Company's
balance sheet. In addition, the operating results of many software companies
reflect seasonal trends, and the Company's business, financial condition or
results of operations may be affected by such trends in the future. Such trends
may include higher revenue in the fourth quarter as many customers complete
annual budgetary cycles, and lower revenue in the summer months when many
businesses experience lower sales, particularly in the European market.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and supplementary data of the Company required by
this item are set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required hereunder is incorporated by reference from the
Company's Proxy Statement to be filed in connection with Company's annual
meeting of Stockholders to be held May 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required hereunder is incorporated by reference from the
Company's Proxy Statement to be filed in connection with Company's annual
meeting of Stockholders to be held May 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder is incorporated by reference from the
Company's Proxy Statement to be filed in connection with Company's annual
meeting of Stockholders to be held May 28, 1997.
27
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder is incorporated by reference from the
Company's Proxy Statement to be filed in connection with Company's annual
meeting of Stockholders to be held May 28, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Accountants 29
Consolidated Balance Sheets:
December 31, 1996 and 1995 30
Consolidated Statements of Income:
Years ended December 31, 1996, 1995 and 1994 31
Consolidated Statements of
Stockholders' Equity 32
Consolidated Statements of Cash Flows:
Years ended December 31, 1996, 1995, and 1994 33
Notes to Financial Statements 34
</TABLE>
(a)(2) Financial Statement Schedules
Report of Independent Accountants
Schedule II - Schedule of Valuation and Qualifying Accounts
Other Schedules are omitted because the conditions required for filing do not
exist or the required information is included in the financial statements or
notes thereto.
(a)(3) Exhibits: See Index to Exhibits on Page 45. The Exhibits listed in the
accompanying Index of Exhibits are filed or incorporated by reference as
part of this report.
(b)Reports on Form 8-K: On September 24, 1996, McAfee filed a Form 8-K
reporting the closing of the Company's acquisition of FSA Corporation.
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
McAfee Associates, Inc.
Santa Clara, California
We have audited the accompanying consolidated balance sheets of McAfee
Associates, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of McAfee
Associates, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
January 20, 1997, except for
the matters discussed in Note 11 for which the date is March 1, 1997
29
<PAGE> 30
MCAFEE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 76,363 $ 30,299
Short term investments ............................................ 50,368 25,058
Accounts receivable, net of allowance for doubtful accounts
and returns of $3,027 in 1996 $2,279 in 1995 ................ 25,930 20,892
Prepaids and other current assets ................................. 5,097 3,373
Prepaid income taxes .............................................. 1,869 6,064
Deferred taxes .................................................... 4,321 4,999
----------- -----------
Total current assets ...................................... 163,948 90,685
Long term investments ............................................... 14,021 --
Fixed assets, net ................................................... 7,486 3,399
Deferred taxes ...................................................... 7,719 6,513
Intangible assets, net .............................................. 1,001 3,129
Other assets ........................................................ 310 294
----------- -----------
Total assets .............................................. $ 194,485 $ 104,020
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable .................................................. $ 5,379 $ 2,214
Accrued liabilities ............................................... 15,734 8,844
Deferred revenue .................................................. 20,182 24,795
----------- -----------
Total current liabilities ................................. 41,295 35,853
Deferred revenue, less current portion .............................. 3,663 4,625
----------- -----------
Total liabilities ......................................... 44,958 40,478
----------- -----------
Commitments (Note 6)
STOCKHOLDERS' EQUITY Preferred stock, $.01 par value:
Authorized: 5,000,000 shares;
Issued and outstanding: none
Common stock, $.01 par value:
Authorized: 100,000,000 shares;
Issued and outstanding: 48,662,489 shares in 1996 and
46,129,887 shares in 1995 ......................................... 488 461
Additional paid-in capital .......................................... 77,259 30,889
Retained earnings ................................................... 71,780 32,192
----------- -----------
Total stockholders' equity ................................ 149,527 63,542
----------- -----------
Total liabilities and stockholders' equity ................ $ 194,485 $ 104,020
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE> 31
MCAFEE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue ................................................ $ 181,126 $ 90,065 $ 52,937
Operating costs and expenses:
Cost of net revenue ...................................... 11,057 4,801 4,684
Research and development ................................. 22,191 9,354 6,857
Marketing and sales ...................................... 51,326 29,762 17,798
General and administrative ............................... 14,949 7,751 5,733
Amortization of intangibles .............................. 3,169 1,356 792
Acquisition and other unusual costs ...................... 11,165 12,783 13,788
------------ ------------ ------------
Total operating costs and expenses .................. 113,857 65,807 49,652
------------ ------------ ------------
Income from operations ........................... 67,269 24,258 3,285
Interest and miscellaneous income, net ..................... 3,461 1,713 873
------------ ------------ ------------
Income before provision for income taxes ......... 70,730 25,971 4,158
Provision for income taxes ................................. 31,713 11,055 1,553
------------ ------------ ------------
Net income ....................................... $ 39,017 $ 14,916 $ 2,605
============ ============ ============
Net income per share ....................................... $ 0.73 $ 0.30 $ 0.06
============ ============ ============
Shares used in per share calculation ....................... 53,207 49,365 46,175
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE> 32
MCAFEE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------
COMMON STOCK ADDITIONAL
---------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 ................. 41,148 $ 411 $ 5,728 $ 14,797 $ 20,936
Issuance of common stock .................. 1,271 13 10,040 -- 10,053
Issuance of common stock upon ............. -- -- -- -- --
exercise of stock options ............... 1,625 16 1,172 -- 1,188
Tax benefit from exercise of
nonqualified stock options .............. -- -- 2,129 -- 2,129
Accretion of Saber preferred
stock prior to conversion ............... -- -- 134 (134) --
Net income ................................ -- -- -- 2,605 2,605
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1994 ................. 44,044 440 19,203 17,268 36,911
Issuance of common stock upon
exercise of stock options ............... 1,987 20 3,514 -- 3,534
Issuance of common stock from
Employee Stock Purchase Plan ............ 99 1 231 -- 232
Tax benefit from exercise of
nonqualified stock options .............. -- -- 8,386 -- 8,386
Secondary offering costs .................. -- -- (445) -- (445)
Foreign currency translation .............. -- -- -- 8 8
Net income ................................ -- -- -- 14,916 14,916
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1995 ................. 46,130 461 30,889 32,192 63,542
Net assets of FSA acquired in
issuance of common stock upon
pooling transaction ..................... -- -- -- 387 387
------------ ------------ ------------ ------------ ------------
Restated balances, December 31, 1995 ........
46,130 461 30,889 32,579 63,929
Issuance of common stock upon
exercise of stock options ............... 2,632 27 13,548 -- 13,575
Issuance of common stock from
Employee Stock Purchase Plan ............ 75 -- 715 -- 715
Fractional shares returned upon
stock split ............................ (175) -- -- -- --
Tax benefit from exercise of
nonqualified stock options .............. -- -- 32,107 -- 32,107
Unrealized gain on investments ............ -- -- -- 184 184
Net income ................................ -- -- -- 39,017 39,017
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1996 ................. 48,662 $ 488 $ 77,259 $ 71,780 $ 149,527
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE> 33
MCAFEE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 39,017 $ 14,916 $ 2,605
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ...................................... 5,960 2,998 2,305
Provision for doubtful accounts receivable and sales returns ....... 748 809 902
Deferred taxes ..................................................... (528) (939) (7,064)
Compensation related to stock options .............................. -- -- 237
Write-off of acquired in-process technology ........................ -- -- 12,569
Charge for purchased R&D ........................................... -- -- 962
Unrealized gain on investments .................................... 184 -- --
Changes in assets and liabilities:
Accounts receivable .............................................. (5,786) (5,143) (7,543)
Refundable income taxes .......................................... 4,195 (5,228) (836)
Prepaids and other assets ........................................ (1,740) (789) (1,364)
Accounts payable and accrued liabilities ......................... 10,055 6,067 2,391
Income taxes payable ............................................. -- -- (522)
Deferred revenue ................................................. (5,575) (2,129) 10,317
------------ ------------ ------------
Net cash provided by operating activities ..................... 46,530 10,562 14,959
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities .................................... (164,147) (30,800) (85,961)
Sales of marketable securities ........................................ 124,816 20,784 87,919
Additions to fixed assets ............................................. (7,243) (1,608) (2,046)
Acquired assets, net of cash acquired ................................. -- -- (16,892)
Purchases and capitalization of software development costs ........... -- -- (1,853)
Purchased intangibles ................................................. (676) (803) --
Net assets of FSA acquired under pooling transaction .................. 387 -- --
Proceeds from sale of equipment ....................................... -- -- 16
------------ ------------ ------------
Net cash used in investing activities ......................... (46,863) (12,427) (18,817)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of offering costs ............................................... -- 232 10,053
Proceeds from exercise of stock options ............................... 14,290 3,534 991
Tax benefit from exercise of nonqualified stock options ............... 32,107 8,386 2,129
Cost of secondary security offering ................................... -- (445) --
Payments of long-term debt ............................................ -- -- (238)
------------ ------------ ------------
Net cash provided by financing activities ..................... 46,397 11,707 12,935
------------ ------------ ------------
Effect of exchange rate fluctuations on cash and cash
equivalents ......................................................... -- 8 --
------------ ------------ ------------
Net increase in cash and cash equivalents ............................... 46,064 9,850 9,077
Cash and cash equivalents at beginning of year........................... 30,299 20,449 11,372
------------ ------------ ------------
Cash and cash equivalents at end of year ................................ $ 76,363 $ 30,299 $ 20,449
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes ............................ $ 754 $ 9,033 $ 7,891
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE> 34
MCAFEE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
McAfee Associates, Inc. (the "Company") develops, markets, distributes and
supports network security and management software products. Development
facilities are located in California and New Jersey, sales facilities are
located in California, Texas, New Jersey and Virginia and products are
distributed to corporate, governmental, and institutional users as well as
resellers and distributors throughout the world. Products and updates are
delivered primarily through electronic distribution under two-year subscription
licenses and as boxed product sold through the retail channel. International
sales and support are provided by subsidiaries in principal European markets and
independent agents and distributors elsewhere internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
Actual results could differ from those estimates.
Certain Risks and Concentrations:
The Company's product revenues are concentrated in the personal computer
software industry which is highly competitive and rapidly changing. Significant
technological changes in the industry or customer requirements, or the emergence
of competitive products with new capabilities or technologies could adversely
affect operating results. In addition, a significant portion of the Company's
revenue and net income is derived from international sales and independent
agents and distributors. Fluctuations of the U.S. dollar against foreign
currencies, changes in local regulatory or economic conditions, piracy or
nonperformance by independent agents could adversely affect operating results.
The Company maintains the majority of cash balances and all of its short-term
investments with four financial institutions. The Company invests with high
credit quality financial institutions and, by policy, limits the amount of
credit exposure to any one financial institution. The Company has significant
amounts receivable from customers across a broad demographic base. Management of
the Company performs ongoing credit evaluations of its customers and maintains
allowances for doubtful accounts.
Foreign Currency Translation:
The Company considers the local currency to be the functional currency for
its international subsidiaries. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet date.
Translation adjustments resulting from this process are charged or credited to
equity. Revenues and expenses are translated at average exchange rates
prevailing during the year.
34
<PAGE> 35
Foreign currency transaction gains and losses which to date have not been
material have been included in the determination of net income.
Revenue Recognition:
Revenue from product licenses is generally recognized when a customer
purchase order has been received, a license agreement has been delivered, the
software has been shipped (or electronically delivered), remaining obligations
are insignificant, and collection of the resulting account receivable is
probable. Maintenance revenue for providing product updates and customer support
is deferred and recognized ratably over the service period. For subscription
sales that have the maintenance fee included with the licensing fee, maintenance
revenue is derived based upon the amount charged for such services when they are
sold separately.
Revenue generated from products sold through traditional channels where the
right of return exists is reduced by reserves for estimated sales returns. Such
reserves are based on estimates developed by management. As unsold products in
these distribution channels are exposed to rapid changes in consumer preferences
or technological obsolescence due to new operating environments, product updates
or competing products, it is reasonably possible that these estimates will
change in the near term.
Historically, revenue from subscription licenses for anti-virus software was
generally recognized ratably over a two year period as the Company did not
separately value the product license and the maintenance agreement. Effective
July 1, 1995, the Company established separate prices for each of these
components and currently recognizes, upon the initial sale, 80% of the total fee
as product license revenue and defers 20% of the fee as maintenance. The
maintenance fee is recognized over the service period, generally two years. The
effect of this change was to increase 1995 net income by $7,708,000. Earnings
per share were increased by $0.16.
Cost of net revenue consists of the cost of materials associated with
delivery of boxed product which is not distributed electronically and royalty
costs associated with licensed technology. Cost of customer support is included
in sales and marketing.
Research and Development:
Research and development expenditures are charged to operations as incurred.
Under the Company's development process, technological feasibility is
established on completing a working model. Subsequent costs for McAfee have not
been significant and all software development costs have been expensed.
Cash and Cash Equivalents:
Cash equivalents are comprised of highly liquid debt instruments with
original maturities of 90 days or less.
Marketable Securities:
All marketable securities are classified as available-for-sale and are
carried at fair value in accordance SFAS 115. Short term marketable securities
are those with maturities greater than 90 days but less than one year. Long term
marketable securities have original maturities greater than one year. Unrealized
gains and losses on marketable securities classified as available-for-sale, when
material, are reported net of related taxes as a separate component of
stockholders' equity. Realized gains and losses on sales of all such investments
are reported in earnings and computed using the specific identification cost
method.
35
<PAGE> 36
Fixed Assets:
Fixed assets are stated at cost. Depreciation and amortization of fixed
assets is provided using the straight-line method over the estimated useful
lives of the assets (3 to 5 years).
Intangible Assets:
Intangible assets include the estimated fair market values of purchased
technology when the related products or products under development are
considered technologically feasible, goodwill arising from acquisitions, and
Saber costs of internally developed software for which capitalization was
appropriate. Intangibles are amortized over their estimated useful lives
(typically three years to five years).
Fair Value of Financial Instruments:
Carrying amounts of the Company's financial instruments including cash and
cash equivalents, investments, accounts receivable, accounts payable and accrued
liabilities approximate fair value due to their short maturities.
Net Income Per Share:
Net income per share is computed using the weighted average common and common
equivalent shares outstanding during the period.
Stock Dividend:
During both April and October, 1996, the Company declared and paid stock
dividends of one share of common stock for every two shares of common stock
outstanding. All per share data contained herein has been restated to reflect
the increased number of shares outstanding.
3. BUSINESS COMBINATIONS AND ACQUISITIONS:
FSA Corporation
During 1996, the Company acquired a controlling interest in FSA
Corporation of Calgary, Canada for an aggregate of approximately 534,000 shares
and options to purchase shares of McAfee common stock. The acquisition was
accounted for as a pooling of interests, however, the 1995 balance sheet was not
restated as the effect was not material.
Vycor Corporation
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 quarter ended March 31,
1996.
Saber Software Corporation
In August 1995, the Company acquired Saber Software Corporation ("Saber")
for approximately 2.1 million shares of common stock. Saber, formerly a publicly
held company based in Dallas, Texas, designs, develops, and licenses computer
software for local area networks and had total assets of $17.4 million at
December 31, 1994.
36
<PAGE> 37
Net revenue and net income of the separate companies for the period prior to
the merger (six months ended June 30, 1995) and reconciliation for the results
of the operations previously reported by the separate companies for the year
ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30 DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Net Revenue:
McAfee ...................................... $ 24,440 $ 32,900
Saber ....................................... 10,650 20,037
------------- -------------
Combined ................................. $ 35,090 $ 52,937
============= =============
Net Income:
McAfee ...................................... $ 6,817 $ 1,387
Saber ....................................... 359 1,218
------------- -------------
Combined ................................. $ 7,176 $ 2,605
============= =============
</TABLE>
In connection with the acquisition of Saber, the Company incurred acquisition
related charges of approximately $6.8 million. In addition, the Company accrued
approximately $1.7 million for the settlement and legal costs associated with a
lawsuit involving Saber.
Acquisition of distributors:
During the third quarter of 1995, the Company acquired its former
distributors in the UK and France and received a fully paid up perpetual license
to certain in-process technology from an affiliate of the French distributor for
approximately $3.3 million in cash and earnout arrangements providing for
additional payments of up to approximately $0.8 million. These transactions were
accounted for as purchases. Approximately $2.6 million including legal costs was
charged to operations in 1995 in connection with these transactions. During the
fourth quarter of 1995, the Company repurchased distribution rights and customer
lists from its three major German distributors for approximately $1.9 million
including legal fees. The entire amount was expensed during the fourth quarter.
Acquisition of Brightwork Development, Inc.:
Effective March 30, 1994, the Company acquired substantially all of the
assets and liabilities of Brightwork Development, Inc. (Brightwork), an
unrelated corporation, for $10.3 million in cash and related acquisition costs
of approximately $0.5 million. This transaction was accounted for as a purchase.
Approximately $7.1 million , representing in-process technology, was charged to
operations in 1994.
Purchase of Software Products:
The Company acquired certain in-process remote desktop technology from
Interactive Distributed Systems Software GmbH of Linz, Austria during the three
month period ended June 30, 1996. The purchase price and related transaction
costs of approximately $2.1 million were charged to operations during the
period.
Effective May 6, 1994, the Company acquired technology relating to two
software products of Automated Design Systems, Inc. ("ADS"), an unrelated
corporation, for approximately $5.0 million in cash and related acquisition
costs of approximately $0.7 million. An additional amount of approximately $0.3
million was paid to ADS in 1995 based on sales of products developed with the
purchased technology. Approximately $5.5 million, representing in-process
technology, was charged to operations in 1994.
37
<PAGE> 38
4. MARKETABLE SECURITIES:
At December 31, 1996 and 1995, all marketable securities were classified as
available-for-sale and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1996 1995
-------------------- --------------------
MARKET COST MARKET COST
VALUE BASIS VALUE BASIS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
US Government debt securities ...... $ 1,000 $ 1,002 $ -- $ --
Municipal debt securities .......... 58,244 58,364 25,085 25,058
Corporate debt securities .......... 5,145 5,128 -- --
--------- --------- --------- ---------
$ 64,389 $ 64,494 $ 25,085 $ 25,058
========= ========= ========= =========
</TABLE>
At December 31, 1996, all marketable debt securities have scheduled
maturities of less than three years. In 1995, Marketable securities were not
adjusted to market value due to the immateriality of the net difference from
cost. Gross realized gains and losses on sales of available-for-sale securities
were immaterial in 1996 and 1995.
5. BALANCE SHEET DETAIL (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- --------
<S> <C> <C>
Fixed assets:
Furniture and fixtures.......................... $4,804 $1,949
Computers and equipment......................... 8,916 4,869
Leasehold improvements.......................... 341 --
--------- --------
14,061 6,818
Less accumulated depreciation and amortization.. (6,575) (3,419)
--------- ---------
$7,486 $3,399
========= =========
Intangibles assets(see Note 3):
Purchased technology............................ $3,516 $2,993
Software development costs (1).................. 1,261 1,261
Goodwill........................................ 2,046 1,893
--------- --------
6,823 6,147
Less accumulated amortization................... (5,822) (3,018)
--------- --------
$1,001 $3,129
========= ========
Accrued liabilities:
Accrued compensation............................ $3,390 $1,070
Capital lease obligations....................... -- 137
Accrued acquisition costs....................... 582 2,573
Other accrued expenses.......................... 11,762 5,064
--------- --------
$15,734 $8,844
========= ========
</TABLE>
- -----------
(1) Related to Saber acquisition.
6. COMMITMENTS:
The Company leases its operating facilities under non-cancelable operating
leases through December 2001. In addition, the Company has leased certain
equipment under various leases which expire no later than 1998.
At December 31, 1996, future minimum payments under non-cancelable operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997........................ $2,012
1998........................ 1,942
1999........................ 1,846
2000........................ 1,689
2001 and thereafter......... 627
------
$8,116
======
</TABLE>
38
<PAGE> 39
Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted to
$1,191,000, $1,148,000 and $583,000, respectively.
The Company expects to enter into a lease agreement in April 1997 for
property in Santa Clara, California of 105,000 square feet with a total value of
approximately $6.0 million over four years. The Company has also agreed to
purchase personal property in connection with this lease for approximately $3.0
million.
7. EMPLOYEE BENEFIT PLANS:
401(k) and Profit Sharing Plan
Under the Company's 401(k) and Profit Sharing Plans, the Board of
Directors, at its discretion, can match employee contributions in an amount not
to exceed 20% of total compensation. During fiscal 1996, 1995, and 1994 the
Company contributed $249,000, $104,000 and $86,000 respectively.
Employee Stock Purchase Plan:
Under the 1994 Employee Qualified Stock Purchase Plan, the Company can grant
stock purchase rights to all eligible employees during one year offering periods
with exercise dates approximately every six months (beginning each August and
February). The Company has reserved 506,250 shares of common stock for issuance
under the plan. Shares are purchased through employees' payroll deductions at
exercise prices equal to 85% of the lesser of the fair market value of the
Company's common stock at either the first day of an offering period or the last
day of such offering period. No participant may purchase more than $25,000 worth
of common stock in any one calendar year.
8. STOCKHOLDERS' EQUITY:
Preferred Stock:
The Company has authorized 5,000,000 shares of preferred stock, par value
$.01 per share. The Company's Board of Directors has authority to provide for
the issuance of the shares of preferred stock in series, to establish from time
to time the number of shares to be included in each such series and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof, without any further
vote or action by the shareholders.
Stock Option Plans:
Under the 1995 Stock Incentive Plan, the Company has reserved 15,525,000
shares for issuance to employees, officers, directors, third-party contractors
and consultants. The plan provides for an option price no less than 100% of the
fair market value of the Company's common stock on the date of grant (110% of
the fair market value in the case of holders of more than 10% of the voting
rights of the Company's common stock) for incentive stock options granted to
employees and officers (including directors who are also employees) or 85% of
the fair market value on the date of grant for all others. The options may be
exercisable immediately, or over time, generally vest 25% one year after
commencing employment or from date of grant and vest thereafter in monthly
increments over three years. All options under the option plan expire ten years
after grant.
Under the Stock Option Plan for Outside Directors, the Company has reserved
421,875 shares for issuance under the amended plan to certain members of its
Board who are not employees of the Company or any affiliated corporation. The
plan provides for an option price at fair market value of the Company's common
stock on the date of grant. The initial grant to each outside director generally
vests ratably over a three-year period. Subsequent option grants will vest after
three years from the date of grant. All options under the option plan expire ten
years after grant.
39
<PAGE> 40
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------------------------------
SHARES
AVAILABLE NUMBER OF PRICE PER AGGREGATE WEIGHTED
FOR GRANT SHARES SHARE PRICE AVG. EX. PRICE
------------ -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993.... 3,680,505 5,244,149 $.00-$6.62 $6,047,660 $ 1.15
Shares granted................. (2,870,017) 3,175,162 $2.22-$7.57 10,211,490 $ 3.22
Shares exercised............... -- (1,624,442) $.00-$6.62 (892,592) $ .55
Shares canceled................ 1,215,180 (1,283,182) $.00-$6.62 (2,692,047) $ 2.10
--------- ----------- -----------
Balances, December 31, 1994.... 2,025,668 5,511,688 $.00-$7.57 12,674,511 $ 2.30
Additional shares authorized... 6,750,000 -- -- -- --
Shares granted................. (6,138,178) 6,136,178 $5.48-$19.44 58,581,772 $ 9.55
Shares exercised............... -- (1,985,787) $.00-$6.65 (3,534,462) $ 1.78
Shares canceled................ 1,167,503 (1,280,959) $1.70-$11.11 (6,870,032) $ 5.36
--------- ----------- ------------
Balances, December 31, 1995.... 3,804,993 8,383,120 $.00-$19.44 60,851,789 $ 7.26
Shares granted................. (3,368,003) 3,368,003 $1.13-$51.75 97,526,769 $28.96
Shares exercised............... -- (2,631,865) $.01-$19.44 (13,574,615) $ 5.16
Shares canceled................ 1,219,764 (1,219,764) $1.70-$46.00 (17,335,041) $14.21
--------- ----------- ------------
Balances, December 31, 1996.... 1,656,754 7,899,494 $.01-$51.75 $127,468,902 $16.14
--------- ----------- ------------
</TABLE>
At December 31, 1996, a total of 983,034 options to purchase common stock
were exercisable at an aggregate exercise price of $5,924,222.
The following information regarding the stock option program and employee
stock purchase programs is provided in compliance with SFAS 123, "Accounting for
Stock Based Compensation". The company has elected to continue accounting for
such plans in accordance with APB No. 25.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- ------------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Range of Outstanding Remaining Exercisable Exercisable Exercise
Exercise Prices at 12/31/96 Contractual Life (yrs) Price at 12/31/96 Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.13 - $6.03 1,697,662 7.55 $ 3.44 640,217 $ 3.29
$8.37 - $16.22 3,463,016 8.56 $10.41 313,661 $10.38
$19.00 - $24.89 1,537,054 9.16 $22.29 29,156 $19.28
$32.38 - $51.75 1,201,762 9.73 $42.60 0 N/A
$1.13 - $46.00 7,899,494 8.64 $16.12 983,034 $ 6.03
</TABLE>
The fair market value of options granted under the McAfee non-qualified stock
option plan was calculated using the Black-Scholes option pricing model using
the multiple option approach. A typical option grant vests over a four year
period. Parameters for the option analysis are listed below.
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Risk free interest rate 5.50% 5.85%
Expected life (yrs) 4 4
Volatility. 0.66 0.66
Dividend yield 0 0
</TABLE>
The weighted average expected life of the option grants was estimated based
on examination of previously exercised options over the life of the program.
Volatility was estimated on a monthly basis since the
40
<PAGE> 41
company became public in October of 1992. The average volatility for the twelve
months ending December 1996 and 24 month period from January 1995 through
December 1996 was 66%. Since the volatility has been relatively stable one value
was selected for all segments. McAfee does not pay a dividend and has no plans
to pay a dividend.
The weighted average fair value of options granted in 1996 and 1995 was
$13.15 and $6.24.
The company has also estimated the fair value of purchase rights issued under
the Employee Stock Purchase Program. Rights under this plan were also evaluated
using the Black-Scholes option pricing model. The company's plan is described in
Note 7. Purchase periods occur twice yearly and each effectively contains a 6
and 12 month option.
<TABLE>
<CAPTION>
Feb. 1995 Aug. 1995 Feb. 1996 Aug. 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Risk Free Interest Rate 6.06% 5.47% 4.84% 5.73%
Expected Life 6,12 mos 6,12 mos 6,12 mos 6,12 mos
Volatility 0.66 0.66 0.66 0.66
Dividend Yield -- -- -- --
</TABLE>
The weighted average fair value of options granted pursuant to the Employee
Stock Purchase Program in 1996 and 1995 was $6.80 and $4.34.
The following pro forma income information has been prepared following the
provisions of SFAS 123.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income - pro forma (thousands) $24,802 $11,550
Net income per share - pro forma $0.47 $0.23
</TABLE>
The impact on pro forma earnings per share and net income in the table above
may not be indicative of the effect in future years. The company continues to
grant stock options to new employees. This policy may or may not continue.
Warrants:
Pursuant to the 1995 acquisition of a foreign distributor, the Company issued
a warrant to purchase 33,750 shares of common stock at a price of $11.19 which
expires June 30, 1999. This warrant was canceled during 1996.
41
<PAGE> 42
9. PROVISION FOR INCOME TAXES:
The components of the provision for income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ............................ $ 25,046 $ 9,124 $ 6,584
State .............................. 6,053 2,800 1,829
Foreign ............................ 1,132 70 204
Deferred:
Federal ............................ (1,190) (1,090) (6,144)
State .............................. 672 151 (920)
----------- ----------- -----------
Provision for income taxes ......... $ 31,713 $ 11,055 $ 1,553
=========== =========== ===========
</TABLE>
Income tax benefits from the exercise of non-qualified stock options and the
disqualifying dispositions of employee stock purchase plan stock of $32,107,000,
$8,386,000 and $2,129,000 for the years ended December 31, 1996, 1995 and 1994,
respectively, are included in stockholders' equity.
The Company's effective tax rate on income before income taxes differs from
the U.S. Federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal statutory income tax rate .............. 35.0% 35.0% 34.0%
State taxes, net of federal income tax benefit ...... 6.2 7.4 4.1
Non deductible acquisition and other costs .......... 4.0 4.5 --
Other, net .......................................... (0.3) (4.3) (0.7)
-------- -------- --------
44.9% 42.6% 37.4%
======== ======== ========
</TABLE>
Significant components of net deferred tax assets at December 31, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
---------- ----------
<S> <C> <C>
Deferred revenue ................................... $ 906 $ 3,695
In-process technology .............................. 6,355 6,349
State taxes ........................................ 1,484 195
Accrued liabilities and reserves ................... 3,096 1,415
Depreciation and amortization ...................... 412 164
Other .............................................. (213) (306)
---------- ----------
$ 12,040 $ 11,512
========== ==========
Current portion .................................... $ 4,321 $ 4,999
Non-current portion ................................ 7,719 6,513
---------- ----------
$ 12,040 $ 11,512
========== ==========
</TABLE>
10. BUSINESS SEGMENT INFORMATION:
The Company operates in one industry segment and markets and services its
products in the United States and in foreign countries through its own direct
sales organization and through independent agents and distributors. In 1996,
foreign operations accounted for approximately 19% of the Company's net revenue,
but less than 10% of the Company's net income, and identifiable assets. One
customer, Ingram Micro Devices, accounted for 17%, 12% and 12% of net revenue
during fiscal 1996, 1995 and 1994, respectively.
Net revenue information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
North America ................ $ 145,945 $ 64,351 $ 40,697
International ................ 35,181 25,714 12,240
---------- ---------- ----------
$ 181,126 $ 90,065 $ 52,937
========== ========== ==========
</TABLE>
42
<PAGE> 43
11. SUBSEQUENT EVENTS:
On January 20, 1997, the Board of Directors approved an interim stock
option plan for non-officers, to be in place through July 1997. A total of
2,000,000 shares of common stock have been reserved for issuance thereunder.
On February 28, 1997, the Company acquired Jade KK of Japan for 336,071
shares of common stock. Jade is a developer and distributor of anti-virus
software in Japan. The combination will be accounted for as a pooling of
interests.
Also on February 28, 1997 the Company acquired the Dutch distributor,
Schuijers Holding B.V. for 63,721 shares of common stock. The combination
will be accounted for as a pooling of interests.
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 25th day of March, 1997.
McAFEE ASSOCIATES, INC.
/s/ William L. Larson
- ----------------------------------------
William L. Larson
President, Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 25, 1997 by the following persons on
behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
----------------------------- ------------------------------------
<S> <C>
/s/ William L. Larson President, Chief Executive
----------------------------- Officer and Chairman of the Board
(William L. Larson) (Principal Executive Officer)
/s/ Prabhat K. Goyal Vice President of Administration, Chief
----------------------------- Financial Officer, Treasurer and
(Prabhat K. Goyal) Secretary (Principal Financial
Officer and Principal
Accounting Officer)
/s/ John C. Bolger Director
-----------------------------
(John C. Bolger)
/s/ Jeffrey T. Chambers Director
-----------------------------
(Jeffrey T. Chambers)
/s/ Leslie G. Denend Director
-----------------------------
(Leslie G. Denend)
/s/ Virginia Gemmell Director
-----------------------------
(Virginia Gemmell)
/s/ Edwin L. Harper Director
-----------------------------
(Edwin L. Harper)
/s/ Walter G. Kortschak Director
-----------------------------
(Walter G. Kortschak)
</TABLE>
44
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title Page No.
- ----------- ------------- --------
<S> <C> <C>
3.1 Second Restated Certificate of Incorporation., incorporated by
reference to Exhibit 3.1 of the Company's Report on Form 10Q for
the fiscal quarter ended September 31, 1996.
3.2 By-laws, incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement No. 33-51042 on Form S-1
(the "S-1").
3.3 Certificate of Designation of Series A Preferred Stock of the
Company, incorporated by reference to Exhibit 3.3 of the Company's
form 10-Q for the Quarter ended September 30, 1996.
4.1 See Exhibit 10.44, 10.49 and 10.50.
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.
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.
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title Page No.
- ----------- ------------- --------
<S> <C> <C>
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.
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.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title Page No.
- ----------- ------------- --------
<S> <C> <C>
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.
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 filed 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.
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title Page No.
- ----------- ------------- --------
<S> <C> <C>
10.39 Amendment No. 1 to Lease dated September 27, 1995 by and between
the Company and Arrilliga Family Trust and Richard T. Peery
Separate Property Trust, incorporated by reference to Exhibit
10.39 of the Company's 1995 10-K.
10.40 1995 Stock Incentive Plan, incorporated by reference to Exhibit
10.40 of the Company's Form 10-Q for the Quarter ended March 31,
1996.
10.41 Lease by and between Herndon Associates, a Virginia general
partnership and the Company dated July 22, 1996, incorporated by
reference to Exhibit 10.41 of the Company's Form 10-Q for the
Quarter ended June 30, 1996.
10.42 Purchase contract by and between Interactive Distributed Systems
Software GmbH and the Company effective June 30, 1996.
Incorporated by reference to Exhibit 10.42 of the Company's Form
10-Q for the Quarter ended June 30, 1996.
10.43 Change in control agreement between McAfee and Prabhat K. Goyal
incorporated by reference to Exhibit 10.43 of the Company's Form
10-Q for the Quarter ended June 30, 1996.
10.44 Combination Agreement by and among the Company, FSA Combination
Corp., FSA Corporation, and Daniel Freedman, the sole shareholder
of FSA Corporation, dated August 16, 1996, the Registration Rights
Agreement, dated August 30, 1996 by and between the Company and
Daniel Freedman, and the Voting and Exchange Trust Agreement,
dated August 30, 1996, by and among the Company, FSA Combination
Corp. and FSA Corporation, all incorporated by reference to the
Company's Report on Form 8-K, as filed with the Securities and
Exchange Commission on September 24, 1996.
10.45 Amendment No. 2 to Lease dated May 9, 1996, by and between the
Company and Arrilliga Family Trust and Richard T. Peery Separate
Property Trust.
10.46 Lease Agreement for facility at 2855 Bowers Avenue dated October
22, 1996 between the Company and Arrilliga Family Trust and
Richard T. Peery Separate Property Trust.
10.47 Lease Agreement for facility at 4099 McEwen Road, Dallas dated
November 14, 1996, between the Company and Blue Lake Partners,
Ltd.
10.48* Resignation Agreement and General Release of Claims, dated
November 19, 1996 between the Company and Richard Kreysar.
10.49 Stock Exchange Agreement, dated January 13, 1997, by and among the
Company, FSA Combination Corp., Kabushiki Kaisha Jade ("Jade") and
the shareholders of Jade, and the Registration Rights Agreement,
dated January 13, 1997 by and between the Company and the
shareholders of Jade, all incorporated by reference to the
Company's Report on Form 8-K, as filed with the Securities and
Exchange Commission on March 14, 1997.
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title Page No.
- ----------- ------------- --------
<S> <C> <C>
10.50 Stock Exchange Agreement, dated February 28, 1997, by and among
the Company, FSA Combination Corp., Schuijers Holding B.V.
("Schuijers") and the shareholders of Schuijers, and the
Registration Rights Agreement, dated February 28, 1997, by and
between the Company and shareholders of Schuijers.
11.1 Computation of Net Income Per Share
21.1 Subsidiaries
23.1 Consent of Independent Accountants
27.1 Financial Data Sheet
</TABLE>
- --------
* Management contracts or compensatory plans or arrangements covering executive
officers or directors of McAfee Associates, Inc.
49
<PAGE> 50
SCHEDULE II
MCAFEE ASSOCIATES, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINING CHARGED END OF
OF PERIOD TO EXPENSE PERIOD
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for Doubtful
Accounts and Sales Returns .. 2,279 2,378 (1,630) 3,027
Year Ended December 31, 1995
Allowance for Doubtful
Accounts and Sales Returns .. 1,470 1,279 (470) 2,279
Year Ended December 31, 1994
Allowance for Doubtful
Accounts and Sales Returns .. 774 902 (206) 1,470
</TABLE>
51
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
McAfee Associates, Inc.:
Our report on the consolidated financial statements of McAfee Associates, Inc.
and subsidiaries is included on page 30 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 29 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
January 20, 1996, except for
the matters discussed in Note 11
for which the date is
March 1, 1997.
52
<PAGE> 1
EXHIBIT 10.45
AMENDMENT NO. 2
TO LEASE
THIS AMENDMENT NO. 2 is made and entered into this 9th day of May,
1996, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA
dated 7/20/77 (ARRILLAGA FAMILY TRUST) as amended (previously known as the
"John Arrillaga Separate Property Trust"), and RICHARD T. PEERY, Trustee, or
his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY
TRUST) as amended, collectively as LANDLORD, and McAfee Associates, a Delaware
corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated May 10, 1993 Landlord leased
to Tenant approximately 13,566 +/- square feet of that certain 45,000
more or less square foot building located at 2710 Walsh Avenue, Suite 200,
Santa Clara, California, the details of which are more particularly set forth
in said May 10, 1993 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter
dated July 7, 1993 which confirmed (i) the Lease Commencement Date of July 1,
1993, and (ii) the Termination Date of June 30, 1996, and,
C. WHEREAS, said Lease was amended by Amendment No. 1 dated
September 27, 1995 which: (i) extended the Term for four (4) years and six (6)
months; (ii) increased the square footage of the Leased Premises by 21,636 +/-
square feet effective January 1, 1996; (iii) increased the square footage of
the Leased Premises by 9,798 plus or minus square feet to 45,000 plus or minus
square feet (100% of the building) effective August 1, 1996; (iv) amended the
Basic Rent schedule and Aggregate Rent accordingly; (v) increased the Security
Deposit due under the Lease; and (vi) added an "Option to Extend" paragraph to
said Lease Agreement, and,
D. WHEREAS, it is now the desire of the parties hereto to amend
the Lease by: (i) changing the effective date of the 9,798 +/- square feet of
Increased Premises set forth in Amendment No. 1 from August 1, 1996 to May 10,
1996 and (ii) adjusting the Basic Rent schedule and Aggregate Rent to reflect
the revised commencement date of the additional 9,798 +/- square feet as
hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. INCREASED PREMISES: Effective May 10, 1996, the size of the
Leased Premises will be increased by 9,798 +/- square feet, or from 35,202 plus
or minus square feet to 45,000 +/- square feet of space, representing 100% of
the building. Subject to Lease Paragraph 45 ("Maintenance of the Premises"),
the additional 9,798 +/- square feet of space is leased on an "as-is" basis, in
its present condition and configuration, as set forth in Blue on Exhibit D to
Amendent No. 1, with the entire interior leased Premises shown in Red on
Exhibit D to Amendment No. 1. It is specifically agreed between the parties
that Landlord shall not be required to make, nor be responsible for any cost,
in connection with any repair, restoration, maintenance and/or improvement to
the Increased Premises throughout the Term of this Lease. Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Increased Premises, nor as to the use or occupancy which may
be made thereof.
3. BASIC RENT SCHEDULE: The monthly Basic Rental shall be adjusted
as follows:
On May 10, 1996, the sum of SEVEN THOUSAND THREE HUNDRED ONE AND 09/100
DOLLARS ($7,301.09) shall be due, representing the Basic Rental due on the
Increased Premises for the period of May 10, 1996 through May 31, 1996.
On June 1, 1996, the sum of FORTY FIVE THOUSAND EIGHT HUNDRED NINETY
THREE AND 40/100 DOLLARS ($45,893.40) shall be due, representing the Basic
Rental due for the period of June 1, 1996 through June 30, 1996.
Initial [initialed]
---------------
Page 1
<PAGE> 2
On July 1, 1996, the sum of FORTY SEVEN THOUSAND TWO HUNDRED FIFTY AND
NO/100 DOLLARS ($47,250.00) shall be due, and a like sum due on the first day
of each month thereafter, through and including December 1, 1996.
On January 1, 1997, the sum of FORTY NINE THOUSAND FIVE HUNDRED AND
NO/100 DOLLARS ($49,500.00) shall be due, and a like sum due on the first day
of each month thereafter, through and including December 1, 1997.
On January 1, 1998, the sum of FIFTY ONE THOUSAND SEVEN HUNDRED FIFTY
AND NO/100 DOLLARS ($51,750.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including December 1, 1998.
On January 1, 1999, the sum of FIFTY FOUR THOUSAND AND NO/100 DOLLARS
($54,000.00 shall be due, and a like sum due on the first day of each month
thereafter, through and including December 1, 1999.
On January 1, 2000, the sum of FIFTY SIX THOUSAND TWO HUNDRED FIFTY AND
NO/100 DOLLARS ($56,250.00), shall be due, and a like sum due on the first day
of each month thereafter, through and including December 1, 2000.
The Aggregate Basic Rent for the Lease shall be increased by $27,876.89
or from $3,367,857.30 to $3,395,734.19.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions
of said May 10, 1993 Lease Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
No. 2 to Lease as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST MCAFEE ASSOCIATES
a Delaware corporation
By /s/ John Arrillaga By /s/ R. J. Schwei
--------------------------- -------------------------------
John Arrillaga, Trustee
Date: 5/22/96 R. J. Schwei
------------------------- ----------------------------------
Print or Type Name
RICHARD T. PEERY SEPARATE
PROPERTY TRUST Title: Secretary
----------------------------
By /s/ Richard T. Peery
--------------------------- Date: 5/15/96
Richard T. Peery, Trustee ----------------------------
Date: 5/23/96
------------------------
page 2 Initials: [Initialed]
<PAGE> 1
EXHIBIT 10.46
LEASE AGREEMENT
THIS LEASE, made this 22nd day of October, 1996 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST)
as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and MCAFEE ASSOCIATES, a Delaware corporation, hereinafter
called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 61,500 +/- square foot, one-story building
located at 2855 Bowers Avenue, Suite 102, Santa Clara, California 95054,
consisting of approximately 16,605 +/- square feet. Said Premises is more
particularly shown within the area outlined in Red on Exhibit A attached
hereto. The entire parcel, of which the Premises is a part, is shown within the
area outlined in Green on Exhibit A attached. The Premises shall be improved as
shown on Exhibit B attached hereto, and is leased on an "as-is" basis, in its
present condition, and in the configuration as shown in Red on Exhibit B
attached hereto.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the building shall be measured from outside of exterior walls to
outside of exterior walls, and shall include any atriums, covered entrances or
egresses and covered loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with
applicable governmental laws, regulations, rules and ordinances for the purpose
of general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided that
such uses shall be in accordance with all applicable governmental laws and
ordinances, and for no other purpose. Tenant shall not do or permit to be done
in or about the Premises nor bring or keep or permit to be brought or kept in or
about the Premises anything which is prohibited by or will in any way increase
the existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls, or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises. No loudspeaker or other device, system or apparatus which
can be heard outside the Premises shall be used in or at the Premises without
the prior written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend and
hold Landlord harmless against any loss, expense, damage, reasonable attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law, Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for the
benefit of Landlord only and shall not be construed to be for the benefit of any
tenant or occupant of the Premises.
2. TERM*
A. The term of this Lease shall be for a period of FOUR (4) years
and ONE (1) month unless sooner terminated as hereinafter provided) and, subject
to Paragraphs 2B and 3, shall commence on the 1st day of December, 1996 and end
on the 31st day of December, 2000.
B. Possession of the Premises shall be deemed tendered and the
term of the Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or
(d) As otherwise agreed in writing.
* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent rate scheduled for the projected commencement date as shown
in Paragraph 39.
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3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2B, above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 60 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
ONE MILLION FOUR HUNDRED TWO THOUSAND TWO HUNDRED NINETY TWO AND 25/100 Dollars
($1,402,292.25) in lawful money of the United States of America, payable as
follows:
See Paragraph 39 for Basic Rent Schedule
B. Time for Payment. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten percent (10%) of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent
in addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in
Paragraph 9, and
(b) All insurance premiums relating to the Premises, as set
forth in Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required
to pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five days for taxes and insurance and within thirty
days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount reasonably estimated by Landlord to be
Landlord's approximate average monthly expenditure for such Additional Rent
items, which estimated amount shall be reconciled within 120 days of the end of
each calendar year or more frequently if Landlord elects to do so at Landlord's
sole and absolute discretion as compared to Landlord's actual expenditure for
said Additional Rent items, with Tenant paying to Landlord, upon demand, any
amount of actual expenses expended by Landlord in excess of said estimated
amount, or Landlord refunding to Tenant (providing Tenant is not in default in
the performance of any of the terms, covenants and conditions of this Lease)
any amount of estimated payments made by Tenant in excess of Landlord's actual
expenditures for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day other
than the last day of a calendar year, the actual Additional Rent incurred for
the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
E. Fixed Management Fee. Beginning with the Commencement Date of the
Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent
and Additional Rent, a fixed monthly management fee ("Management Fee") equal to
3% of the Basic Rent due for each month during the Lease Term.
F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000,
San Francisco, CA 94160 or to such other person or to such other place as
Landlord may from time to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of FIFTY NINE THOUSAND SEVEN
HUNDRED SEVENTY EIGHT AND NO/100 Dollars ($59,778.00). Said sum shall be held
by Landlord as a Security Deposit for the faithful performance by Tenant of all
of the terms, covenants and conditions of this Lease to be kept and performed
by Tenant during the term hereof. If Tenant defaults with respect to any
provision of this Lease, including, but not limited to, the provisions relating
to the payment of rent and any of the monetary sums due herewith, Landlord may
(but shall not be required to) use, apply or retain all or any part of this
Security Deposit for the payment of any other amount which Landlord may spend
by reason of Tenant's default or to compensate Landlord for
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any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in the amount sufficient to restore the Security Deposit to its original
amount. Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on such Deposit. If
Tenant fully and faithfully performs every provision of this Lease to be
performed by it, the Security Deposit or any balance thereof shall be returned
to Tenant (or at Landlord's option, to the last assignee of Tenant's interest
hereunder) at the expiration of the Lease term and after Tenant has vacated the
Premises. In the event of termination of Landlord's interest in this Lease,
Landlord shall transfer said Deposit to Landlord's successor in interest
whereupon Tenant agrees to release Landlord from liability for the return of
such Deposit or the accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES Subject to Paragraph 41, by
entry hereunder, Tenant accepts the Premises as being in good and sanitary
order, condition and repair and accepts the building and improvements (as shown
on Exhibit B1), included in the Premises in their present condition and without
representation or warranty by Landlord as to the condition of such building or
as to the use or occupancy which may be made thereof. Any exceptions to the
foregoing must be by written agreement executed by Landlord and Tenant. Tenant
agrees on the last day of the Lease term, or on the sooner termination of this
Lease, to surrender the Premises promptly and peaceably to Landlord in good
condition and repair (damage by Acts of God, fire,normal wear and tear
excepted), with all interior walls painted, or cleaned so that they appear
freshly painted, and repaired and replaced, if damaged; all floors cleaned and
waxed; all carpets cleaned and shampooed; all broken, marred or nonconforming
acoustical ceiling tiles replaced; all windows washed; the airconditioning and
heating systems serviced by a reputable and licensed service firm and in good
operating condition and repair; the plumbing and electrical systems and
lighting in good order and repair, including replacement of any burned out or
broken light bulbs or ballasts; the lawn and shrubs in good condition including
the replacement of any dead or damaged plantings; the sidewalk, driveways and
parking areas in good order, condition and repair; together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except moveable trade fixtures installed at the expense of
Tenant) except that Tenant shall ascertain from Landlord within thirty (30)
days before the end of the term of this Lease whether Landlord desires to have
the Premises or any part or parts thereof restored to their condition and
configuration as when the Premises were delivered to Tenant and if Landlord
shall so desire, then Tenant shall restore said Premises or such part or
parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay. Nothing contained herein shall
be construed as an extension of the term hereof or as a consent of Landlord to
any holding over by Tenant. The voluntary or other surrender of this Lease or
the Premises by Tenant or a mutual cancellation of this Lease shall not work as
a merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies. At the Commencement of the Lease,
all known roof leaks shall have been repaired at Landlord's expense.
6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (such consent not
to be unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's Improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expense of Tenant. Any exceptions
to the foregoing must be made in writing and executed by both Landlord and
Tenant.
7. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, janitorization, plumbing systems within the non-common areas of the
Premises (such as water and drain lines, sinks), electrical systems within the
non-common areas of the Premises (such as outlets, lighting fixtures, lamps,
bulbs, tubes, ballasts), heating and airconditioning controls within the
non-common areas of the Premises (such as mixing boxes, thermostats, time
clocks, supply and return grills), all interior improvements within the premises
including but not limited to: wall coverings, window coverings, acoustical
ceilings, vinyl tile, carpeting, partitioning, doors (both interior and
exterior, including closing mechanisms, latches, locks), and all other interior
improvements of any nature whatsoever. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of the
carpet caused by such rolling chairs if such wear and tear exceeds that caused
by normal foot traffic in surrounding areas. Areas of excessive wear shall be
replaced at Tenant's sole expense upon Lease termination. See Paragraph 42
8. UTILITIES See paragraph 47
9. TAXES
A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to the
Tax Collector, all Real Property Taxes relating to the Premises. In the event
the Premises leased hereunder consists of only a portion of the entire tax
parcel, Tenant shall pay to Landlord Tenant's proportionate share of such real
estate taxes allocated to the leased Premises by square footage or other
reasonable basis as calculated and determined by Landlord. If the tax billing
pertains 100% to the leased premises, and Landlord chooses to have Tenant pay
said real estate taxes directly to the Tax Collector, then in such event it
shall be the responsibility of Tenant to obtain the tax and assessment bills
and pay, prior to delinquency, the applicable real property taxes and
assessments pertaining to the leased Premises, and failure to receive a bill
for taxes and/or assessments shall not provide a basis for cancellation of or
nonresponsibility for payment of penalties for nonpayment or late payment by
Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature whatsoever,
general and special, foreseen and unforeseen (including all installments of
principal and interest required to pay any general or special assessments for
public improvements and any increases resulting from reassessments caused by
any change in ownership of the Premises) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Premises (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Premises (regardless of ownership); the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located in the Premises; or parking areas, public
utilities, or energy within the Premises; (ii) all charges, levies or fees
imposed by reason of environmental regulation or other governmental control of
the Premises; and (iii) all costs and fees including
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reasonable attorneys' fees) incurred by Landlord in reasonably contesting any
Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Premises prevailing as of the commencement date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Premises or Landlord's interest therein or (ii)
on or measured by the gross receipts, income or rentals from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. Taxes on Tenants Property Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of commercial general insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) for bodily injury and property damage occurring in, on or about the
premises, including parking and landscaped areas. Such insurance shall be
primary and noncontributory as respects any insurance carried by Landlord. The
policy or policies effecting such insurance shall name Landlord as additional
insureds, and shall insure any liability of Landlord, contingent or otherwise,
as respects acts or omissions of Tenant, its agents, employees or invitees or
otherwise by any conduct or transactions of any of said persons in or about or
concerning the Premises, including any failure of Tenant to observe or perform
any of its obligations hereunder; shall be issued by an insurance company
admitted to transact business in the State of California; and shall provide that
the insurance effected thereby shall not be cancelled, except upon thirty (30)
days' prior written notice to Landlord. A certificate of insurance of said
policy shall be delivered to Landlord. If, during the term of this Lease, in the
considered and reasonable opinion of Landlord's Lender, insurance advisor, or
counsel, the amount of insurance described in this Paragraph 10 is not adequate,
Tenant agrees to increase said coverage to such reasonable amount as Landlord's
Lender, Insurance advisor, or counsel shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
reasonable and equitable basis as calculated and determined by Landlord) of the
deductibles on insurance claims and the cost of, policy or policies of insurance
covering loss or damage to the Premises (excluding routine maintenance and
repairs and incidental damage or destruction caused by accidents or vandalism
for which Tenant is responsible under Paragraph 7) in the amount of the full
replacement value thereof, providing protection against those perils included
within the classification of "all risks" insurance and flood and/or earthquake
insurance, if available, plus a policy of rental income insurance in the amount
of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid
as Additional Rent. If such insurance cost is increased due to Tenant's use of
the Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies to be maintained pursuant
to this Lease, irrespective of the cause of such fire or casualty; provided,
however, that if the insurance policy of either releasing party prohibits such
waiver, then this waiver shall not take effect until consent to such waiver is
obtained. If such waiver is so prohibited, the insured party affected shall
promptly notify the other party thereof.
13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises by or
from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises but excluding, however, the willful misconduct or
negligence of Landlord, its agents, servants, employees, invitees, or
contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, Tenant shall
hold Landlord harmless from and defend Landlord against any and all expenses,
including reasonable attorneys' fees, in connection therewith, arising out of
any injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever.
14. COMPLIANCE With respect to the Premises, Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now or hereafter in effect; with
the requirements of any board of fire underwriters or other similar body now or
hereafter constituted; and with any direction or occupancy certificate issued
pursuant to law by any public officer; provided,however, that no such failure
shall be deemed a breach of the provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord be a party thereto or not, that Tenant has violated any
such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. Tenant shall, at its sole cost and expense, comply with any and all
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises. See Paragraph 53
15. LIENS Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
such lien, cause the same to be released of record, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, or subletting,
Landlord may require that Tenant agrees to pay to Landlord, as additional rent,
all rents or additional consideration received by Tenant from its assignees,
transferees, or subtenants in excess of the rent payable by Tenant to Landlord
hereunder. Tenant shall, by thirty (30) days written notice, advise Landlord of
its intent to assign or transfer Tenant's interest in the Lease or sublet the
Premises or any portion thereof for any part of the term hereof. Within thirty
(30) days after receipt of said written notice, Landlord may, in its sole
discretion, elect to terminate this Lease as to the portion of the Premises
described in Tenant's notice on the date specified in Tenant's notice by giving
written notice of such election to terminate. If no such notice to terminate is
given to Tenant within said thirty (30) day period, Tenant may proceed to locate
an acceptable sublessee, assignee, or other transferee for presentment to
Landlord for Landlord's approval, all in accordance with the terms, covenants,
and conditions of this paragraph 16. If Tenant intends to sublet the entire
Premises and Landlord elects to terminate this Lease, this Lease shall be
terminated on the date specified in Tenant's notice. If, however, this Lease
shall terminate pursuant to the foregoing with respect to less than all the
Premises, the rent, as defined and reserved hereinabove shall be adjusted on a
pro rata basis to the number of square feet retained by Tenant, and this Lease
as so amended shall continue in full force and effect. In the event Tenant is
allowed to assign, transfer or sublet the whole or any part of the Premises,
with the prior written
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consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any
part of the Premises, without also having obtained the prior written consent of
Landlord which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised
by written notice to Tenant, terminate this Lease. The leasehold estate under
this Lease shall not, nor shall any interest therein, be assignable for any
purpose by operation of law without the written consent of Landlord. As a
condition to its consent, Landlord may require Tenant to pay all expenses in
connection with the assignment, and Landlord may require Tenant's assignee or
transferee (or other assignees or transferees) to assume in writing all of the
obligations under this Lease and for Tenant to remain liable to landlord under
the Lease.
17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
landlord in the land and buildings in which the demised Premises are located,
to secure a loan from a lender (hereinafter referred to as "Lender") to
Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing
an agreement subordinating its rights under this Lease to the lien of such
deed or trust or, if so requested, agreeing that the lien of Lender's deed of
Trust shall be or remain subject and subordinate to the rights of Tenant under
this Lease, and provided Lender executes a reasonable non-disturbance
agreement. Notwithstanding any such subordination, Tenant's possession under
this Lease shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay all rent and observe and perform all of the provisions set
forth in this Lease.
18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by
Landlord hereunder; to make repairs or provide any services to a contiguous
tenant(s); to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises or other parts of the building, all without abatement of rent, and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however, that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. Any entry to the Premises by Landlord
for the purposes provided for herein shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into or a detainer of
the Premises or an eviction, actual or constructive, of Tenant from the
Premises or any portion thereof.
19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure)
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance as used herein, includes, but shall not
be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency action
or an assignment of Tenant for the benefit of creditors or other similar act.
Nothing contained in this Lease shall be construed as giving or granting or
creating an equity in the demised Premises to Tenant. In no event shall the
leasehold estate under this Lease, or any interest therein, be assigned by
voluntary or involuntary bankruptcy proceeding without the prior written
consent of landlord. In no event shall this Lease or any rights or privileges
hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and
in the same geographic vicinity. Such two real estate brokers shall select a
third licensed real estate broker, and the three licensed real estate brokers
so selected shall determine the amount of the rental loss that could be
reasonably avoided form the balance of the term of this Lease after the time of
award. The decision of the majority of said licensed real estate brokers shall
be final and binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
1951.4 which allows Landlord to continue the Lease in effect and to enforce all
of its rights and remedies under this Lease, including the right to recover
rent as it becomes due, for so long as Landlord does not terminate Tenant's
right to possession; acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power, to the extent permitted by law, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited to
reasonable attorneys' fees, and any real estate commissions actually paid, and
the cost of such reasonable alterations and repairs incurred by Landlord and the
amount, if any, by which the rent hereunder for the period of such subletting
(to the extent such period does not exceed the term hereof) exceeds the amount
to be paid as rent for the Premises for such period or (ii) at the option of
Landlord, rents received from such subletting shall be applied first to payment
of indebtedness other than rent due hereunder from Tenant to Landlord; second,
to the payment of any costs of such subletting and of such alterations and
repairs; third to payment of rent due and unpaid hereunder; and the residue, if
any, shall be held by Landlord and applied in payment of future rent as the same
becomes due hereunder. If Tenant has been credited with any rent to be received
by such subletting under option (i) and such rent shall not be promptly paid to
Landlord by the subtenants), or if such rentals received from such subletting
under option (ii) during any month be less than that to be paid during that
month by Tenant hereunder. Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. No taking possession of
the Premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such subletting without termination, Landlord may at
any time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d. above (except that Tenant may
vacate so long as it pays rent, provides an on-site security guard during
normal business hours from Monday through Friday, and otherwise performs its
obligations hereunder.)
20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
21. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
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damage and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to
the extent of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense except for any deductible, which is the responsibility of Tenant,
promptly to rebuild or restore the Premises to their condition prior to the
damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises.
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of
time to be extended for delays caused by the fault or neglect of Tenant or
because of Acts of God, acts of public agencies, labor disputes, strikes,
fires, freight embargos, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or subcontractors, or delay
of the contractors or subcontractors due to such causes or other contingencies
beyond the control of Landlord), then Tenant shall have the right to terminate
this Lease by giving fifteen (15) days prior written notice to Landlord.
Notwithstanding anything herein to the contrary, Landlord's obligation to
rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the
Lease and shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to
the Premises, which Tenant shall forthwith replace or fully repair at Tenant's
sole cost and expense provided this Lease is not cancelled according to the
provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly
waives the provisions of Section 1932, Subdivision 2, in Section 1933,
Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not.
22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor,
and Landlord shall be entitled to any and all payment, income, rent, award, or
any interest therein whatsoever which may be paid or made in connection with
such taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease. Notwithstanding
the foregoing paragraph, any compensation specifically awarded Tenant for loss
of business, Tenant's personal property, moving cost and/or loss of goodwill,
shall be and remain the property of Tenant.
If any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, then Landlord shall have the right
to terminate this Lease by giving Tenant written notice thereof within sixty
(60) days of the date of receipt of said written advice, or commencement of
said action or proceeding, or taking conveyance, which termination shall take
place as of the first to occur of the last day of the calendar month next
following the month in which such notice is given or the date on which title to
the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking
or conveyance, upon written notice to Landlord of its intention so to do, and
upon giving of such notice this Lease shall terminate on the last day of the
calendar month next following the month in which such notice is given, upon
payment by Tenant of the rent from the date of such taking or conveyance to the
date of termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
23. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of
the Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
further liability upon any of the terms, covenants or conditions (express or
implied) herein contained in favor of Tenant, and in such event, insofar as
such transfer is concerned, Tenant agrees to look solely to the responsibility
of the successor in interest of such transferor in and to the Premises and this
Lease for the performance of this Lease following such transfer. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether
such interest of a Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
25. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable except that the monthly Basic Rent shall
be increased to an amount equal to one hundred fifty (150%) percent of the
monthly Basic Rent required during the last month of the Lease term; provided,
however, during the first 60 days of the Holdover Period, the Basic Rent shall
be increased to 120% of the last month's rate.
26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord; that there are no
uncured defaults in Landlord's performance, and that not more than one month's
rent has been paid in advance.
27. CONSTRUCTION CHANGES It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes shall affect this Lease or entitle Tenant to any reduction of
rent hereunder or result in any liability of Landlord to the Tenant. Landlord
does not guarantee the accuracy of any drawings supplied to Tenant and
verification of the accuracy of such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid
by it hereunder or shall fail to perform any other term or covenant hereunder
on its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or
releasing Tenant from any obligation of Tenant hereunder, may, but shall not be
obliged to, make any such payment or perform any such other term or covenant on
Tenant's part to be performed. All sums so paid by landlord and all necessary
costs of such performance by Landlord together with interest thereon at the
rate of the prime rate of interest per annum as quoted by the Bank of America
from the date of such payment on performance by Landlord, shall be paid (and
Tenant covenants to make such payment) to Landlord on demand by Landlord, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of nonpayment by Tenant as in the case of
failure by Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease,
or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses,
including reasonable attorneys' fees,
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incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
30. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
31. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises of if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at the offices of Peery/Arrillaga, 2560 Mission College
Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as the
case may be.
32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have heretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
34 CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
35. [TEXT CROSSED OUT]
36. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(a) the sole and exclusive remedy shall be against Landlord's interest
in the Premises leased herein;
(b) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(g) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
37. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS
A. Use of Building Name. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
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B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. Definition of Terms. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no affect upon
the construction or interpretation of any provision hereof.
D. Time of Essence. Time is of the essence of this Lease and of each and
all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
F. Incorporation of Prior Agreements; Amendments. This instrument along
with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
G. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
H. Amendments for Financing. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Additional Paragraphs. Paragraphs 39 through 53 are added hereto and
are included as a part of this lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed
by Landlord and Tenant and endorsed on or affixed to this Lease are a part
hereof.
K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST MCAFEE ASSOCIATES
a Delaware corporation
By /s/ JOHN ARRILLAGA By /s/ PRABHAT K. GOYAL
----------------------- --------------------
John Arrillaga, Trustee Title CFO
-----------------
Date: 11/15/96 Type or Print Name Prabhat K. Goyal
-------- ----------------
Date: 11/11/96
RICHARD T. PEERY --------
SEPARATE PROPERTY TRUST
By /s/ RICHARD T. PEERY
-------------------------
Richard T. Peery, Trustee
Date: 11/15/96
--------
page 8 of 8
<PAGE> 9
Paragraphs 39 through 53 to Lease Agreement Dated October 22, 1996, By and
Between the Arrillaga Family Trust and the Richard T. Peery Separate Property
Trust, as Landlord, and MCAFEE ASSOCIATES, a Delaware corporation, as Tenant for
16,605 +/- Square Feet of Space Located at 2855 Bowers Avenue, Suite 102, Santa
Clara, California.
39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of ONE MILLION FOUR HUNDRED TWO THOUSAND TWO HUNDRED NINETY TWO AND 25/100
DOLLARS ($1,402,292.25), shall be payable as follows:
On December 1, 1996, the sum of TWENTY SEVEN THOUSAND THREE HUNDRED
NINETY EIGHT AND 25/100 DOLLARS ($27,398.25) shall be due, and a like sum due on
the first day of each month thereafter, through and including December 1, 1997.
On January 1, 1998, the sum of TWENTY EIGHT THOUSAND TWO HUNDRED TWENTY
EIGHT AND 50/100 DOLLARS ($28,228.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including December 1, 1998.
On January 1, 1999, the sum of TWENTY NINE THOUSAND FIFTY EIGHT AND
75/100 DOLLARS ($29,058.75) shall be due, and a like sum due on the first day of
each month thereafter, through and including December 1, 1999.
On January 1, 2000, the sum of TWENTY NINE THOUSAND EIGHT HUNDRED EIGHTY
NINE AND NO/100 DOLLARS ($29,889,000) shall be due, and a like sum due on the
first day of each month thereafter, through and including December 1, 2000; or
until the entire aggregate sum of ONE MILLION FOUR HUNDRED TWO THOUSAND TWO
HUNDRED NINETY TWO AND 25/100 DOLLARS ($1,402,292.25) has been paid.
40. "AS-IS" BASIS: Subject only to Paragraphs 41 ("Punch List") and 42
("Maintenance of the Premises") and to Landlord making the improvements shown on
Exhibit B attached hereto, it is hereby agreed that the Premises leased
hereunder is leased strictly on an "as-is" basis and in its present condition
and in the configuration as shown on Exhibit B attached hereto, and by reference
made a part hereof. Except as noted herein, it is specifically agreed between
the parties that after Landlord makes the interior improvements as shown on
Exhibit B, Landlord shall not be required to make, nor be responsible for any
cost, in connection with any repair, restoration, and/or improvement to the
Premises in order for this Lease to commence, or thereafter, throughout the Term
of this Lease. Notwithstanding anything to the contrary within this Lease,
Landlord makes no warranty or representation of any kind or nature whatsoever as
to the condition or repair of the Premises, nor as to the use of occupancy which
may be made thereof.
41. PUNCH LIST: In addition to and notwithstanding anything to the contrary
in Paragraphs 5 and 40 of this Lease, Tenant shall have thirty (30) days after
the Commencement Date to provide Landlord with a written "punch list" pertaining
to defects in the interior improvements constructed by Landlord for Tenant. As
soon as reasonably possible thereafter, Landlord, or one of Landlord's
representatives (if so approved by Landlord), and Tenant shall conduct a joint
walk-through of the Premises (if Landlord so requires), and inspect such Tenant
Improvements, using their best efforts to agree on the incomplete or defective
construction related to the Tenant Improvements installed by Landlord. After
such inspection has been completed, Landlord shall prepare, and both parties
shall sign, a list of all "punch list" items which the parties reasonably agree
are to be corrected by Landlord (but which shall exclude any damage or defects
caused by Tenant, its employees, agents or parties Tenant has contracted with to
work on the Premises). Landlord shall have thirty (30) days thereafter (or
longer if necessary, provided Landlord is diligently pursuing the completion of
same) to complete, at Landlord's expense, the "punch list" items without the
Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder
being affected. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same. This Paragraph shall be of no force
and effect if Tenant shall fail to give any such notice to Landlord within
thirty (30) days after the Commencement Date of this Lease.
42. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding
anything to the contrary in Paragraph 7, Landlord shall repair damage to the
structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's
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cost and expense provided Tenant has not caused such damage, in which event
Tenant shall be responsible for 100 percent of any such costs for repair or
damage so caused by the Tenant. Notwithstanding the foregoing, a crack in the
foundation, or exterior walls that does not endanger the structural integrity of
the building, or which is not life-threatening, shall not be considered
material, nor shall Landlord be responsible for repair of same.
43. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
44. AUTHORITY TO EXECUTE: The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
45. RULES AND REGULATIONS AND COMMON AREA: Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Parcel/Building in which the
premises are located, and their respective employees, invitees and customers,
and others entitled to the use thereof, have the non-exclusive right to use the
access roads, parking areas, and facilities provided and designated by Landlord
for the general use and convenience of the occupants of the Parcel/Building in
which the Premises are located, which areas and facilities are referred to
herein as "Common Area". This right shall terminate upon the termination of this
Lease. Landlord reserves the right from time to time to make changes in the
shape, size, location, amount and extent of Common Area. Landlord further
reserves the right to promulgate such reasonable rules and regulations relating
to the use of the Common Area, and any part or parts thereof, as Landlord may
deem appropriate for the best interests of the occupants of the Parcel/Building.
Such Rules and Regulations may be amended by Landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Parcel/Building of any of
said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in which
the Common Area shall be maintained and the expenditures for such maintenance
shall be at the discretion of Landlord.
46. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS
OF THE PARCEL AND BUILDING IN WHICH THE PREMISES ARE LOCATED: As Additional Rent
and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord
Tenant's proportionate share (calculated on a square footage or other equitable
basis as calculated by landlord) of all expenses of operation, management,
maintenance and repair of the Common Areas of the Parcel/Building including, but
not limited to, license, permit, and inspection fees; security; utility charges
associated with exterior landscaping and lighting (including water and sewer
charges); all charges incurred in the maintenance of landscaped areas, lakes,
parking lots, sidewalks, driveways, maintenance, repair and replacement of all
fixtures and electrical, mechanical and plumbing systems; structural elements
and exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials, equipment
and tools; the cost of capital expenditures which have the effect of reducing
operating expenses, provided, however, that in the event Landlord makes such
capital improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt repayments;
interest on charges, expenses directly or indirectly incurred by Landlord for
the benefit of any other tenant; cost for the installation of partitioning or
any other tenant improvements; cost of attracting tenants; depreciation;
interest; or executive salaries.
As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of operation (including
common utilities), management, maintenance, and repair of the building
(including common areas such as lobbies, restrooms, janitor's closets, hallways,
elevators, mechanical and telephone rooms, stairwells, entrances, spaces above
the ceilings and janitorization of said common areas) in which the Premises are
located. The maintenance items herein referred to include, but are not limited
to, all windows, window frames, plate glass, glazing, truck doors, main plumbing
systems of the building (such as water drain
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<PAGE> 11
lines, sinks, toilets, faucets, drains, showers and water fountains), main
electrical systems (such as panels and conduits), heating and air-conditioning
systems (such as compressors, fans, air handlers, ducts, boilers, heaters),
store fronts, roofs, down spouts, building common area interiors (such as wall
coverings, window coverings, floor coverings and partitioning), ceilings,
building exterior doors, skylights (if any), automatic fire extinguishing
systems, and elevators (if any); license, permit and inspection fees; security,
salaries and employee benefits of personnel and payroll taxes applicable
thereto; supplies, materials, equipment and tools; the cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Landlord makes such capital improvements, Landlord
may amortize its investment in said improvements (together with interest at the
rate of fifteen (15%) percent per annum on the unamortized balance) as an
operating expense in accordance with standard accounting practices, provided,
that such amortization is not at a rate greater than the anticipated savings in
the operating expenses. Tenant hereby waives all rights hereunder, and benefits
of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California
Civil Code and under any similar law, statute or ordinance now or hereafter in
effect.
47. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED: As
Additional Rent and in accordance with Paragraph 4D of this Lease Tenant shall
pay its proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of the cost of all utility charges such as
water, gas, electricity, (telephone, telex and other electronic communications
service, if applicable) sewer service, waste pick-up and any other utilities,
materials or services furnished directly to the building in which the Premises
are located, including, without limitation, any temporary or permanent utility
surcharge or other exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of any
of the terms, covenants or conditions of this Lease to be performed or observed
by it, Landlord shall furnish to the Premises between the hours of 8:00 am and
6:00 pm, Mondays through Fridays (holidays excepted) and subject to the rules
and regulations of the Common Area hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and air-conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant agrees
that at all times it will cooperate fully with Landlord and abide by all
regulations and requirements that Landlord may prescribe for the proper
functioning and protection of the building heating, ventilating and
air-conditioning systems. Whenever heat generating machines, equipment, or any
other devices (including exhaust fans) are used in the Premises by Tenant which
affect the temperature or otherwise maintained by the air-conditioning system,
Landlord shall have the right to install supplementary air-conditioning units in
the Premises and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Tenant to Landlord
upon demand by Landlord. Tenant will not, without the written consent of
Landlord, use any apparatus or devices in the Premises (including, without
limitation), electronic data processing machines or machines using current in
excess of 110 Volts which will in any way increase the amount of electricity,
gas, water or air-conditioning usually furnished or supplied to premises being
used as general office space, or connect with electric current (except through
existing electrical outlets in the Premises), or with gas or water pipes any
apparatus or device for the purposes of using electric current, gas, or water.
If Tenant shall require water, gas, or electric current in excess of that
usually furnished or supplied to premises being used as general office space,
Tenant shall first obtain the written consent of Landlord, which consent shall
not be unreasonably withheld and Landlord may cause an electric current, gas or
water meter to be installed in the Premises in order to measure the amount of
electric current, gas or water consumed for any such excess use. The cost of any
such meter and of the installation, maintenance and repair thereof, all charges
for such excess water, gas and electric current consumed (as shown by such
meters and at the rates then charged by the furnishing public utility); and any
additional expense incurred by Landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.
48. PARKING: Tenant shall have the right to the nonexclusive use of forty
nine (49) parking spaces in the common parking area of the building. Tenant
agrees that Tenant, Tenant's employees, agents, representatives, and/or invitees
shall not use parking spaces in excess of said 49 parking spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking area of the building in the event of a dispute among the tenants
occupying the building referred to herein, in which event Tenant agrees that
Tenant, Tenant's employees, agents, representatives and/or invitees shall not
use any parking spaces other than those parking spaces specifically designated
by Landlord for Tenant's use. Said parking spaces, if specifically designated by
Landlord to Tenant, may be relocated by Landlord at any time, and from time to
time.
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Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice of
any change in Tenant's parking spaces. Tenant shall not, at any time, park, or
permit to be parked, any trucks or vehicles adjacent to the loading area so as
to interfere in any way with the use of such areas, nor shall Tenant, at any
time, park or permit the parking of Tenant's trucks and other vehicles or the
trucks and vehicles of Tenant's suppliers or others, in any portion of the
common areas not designated by Landlord for such use by Tenant. Tenant shall not
park nor permit to be parked, any inoperative vehicles or equipment on any
portion of the common parking area or other common areas of the building. Tenant
agrees to assume responsibility for compliance by its employees with the parking
provision contained herein. If Tenant or its employees park in other than
designated parking areas, then Landlord may charge Tenant, as an additional
charge, and Tenant agrees to pay Ten Dollars ($10.00) per day for each day or
partial day each such vehicle is parking in any area other than that designated.
Tenant hereby authorizes Landlord, at Tenant's sole expense, to tow away from
the building any vehicle belonging to Tenant or Tenant's employees parked in
violation of these provisions, or to attach violation stickers or notices to
such vehicles. Tenant shall use the parking area for vehicle parking only and
shall not use the parking areas for storage.
49. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of Santa Clara as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment of
$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 credit as Additional Rent.
50. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. In addition to and notwithstanding anything to the
contrary in Paragraph 16 of this Lease, Landlord hereby agrees to
consent to Tenant's assigning or subletting said Lease to: (i) any
parent or subsidiary corporation, or corporation with which Tenant
merges or consolidates provided that the net worth of said parent or
subsidiary corporation, or said corporation has a net worth equal to or
greater than the net worth of Tenant at the time of such assignment,
merger, or consolidation; or (ii) any third party or entity to whom
Tenant sells all or substantially all of its assets; provided, that the
net worth of the resulting or acquiring corporation has a net worth
after the merger, consolidation or acquisition equal to or greater than
the net worth of Tenant at the time of such merger, consolidation or
acquisition. No such assignment or subletting will release the Tenant
from its liability and responsibility under this Lease to the extent
Tenant continues in existence following such transaction.
Notwithstanding the above, Tenant shall be required to (a) give Landlord
written notice prior to such assignment or subletting to any party as
described in (i) and (ii) above, and (b) execute Landlord's consent
document prepared by Landlord reflecting the assignment or subletting.
Notwithstanding anything to the contrary contained in
this Lease, it is hereby agreed that such assignee shall not have the
right or be allowed to install any tank farm for the storage or use of
Hazardous Materials (as hereinafter defined).
B. Any and all sublease agreement(s) between Tenant and any
and all subtenant(s) (which agreements must be consented to by Landlord,
pursuant to the requirements of this Lease) shall contain the following
language:
"If Landlord and Tenant jointly and voluntarily elect,
for any reason whatsoever, to terminate the Master Lease prior to the
scheduled Master Lease termination date, then this Sublease (if then
still in effect) shall terminate concurrently with the termination of
the Master Lease. Subtenant expressly acknowledges and agrees that (1)
the voluntary termination of the Master Lease by Landlord and Tenant and
the resulting termination of this Sublease shall not give Subtenant any
right or power to make any legal or equitable claim against Landlord,
including without limitation any claim for interference with contract or
interference with prospective economic advantage, and (2) Subtenant
hereby waives any and all rights it may have under law or at equity
against Landlord to challenge such an early termination of the Sublease,
and unconditionally releases and relieves Landlord, and its
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officers, directors, employees and agents, from any and all claims,
demands, and/or causes of action whatsoever (collectively, "Claims"),
whether such matters are known or unknown, latent or apparent, suspected
or unsuspected, foreseeable or unforeseeable, which Subtenant may have
arising out of or in connection with any such early termination of this
Sublease. Subtenant knowingly and intentionally waives any and all
protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must
have materially affected his settlement with debtor.
The term of this Sublease is therefore subject to early
termination. Subtenant's initials here below evidence (a) Subtenant's
consideration of and agreement to this early termination provision, (b)
Subtenant's acknowledgment that, in determining the net benefits to be
derived by Subtenant under the terms of this Sublease, Subtenant has
anticipated the potential for early termination, and (c) Subtenant's
agreement to the general waiver and release of Claims above.
Initials: [Initialed] Initials: [Initialed]
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Subtenant Tenant
51. HAZARDOUS MATERIALS: Landlord represents, to the best of its knowledge,
that as of the date of this Lease, there are no Hazardous Materials existing on
or about, under or beneath the Premises or building. Landlord and Tenant agree
as follows with respect to the existence or use of "Hazardous Materials" (as
defined herein) on, in, under or about the Premises and real property located
beneath said Premises and the common areas of the Parcel, which includes the
entire parcel of land on which the Premises are located as shown in Green on
Exhibit A attached hereto (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or by product which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be
withheld in Landlord's discretion, prior to the occurrence of any Tenant's
Hazardous Materials Activities (defined below); provided, however, that
Landlord's consent shall not be required for normal use in compliance with
applicable Environmental Laws of customary household and office supplies (Tenant
shall first provide Landlord with a list of said materials use), such as mild
cleaners, lubricants and copier toner. As used herein, the term "Tenant's
Hazardous Materials Activities" shall mean any and all use, handling,
generation, storage, disposal, treatment, transportation, discharge, or emission
of any Hazardous Materials on, in, beneath, to, from, at or about the Property,
in connection with Tenant's use of the Property, or by Tenant or by any of
Tenant's agents, employees, contractors, vendors, invitees, visitors or its
future subtenants or assignees. Tenant agrees that any and all Tenant's
Hazardous Materials Activities shall be conducted in strict, full compliance
with applicable Environmental Laws at Tenant's expense, and shall not result in
any contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each
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Anniversary Date. Tenant, at its expense, shall promptly undertake and complete
any and all steps necessary and in full compliance with applicable Environmental
Laws, to fully correct any and all problems or deficiencies identified by the
environmental consultant, and promptly provide Landlord with documentation of
all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole and reasonable discretion, believes
that the Property has become contaminated as a result of Tenant's Hazardous
Materials Activities, Landlord in addition to any other rights it may have under
this Lease or under Environmental Laws or other laws, may enter upon the
Property and conduct inspection, sampling and analysis, including but not
limited to obtaining and analyzing samples of soil and groundwater, for the
purpose of determining the nature and extent of such contamination. Tenant shall
promptly reimburse Landlord for the costs of such an investigation, including
but not limited to reasonable attorneys' fees Landlord incurs with respect to
such investigation, that discloses Hazardous Materials contamination for which
Tenant is liable under this Lease. Except as may be required of Tenant by
applicable Environmental Laws, Tenant shall not perform any sampling, testing,
or drilling to identify the presence of any Hazardous Materials at the property,
without Landlord's prior written consent which may be withheld in Landlord's
discretion. Tenant shall promptly provide Landlord with copies of any claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any sampling, testing or drilling performed pursuant to the
preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) releases or discharges of Hazardous Materials at the
Property, which occur during the Term of this Lease, (iii) any Hazardous
Materials contamination caused by Tenant prior to the Commencement Date of the
Lease; or (iv) the breach of any obligation of Tenant under this Paragraph 45
(collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental
Indemnification shall include but is not limited to the obligation to promptly
and fully reimburse Landlord for losses in or reductions to rental income, and
diminution in fair market value of the Property. Tenant's Environmental
Indemnification shall further include but is not limited to the obligation to
diligently and properly implement to completion, at Tenant's expense, any and
all environmental investigation, removal, remediation, monitoring, reporting,
closure activities, or other environmental response action (collectively,
"Response Actions"). Tenant shall promptly provide Landlord with copies of any
claims, notices, work plans, data and reports prepared, received or submitted in
connection with any Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
51.
52. CROSS DEFAULT: It is understood that Landlord and Tenant have previously
entered into another lease dated May 10, 1993 for premises contiguous to the
premises leased hereunder located at 2710 Walsh Avenue, Santa Clara, California.
As a material part of the consideration for the execution if this Lease by
Landlord, it is agreed between Landlord and Tenant that a default under this
Lease, or a default under said May 10, 1993 Lease may, at the option of
Landlord, be considered a default under both leases, in which event Landlord
shall be entitled (but in no event required) to apply all rights and remedies of
Landlord under the terms of one lease to both leases including, but not limited
to, the right to terminate one of both of said leases by reason of a default
under said May 10, 1993 Lease or hereunder.
53. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed
and paid for by Landlord as set forth on Exhibit B, required to be corrected by
the governing agency, shall be corrected at the cost and expense of Landlord if
such non-conformance exists as of the Commencement Date of the Lease
Page 14 Initial: [Initialed]
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and further provided that such governing agency's requirement to correct the
non-conformance is not initiated as a result of: (i) any future improvements
made by or for tenant; or (ii) any permit request made to a governing agency by
or for Tenant. Any non-conformance of the Premises occurring after the
Commencement Date of this Lease Agreement shall be the responsibility of Tenant
to correct at Tenant's cost and expense.
Page 15 Initial: [Initialed]
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EXHIBIT 10.47
STANDARD OFFICE LEASE AGREEMENT
This Lease Agreement (this "Lease Agreement") is made this 14th day of
November 1996 between Blue Lake Partners, Ltd., a Texas limited partnership
(hereinafter called "Landlord"), and McAfee Associates, Inc., a Delaware
Corporation (hereinafter called "Tenant"). This Lease consists of this
paragraph, the Basic Lease Provisions, the Supplemental Lease Provisions and
each exhibit, rider, schedule and addendum attached to the Basic Lease
Provisions and Supplemental Lease Provisions.
BASIC LEASE PROVISIONS
1. Building
a. Name: The Centre
Address: 4099 McEwen Road
b. Agreed Rentable Area: 123,770 square feet.
2. Premises:
a. Suites #: 500 & 700; Floors: Fifth & Seventh
b. Agreed Rentable Area: 31,729 square feet.
3. Basic Rent (See Article 2, Supplemental Lease Provisions):
Rate per Square Basic Basic
Rental Foot of Agreed Annual Monthly
Period Rentable Area Rent Rent
------ --------------- ------ -------
February 1, 1997 - January 31, 2002 $15.50 $491,799.48 $40,983.29
4. Tenant's Pro Rate Share percentage: 25.64% (the Agreed Rentable Area of
the Premises divided by the Agreed Rentable Area of the Building,
expressed in a percentage).
5. Tenant's Operating Expense Stop: Equal to actual Operating Expenses for
the calendar year 1997 adjusted in accordance with subsection 2.202 of
the Supplemental Lease Provisions (see Article 2, Supplemental Lease
Provisions).
6. Tenant's Real Estate Taxes Stop: Equal to actual Real Estate Taxes for
the calendar year 1997 adjusted in accordance with subsection 2.202 of
the Supplemental Lease Provisions (see Article 2, Supplemental Lease
Provisions).
7. Term: Five (5) years and zero (0) months (see Article 1, Supplemental
Lease Provisions).
8. Commencement Date: February 1, 1997 (see Article 1, Supplemental Lease
Provisions).
9. Expiration Date: January 31, 2002 (see Article 1, Supplemental Lease
Provisions).
10. Security Deposit: $40,983.29 (see Article 3, Supplemental Lease
Provisions).
11. Tenant's Broker: The Stoneleigh Group (such broker is represented by Rod
Martin).
12. Permitted Use: General Office Purposes Only (see Article 4, Supplemental
Lease Provisions).
13. All payments shall be sent to Landlord in care of Granite Properties
("Property Manager") at Blue Lake Partners, Ltd., P.O. Box 911597,
Dallas, TX 75391-1597 or such other place as Landlord may designate from
time to time. All payments shall be in the form of check until otherwise
designated by Landlord.
14. Parking: See Section 15.17 and Exhibit F if any, attached to the
Supplemental Lease Provisions.
15. Addresses for notices due under this Lease (see Article 14, Supplemental
Lease Provisions):
Landlord: Tenant:
Blue Lake Partners, Ltd., a PRIOR TO COMMENCEMENT DATE:
limited partnership
c/o Granite Properties, Inc. Bill Beecher
The Centre McAfee, Inc.
4099 McEwen, Suite 360 5944 Luther Lane
Farmers Branch, Texas 75244 Dallas, Texas 75225
Attention: Property Manager Fax: 361-1014
Fax: (214) 991-5931
ON OR AFTER COMMENCEMENT DATE:
The Premises, Attn: Site Manager.
Fax: ____________________________
Landlord and Tenant are initialing these Basic Lease Provisions in the
appropriate space provided below as an acknowledgment that they are a part of
this Lease.
Initial:
Landlord: [Initialed]
-----------
Tenant: [Initialed]
-----------
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<PAGE> 2
TABLE OF CONTENTS
FOR
SUPPLEMENTAL LEASE PROVISIONS
Description Page
Article 1 Term and Possession . . . . . . . . . . . . . . . . . . 1
Article 2 Rent . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 3 Security Deposit . . . . . . . . . . . . . . . . . . . 3
Article 4 Occupancy and Use . . . . . . . . . . . . . . . . . . . 4
Article 5 Utilities and Services . . . . . . . . . . . . . . . . 5
Article 6 Maintenance, Repairs, Alterations
and Improvements . . . . . . . . . . . . . . . . . . . 6
Article 7 Insurance, Fire and Casualty . . . . . . . . . . . . . 7
Article 8 Condemnation . . . . . . . . . . . . . . . . . . . . . 9
Article 9 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 10 Taxes on Tenant's Property . . . . . . . . . . . . . . 10
Article 11 Subletting and Assigning . . . . . . . . . . . . . . . 10
Article 12 Transfers by Landlord, Subordination and
Tenant's Estoppel Certificate . . . . . . . . . . . . . 11
Article 13 Default . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 14 Notices . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 15 Miscellaneous Provisions . . . . . . . . . . . . . . . 15
LIST OF EXHIBITS AND RIDERS
TO
SUPPLEMENTAL LEASE PROVISIONS
Exhibit A Floor Plan
Exhibit B Land Legal Description
Exhibit B.1 Project Legal Description
Exhibit C Rentable Area Calculations
Exhibit D Work Letter
Exhibit E Acceptance of Premises Memorandum
Exhibit F Intentionally Deleted
Addendum ____ Check, if applicable
Rider 1 Building Rules and Regulations
Rider 2 Renewal Option
Rider 3 Tenant's Right of First Refusal
Rider 4 Cap on Certain Operating Expenses
Rider 5 Signage
Rider 6 General Janitorial Specifications
Rider 7 Right To Audit
Rider H-1 Hazardous Materials
Rider H-2 Tenant's Study, Testing and inspection Rights
Initial:
Landlord: [Initialed]
-----------
Tenant: [Initialed]
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2
<PAGE> 3
SUPPLEMENTAL LEASE PROVISIONS
ARTICLE 1
TERM AND POSSESSION
SECTION 1.1 LEASE OF PREMISES, COMMENCEMENT AND EXPIRATION.
1.101 LEASE OF PREMISES. In consideration of the mutual covenants herein,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
subject to all the terms and conditions of this Lease, the portion of
the Building (as described in Item 1 of the Basic Lease Provisions)
described as the Premises in Item 2 of the Basic Lease Provisions and
that is more particularly described by the crosshatched area on Exhibit
A attached hereto (hereinafter called the "Premises"). The agreed
rentable area of the Premises is hereby stipulated to be the "Agreed
Rentable Area" of the Premises set forth in Item 2b of the Basic Lease
Provisions, irrespective of whether the same should be more or less as a
result of minor variations resulting from construction of Tenant's
Improvements (as defined in Exhibit D attached hereto). The agreed
rentable area of the Building is hereby stipulated to be the "Agreed
Rentable Area" of the Building set forth in Item 1b of the Basic Lease
Provisions, irrespective of whether the same should be more or less as a
result of minor variations resulting from actual construction or repair
of the Building. The Building, the land (the "Land") on which the
Building is situated (which Land is more particularly described on
Exhibit B attached hereto) and all improvements and appurtenances to the
Building and the Land are referred to collectively herein as the
"Property". The Property is part of an overall Project known as The
Centre, Farmers Branch, Texas, currently consisting of eleven (11)
office buildings totalling 880,940 rentable square feet, together with
parking facilities, all of which are reflected on the drawing attached
hereto as Exhibit B-1 (such land and all improvements located thereon
are herein referred to as the "Project").
1.102 INITIAL TERM AND COMMENCEMENT. The initial term of this Lease shall be
the period of time specified in Item 7 of the Basic Lease Provisions.
The initial term shall commence on the Commencement Date (herein so
called) set forth in Item 8 of the Basic Lease Provisions (as such
Commencement Date may be adjusted pursuant to Section 3 of Exhibit E
attached hereto) and, unless sooner terminated pursuant to the terms of
this Lease, the initial term of this Lease shall expire, without notice
to Tenant, on the Expiration Date (herein so called) set forth in Item 9
of the Basic Lease Provisions (as such Expiration Date may be adjusted
pursuant to Section 3 of Exhibit E attached hereto).
SECTION 1.2 INSPECTION AND DELIVERY OF PREMISES, CONSTRUCTION OF LEASE SPACE
IMPROVEMENTS AND POSSESSION.
1.201 DELIVERY AND COMPLETION. Tenant hereby acknowledges that Tenant has
inspected the Premises and the Common Area (as hereinafter defined) and,
except for latent defects discovered and reported to Landlord by Tenant
within 180 days from the Commencement Date, hereby (i) accepts the
Common Areas in "as is" condition for all purposes and (ii) subject to
Landlord's completion of its obligations under the Work Letter (herein
so called) attached hereto as Exhibit D. Tenant hereby accepts the
Premises (including the suitability of the Premises for the Permitted
Use) for all purposes. Landlord will perform or cause to be performed
the work and/or construction of Tenant's Improvements (as defined in the
Work Letter) in accordance with the terms of the Work Letter and will
use reasonable efforts to Substantially Complete (as defined in the Work
Letter) Tenant's Improvements by the Commencement Date. If Tenant's
Improvements are not Substantially Complete by the Commencement Date set
forth in Item 8 of the Basic Lease Provisions for any reason whatsoever,
Tenant's sole remedy shall be an adjustment of the Commencement Date and
the Expiration Date as provided in Section 3 of the Work Letter. The
Premises shall be delivered to Tenant on the Commencement Date.
Notwithstanding the foregoing, should Landlord be unable to deliver the
Premises to Tenant, except in the case of Tenant Delay, within sixty
(60) days of the stated commencement in Item 8 of the Basic Lease
Provisions, Tenant shall have the right and option to cancel this Lease.
Tenant shall be provided access to the space for the purposes of
installing phone and
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computer equipment prior to the actual Commencement Date assuming the
Tenant Improvements are Substantially Complete.
1.202 ACCEPTANCE OF PREMISES MEMORANDUM. Upon Substantial Completion (as
defined in the Work Letter) of Tenant's Improvements, Landlord and
Tenant shall execute the Acceptance of Premises Memorandum (herein so
called) attached hereto as Exhibit E. If Tenant occupies the Premises
without executing an Acceptance of Premises Memorandum except by reason
of a bona fide dispute regarding the Punch List, Tenant shall be deemed
to have accepted the Premises for all purposes and Substantial
Completion shall be deemed to have occurred on the earlier to occur of
(i) actual occupancy or (ii) the Commencement Date set forth in Item 8
of the Basic Lease Provisions (as adjusted pursuant to Section 3 of the
Work Letter).
SECTION 1.3 REDELIVERY OF THE PREMISES. Upon the expiration or earlier
termination of this Lease or upon the exercise by Landlord of its right to
re-enter the Premises without terminating this Lease, Tenant shall immediately
deliver to Landlord the Premises free of offensive odors and in a safe, clean,
neat, sanitary and operational condition reasonable wear and tear, casualty, and
obsolescence excepted, together with all keys and parking and access cards.
Tenant shall, by the Expiration Date or, if this Lease is earlier terminated,
within seven (7) days after the termination, remove from the Premises, at the
sole expense of Tenant: (i) any equipment, machinery, trade fixtures and
personalty installed or placed in the Premises by or on behalf of Tenant and
(ii) if requested by Landlord, no less than thirty (30) days prior to such
termination or re-entry all or any part of the improvements (other than
Tenant's Improvements and other improvements approved by Landlord without the
requirement that same be removed upon expiration or earlier termination of the
Lease) made to the Premises by or on behalf of Tenant. All removals described
above shall be accomplished in a good and workmanlike manner so as not to
damage the Premises or the primary structure or structural qualities of the
Building or the plumbing, electrical lines or other utilities. Tenant shall,
at its expense, promptly repair any such damage caused by any such removal,
provided that in the case of improvements that Tenant is required to remove
pursuant to the second sentence of this section, Tenant shall restore the
Premises to the condition existing prior to the installation of such
improvements. If Tenant fails to deliver the Premises in the condition
aforesaid, after Landlord has provided all necessary approvals, access and
reasonable cooperation for such restoration and/or repair then Landlord may
restore the Premises to such a condition at Tenant's expense. All property
required to be removed pursuant to this Section not removed within time period
required hereunder shall thereupon be conclusively presumed to have been
abandoned by Tenant and Landlord may, at its option, take over possession of
such property and either (a) declare the same to be the property of Landlord by
written notice to Tenant at the address provided herein or (b) at the sole cost
and expense of Tenant, remove and store and/or dispose of the same or any part
thereof in any manner that Landlord shall choose without incurring liability to
Tenant or any other person.
SECTION 1.4 HOLDING OVER. In the event Tenant or any Party under Tenant
claiming rights to this Lease, retains possession of the Premises after the
expiration or earlier termination of this Lease, such possession shall
constitute and be construed as a tenancy at will only, subject, however, to all
of the terms, provisions, covenants and agreements on the part of Tenant
hereunder; such parties shall be subject to immediate eviction and removal and
Tenant or any such Party shall pay Landlord as rent for the period of such
holdover an amount equal to one and one-half (1-1/2) times the Basic Annual
Rent and Additional Rent (as hereinafter defined) in effect immediately
preceding expiration or termination, as applicable, prorated on a daily basis.
Tenant shall also pay any and all damages sustained by Landlord as a result of
such holdover. The rent during such holdover period shall be payable to
Landlord from time to time on demand; provided, however, if no demand is made
during a particular month, holdover rent accruing during such month shall be
paid in accordance with the provisions of Article 2. In the event of a
holdover, Tenant will vacate the Premises and deliver same to Landlord
immediately upon Tenant's receipt of notice from Landlord to so vacate. No
holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend the term of this Lease; no payments of money by Tenant to
Landlord after the expiration or earlier termination of this Lease shall
reinstate, continue or extend the term of this Lease; and no extension of this
Lease after the expiration or earlier termination thereof shall be valid unless
and until the same shall be reduced to writing and signed by both Landlord and
Tenant.
ARTICLE 2
RENT
SECTION 2.1 BASIC RENT. Tenant shall pay as annual rent for the Premises the
applicable Basic Annual Rent shown in Item 3 of the Basic Lease Provisions.
The Basic Annual Rent shall be payable in monthly installments equal to the
applicable Basic Monthly Rent shown in Item 3 of the Basic Lease Provisions in
advance, without demand, offset or deduction, except as provided in this Lease
Agreement, which monthly installments shall commence on the Commencement Date
and shall continue on the first (1st) day of each calendar month thereafter.
If the Commencement Date occurs on a day other than the first day of a calendar
month or the Expiration Date occurs on a day other than the last day of a
calendar month, the Basic Monthly Rent for such partial month shall be prorated.
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SECTION 2.2 ADDITIONAL RENT.
2.201 DEFINITIONS. For purposes of this Lease, the following definitions
shall apply:
(a) "Additional Rent", for a particular calendar year, shall equal the
sum of (i) Tenant's Pro Rata Share Percentage (as set forth in Item 4 of
the Basic Lease Provisions) multiplied by the amount by which Real
Estate Taxes (as hereinafter defined) for such year exceeds Tenant's
Real Estate Taxes Stop (as set forth in Item 6 of the Basic Lease
Provisions) plus (ii) Subject to Rider No. 4, Tenant's Pro Rata Share
Percentage multiplied by the amount by which Operating Expenses (as
hereinafter defined) for such year exceed Tenant's Operating Expense
Stop (as set forth in Item 5 of the Basic Lease provisions) plus (iii)
subject to Rider No. 4, Tenant's Pro Rata Share Percentage multiplied by
Permitted Capital Pass Through Costs (as hereinafter defined) for such
year.
(b) "Operating Expenses" shall mean all of the costs and expenses
Landlord incurs, pays or becomes obligated to pay in connection with
operating, maintaining, insuring and managing the Building for a
particular calendar year or portion thereof as determined by Landlord
in accordance with generally accepted accounting principles consistently
applied, including, but not limited to, the following: (i) insurance
premiums ("Insurance Premiums"); (ii) water, sewer, electrical and other
utility charges ("Utility Expenses"); (iii) service and other charges
incurred in the operation and maintenance of the elevators and the
plumbing, fire sprinkler, security, heating, ventilation and air
conditioning system; (iv) cleaning and other janitorial services, tools
and supplies costs; (v) repair costs; (vi) costs of landscaping,
including landscape maintenance and sprinkler maintenance costs and
rental and supply costs in connection therewith; (vii) security
services; (viii) license, permit and inspection fees; (ix) market
management fees; (x) wages and related benefits payable to employees
directly relating thereto, including taxes and insurance relating
thereto; (xi) accounting services; (xii) legal services, unless insured
in connection with tenant defaults or lease negotiations; (xiii) trash
removal; (xiv) garage and parking maintenance, repair, repaving and
operating costs; (xv) the charges assessed against the Property pursuant
to any contractual covenants or recorded declaration of covenants or the
covenants, conditions and restrictions of any other similar instrument
affecting the Property. Notwithstanding the foregoing, Operating
Expenses shall not include Real Estate Taxes or Permitted Capital Pass
Through Costs; and (xvi) a fair and equitable pro rata share of all
costs and expenses Landlord incurs, pays or becomes obligated to pay in
connection with operating, maintaining, insuring and managing the
landscaping, water features, common areas, private streets, alleys,
sidewalks and medians which are a part of the Project and which benefit
all buildings included in the Project.
(c) "Real Estate Taxes" shall mean all real estate taxes and other
taxes or ad valorem assessments which are levied with respect to the
Property or any portion thereof for each calendar year and shall include
any tax, surcharge or assessment which shall be levied in addition to or
in lieu of real estate taxes, the costs and expenses of a consultant, if
any, or of contesting the validity or amount of such real estate or
other taxes and shall also include any rental, excise, transaction,
privilege or other tax or levy, however denominated, imposed upon or
measured by the rental reserved hereunder or on Landlord's business of
leasing the Premises, excepting only Landlord's net income, franchise,
or similar taxes.
(d) "Permitted Capital Pass Through Costs" shall mean the following
costs and expenses incurred by Landlord from and after January 1, 1998:
(i) the cost of any capital improvement made to the Property by Landlord
that is required under any governmental law or regulation which was not
promulgated, or which was promulgated but was not applicable to the
Building, at the time the Building was constructed, amortized over its
useful life in accordance with GAAP, together with an amount equal to
interest at the rate of ten percent (10%) per annum (the "Amortization
Rate") on the unamortized balance thereof, (ii) the cost of any
labor-saving or energy-saving device or other equipment installed in the
Building (provided Landlord reasonably anticipates that the installation
thereof will reduce Operating Expenses), amortized over its useful life
in accordance with GAAP, together with an amount equal to interest at
the Amortization Rate on the unamortized balance thereof, and (iii) all
other capital costs and expenses consisting of new or upgraded items in
amounts not to exceed $10,000.00 which would generally be regarded as
ownership, operating, maintenance and management costs and expenses
which would normally be amortized over a period not to exceed five
(5) years.
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2.202 GROSS-UP. Operating Expenses shall be adjusted to include all
additional costs and expenses for owning, operating, maintaining and
managing the Building which Landlord reasonably determines that it would
have incurred, paid or been obligated to pay during such year if the
Building had been one hundred percent (100%) occupied. Real Estate
Taxes shall be adjusted to include the ad valorem taxes that would have
been assessed if the Building had been fully assessed for ad valorem tax
purposes.
2.203 PAYMENT OBLIGATION. In addition to the Basic Rent specified in this
Lease, Tenant shall pay to Landlord the Additional Rent, in each
calendar year or partial calendar year during the term of this Lease,
payable in monthly installments as hereinafter provided. On or prior to
the Commencement Date and at least thirty (30) days prior to each
calendar year thereafter (or as soon thereafter as is reasonably
possible), Landlord shall give Tenant written notice of Tenant's
estimated Additional Rent (as reasonably estimated by Landlord) for the
applicable calendar year and the amount of the monthly installment due
for each month during such year. Tenant shall pay to Landlord on the
Commencement Date and on the first day of each month thereafter the
amount of the applicable monthly installment, without demand, offset or
deduction, provided, however, if the applicable installment covers a
partial month, then such installment shall be prorated on a daily basis.
Within ninety (90) days after the end of (i) each calendar year and (ii)
the Expiration Date or as soon thereafter as is reasonably possible,
Landlord shall prepare and deliver to Tenant a statement showing
Tenant's actual Additional Rent for the applicable calendar year,
provided that with respect to the calendar year in which the Expiration
Date occurs, (x) that calendar year shall be deemed to have commenced on
January 1 of that year and ended on the Expiration Date (the "Final
Calendar Year") and (y) Landlord shall have the right to estimate the
actual Operating Expenses allocable to the Final Calendar Year but
which are not determinable within such ninety day period. If Tenant's
total monthly payments of Additional Rent for the applicable year are
less than Tenant's actual Additional Rent, then Tenant shall pay to
Landlord the amount of such underpayment. If Tenant's total monthly
payments of Additional Rent for the applicable year are more than
Tenant's actual Additional Rent, then Landlord shall credit against the
next Additional Rent payment or payments due from Tenant the amount of
such overpayment, provided, however, with respect to the Final Calendar
Year, Landlord shall pay to Tenant the amount of such excess payments,
less any amounts then owed to Landlord. Unless Tenant takes written
exception to any item within ninety (90) days after the furnishing of an
annual statement, such statement shall be considered as final and
accepted by Tenant. Any amount due Landlord as shown on any such
statement shall be paid by Tenant within thirty (30) day after it is
furnished to Tenant (See Rider No. 7 attached hereto).
2.204 REVISIONS IN ESTIMATED ADDITIONAL RENT. If Real Estate Taxes, Insurance
Premiums, Utility Expenses or Permitted Capital Pass Through Costs
increase during a calendar year or if the number of square feet of
rentable area in the Premises increases, Landlord may revise the
estimated Additional Rent during such year by giving Tenant written
notice to that effect and thereafter Tenant shall pay to Landlord, in
each of the remaining months of such year, an additional amount equal to
the amount of such increase in the estimated Additional Rent divided by
the number of months remaining in such year.
SECTION 2.3 RENT DEFINED AND NO OFFSETS. Basic Annual Rent, Additional Rent
and all other sums (whether or not expressly designated as rent) required to
be paid to Landlord by Tenant under this Lease (including, without limitation,
any sums payable to Landlord under any addendum, exhibit, rider or schedule
attached hereto) shall constitute rent and are sometimes collectively referred
to as "Rent". Each payment of Rent shall be paid by Tenant when due, without
prior demand therefor and without deduction or setoff, except as provided in
this Lease Agreement.
SECTION 2.4 LATE CHARGES. If any installment of Basic Annual Rent or
Additional Rent or any other payment of Rent under this Lease shall not be paid
within ten (10) days of the date when due, a "Late Charge" of five cents ($.05)
per dollar so overdue may be charged by Landlord to defray Landlord's
administrative expense incident to the handling of such overdue payments. Each
Late Charge shall be payable on demand.
ARTICLE 3
SECURITY DEPOSIT
Tenant will pay Landlord on the date this Lease is executed by Tenant the
Security Deposit set forth in Item 10 of the Basic Lease Provisions as security
for the performance of the terms hereof by Tenant. Tenant shall not be
entitled to interest thereon and Landlord may commingle such Security Deposit
with any other kinds of Landlord. The Security Deposit shall not be considered
an advance payment of rental or a measure of Landlord's damages in case of
default by Tenant. If Tenant defaults with respect to any provision of this
Lease, which is not cured within the applicable cure period, Landlord may, but
shall not be required to, from time to time, without prejudice to any other
remedy, use, apply or retain all or any part of this Security Deposit for the
payment of any Rent or any other sum in default or for the Payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of
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Tenant's default, including, without limitation, costs and attorneys' fees
incurred by Landlord to recover possession of the Premises. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed by
it, the Security Deposit shall be returned to Tenant within sixty (60) days
after the Expiration Date. Tenant agrees that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as the Security
Deposit and that Landlord and its successors and assigns shall not be bound by
any such actual or attempted assignment or encumbrance. Regardless of any
assignment of this Lease by Tenant, Landlord may return the Security Deposit to
the original Tenant, in the absence of evidence satisfactory to Landlord of an
assignment of the right to receive the Security Deposit or any part of the
balance thereof.
ARTICLE 4
OCCUPANCY AND USE
SECTION 4.1 USE OF PREMISES.
4.101 GENERAL. The Premises shall, subject to the remaining Provisions of this
Section, be used solely for the purpose specified in Item 12 of the
Basic Lease Provisions. Without in any way limiting the foregoing,
Tenant will not use, occupy or permit the use or occupancy of the
Premises for any purpose which is forbidden by or in violation of any
law, ordinance or governmental or municipal regulation, order, or
certificate of occupancy, or which may be dangerous to life, limb or
property; or permit the maintenance of any public or private nuisance;
or do or permit any other thing which may disturb the quiet enjoyment of
any other tenant of the Building; or keep any substance or carry on or
permit any operation which might emit offensive odors or conditions from
the Premises; or commit or suffer or permit any waste in or upon the
Premises; or sell, purchase or give away, or permit the sale, purchase
or gift of food in any form by or to any of Tenant's agents or employees
or other parties in the Premises except through vending machines in
employee lunch or rest areas within the Premises for use by Tenant's
employees only; or use any apparatus which might make undue noise or set
up vibrations in the Building; or permit anything to be done which would
increase the fire and extended coverage insurance rate on the Building
or Building contents and, if there is any increase in such rate by
reason of acts of Tenant, then Tenant agrees to pay such increase upon
demand therefor by Landlord. Payment by Tenant of any such rate increase
shall not be a waiver of Tenant's duty to comply herewith. Tenant shall
indemnify and hold Landlord harmless from any and all costs, expenses
(including reasonable attorneys' fees), claims and causes of action
arising from Tenant's failure to comply with this Section without
limitation upon Landlord's obligation under Section 5.105. Tenant shall
keep the Premises neat and clean at all times. Tenant shall promptly
correct any violation of a governmental law, rule or regulation relating
to the Premises. Tenant shall comply with any direction of any
governmental authority having jurisdiction which imposes any duty upon
Tenant or Landlord with respect to the Premises or with respect to the
occupancy or use thereof.
4.102 HAZARDOUS AND TOXIC MATERIALS.
(a) Tenant shall not knowingly incorporate into, or use or otherwise
place or dispose of at, the Premises, the Building or on the Land any
hazardous or toxic materials, except for use and storage of cleaning and
office supplies used in the ordinary course of Tenant's business and
then only if (i) such materials are in small quantities, properly
labeled and contained, (ii) such materials are handled and disposed of
in accordance with the highest accepted industry standards for safety,
storage, use and disposal, (iii) notice of and a copy of the current
material safety data sheet is provided to Landlord for each such
hazardous or toxic material and (iv) such materials are used,
transported, stored, handled and disposed of in accordance with all
applicable governmental laws, rules and regulations. Landlord shall have
the right to periodically inspect, take samples for testing and
otherwise investigate the Premises for the presence of hazardous or
toxic materials. Landlord shall not knowingly dispose of at the
Premises, Building or the Land any hazardous or toxic materials and
shall otherwise deal with all hazardous or toxic materials at the
Premises, Building or Land in a manner that will not materially and
adversely affect Tenant's access, use or occupancy of the Premises. If
Landlord or Tenant ever has knowledge of the presence in the Premises or
the Building or the Land of hazardous or toxic materials which affect
the Premises, the party having knowledge shall notify the other party
thereof in writing promptly after obtaining such knowledge. For purposes
of this Lease, hazardous or toxic materials shall mean asbestos
containing materials ("ACM") and all other materials, substances, wastes
and chemicals classified as hazardous or toxic substances, materials,
wastes or chemicals under then-current applicable governmental laws,
rules or regulations or that are subject to any right-to-know laws or
requirements.
(b) Prior to commencement of any tenant finish work to be performed by
Landlord, Tenant shall have the right to make such studies and
investigations and conduct such tests and surveys of the Premises from
an environmental standpoint as permitted under Rider H-2 attached
hereto. If Tenant requests that Landlord commence construction of
Tenant's Improvements prior to
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exercising such right, Tenant shall be deemed to have waived the
termination right set forth in Rider H-2.
(c) If Tenant or its employees, agents or contractors shall ever
violate the provisions of paragraph (a) of this subsection 4.102 or
otherwise contaminate the Premises or the Property, then Tenant shall
clean-up, remove and dispose of the material causing the violation, in
compliance with all applicable governmental standards, laws, rules and
regulations and then prevalent industry practice and standards and shall
repair any damage to the Premises or Building within such period of time
as may be reasonable under the circumstances after written notice by
Landlord. Tenant shall notify Landlord of its method, time and procedure
for any clean-up or removal and Landlord shall have the right to require
reasonable changes in such method, time or procedure or to require the
same to be done after normal business hours. Tenant's obligations under
this subsection 4.102(c) shall survive the termination of this Lease.
Tenant represents to Landlord that, except as has been disclosed to
Landlord, Tenant has never been cited for or convicted of any hazardous
or toxic materials violations under applicable laws, rules or
regulations.
SECTION 4.2 RULES AND REGULATIONS. Tenant will comply with such rules and
regulations (the "Rules and Regulations") generally applying to tenants in the
Building as may be adopted from time to time by Landlord for the management,
safety, care and cleanliness of; and the preservation of good order and
protection of property in, the Premises and the Building and at the Property.
All such Rules an Regulations are hereby made a part hereof. The Rules and
Regulations in effect on the date hereof are on file with the Property Manager.
All changes and amendments to the Rules and Regulations sent by Landlord to
Tenant in writing and conforming to the foregoing standards shall be carried out
and observed by Tenant. Landlord hereby reserves all rights necessary to
implement and enforce the Rules and Regulations and each and every provision of
this Lease. Notwithstanding the foregoing, no amendment to the Rules and
Regulations which materially decreases the benefits of the Lease Agreement to
Tenant or increases its obligations hereunder shall be enforceable against
Tenant.
SECTION 4.3 ACCESS. Without being deemed guilty of an eviction of Tenant and
without abatement of Rent, Landlord or its authorized agents shall have the
right to enter the Premises at reasonable times and, upon reasonable notice, to
inspect the Premises, to show the Premises to prospective lenders, purchasers or
during the last nine (9) months of the term, tenants and to fulfill Landlord's
obligations or exercise its rights under this Lease. Landlord shall exercise
good faith reasonable efforts not to interfere with the operation of Tenant's
business on the Premises. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises and any other loss occasioned
thereby, unless caused by Landlord's gross negligence or willful misconduct. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock the doors to and within the Premises, excluding
Tenant's vaults and safes. Landlord shall have the right to use any and all
means which Landlord may deem proper to enter the Premises in an emergency
without liability therefor unless caused by Landlord's gross negligence or
willful misconduct.
SECTION 4.4 QUIET POSSESSION. Provided Tenant timely pays Rent and observes and
performs all of the covenants, conditions and provisions on Tenant's part to be
observed and performed hereunder, Tenant shall have the quiet possession of the
Premises for the entire term hereof, subject to all of the provisions of this
Lease and all laws and restrictive covenants to which the Property is subject.
ARTICLE 5
UTILITIES AND SERVICES
SECTION 5.1 SERVICES TO BE PROVIDED.
Landlord agrees to furnish or cause to be furnished to the Premises, the
utilities and services described in subsections 5.101 through 5.106 below,
subject to all other provisions of this Lease.
5.101 ELEVATOR SERVICE. Except for holidays generally recognized by
businesses, Landlord shall provide automatic elevator facilities on
generally accepted business days from 7:00 a.m. to 7:00 p.m. and on
Saturdays from 7:00 a.m. to 1:00 p.m. and have at least one (1) elevator
available for use at all other times.
5.102 HEAT AND AIR CONDITIONING. On generally accepted business days from 7:00
a.m. to 7:00 p.m. and on Saturdays (other than holidays generally
recognized by businesses) from 7:00 a.m. to 1:00 p.m., Landlord shall
ventilate the Premises and furnish heat or air conditioning, at such
temperatures and in such amounts as is customary in buildings of
comparable size, quality and in the general vicinity of the Building,
with such adjustments as Landlord reasonably deems necessary for the
comfortable occupancy of the Premises, subject to any governmental
requirements, ordinances, rules, regulations, guidelines or standards
relating to, among other things, energy conservation. Upon request,
Landlord shall make available, at Tenant's expense,
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after hours heat or air conditioning. After hours heat or air
conditioning is currently billed at $25.00 per hour. The minimum charge
and the hourly rate for the use of after hours heat or air conditioning
shall be determined from time to time by Landlord and confirmed in
writing to Tenant.
5.103 ELECTRICITY. Landlord shall furnish to the Premises electric current
not in excess of that required by the office lighting and receptacles
included in Tenant's Improvements, provided, however, Tenant shall be
solely responsible for the costs of electrical consumption (without
duplication) (i) by equipment which requires a voltage other than 120
volts single phase, (ii) in excess of that currently supplied to the
Premises or (iii) by any single piece of equipment in excess of 0.5
kilowatts at rated capacity (such consumption is herein referred to as
"Excess Consumption" and the costs of Excess Consumption are herein
referred to as "Excess Consumption Costs"). Without in any way limiting
Tenant's responsibility for Excess Consumption Costs, Tenant shall not
(i) without the express prior written consent of Landlord, install or
use or permit the installation or use of any computer or electronic data
processing equipment or any other electrical equipment which (singly)
consumes more than 0.5 kilowatts at rated capacity or requires a voltage
other than 120 volts single phase or otherwise has high electrical
consumption or (ii) use electric current in excess of the capacity of
the feeders or lines to the Building or the risers or wiring
installation of the Building or the Premises. Landlord may determine
Excess Consumption by a survey performed by a reputable consultant or by
an additional separate meter in the Premises. Tenant shall be
responsible for (i) the cost of any such survey performed by Landlord
and (ii), if Landlord installs a meter to measure Excess Consumption,
all costs associated with such separate metering including, but not
limited to, the cost of installing, maintaining, repairing and reading
the separate metering devices and subpanels. Notwithstanding the
foregoing, Landlord acknowledges and agrees that Tenant will operate
within the Premises computer terminals for software development and
testing, telephone system, office copiers, facsimile machines, printers,
standard kitchen appliances and portable cooling units.
5.104 WATER. Landlord shall furnish water for drinking, cleaning and lavatory
purposes only.
5.105 JANITORIAL SERVICES. Landlord shall provide janitorial services to the
Premises, as provided in Rider No. 6.
5.106 COMMON AREAS. Landlord shall perform routine maintenance in the Common
Areas and all other common areas of the Project (hereinafter defined).
SECTION 5.2 ADDITIONAL SERVICES. Landlord may impose a reasonable charge
for any utilities and services, including without limitation, air conditioning,
electrical current and water, provided by Landlord by reason of any use of the
services at any time other than the hours set forth in subsection 5.102 above
or beyond the levels or quantities that Landlord agrees herein to furnish or
because or special electrical, cooling or ventilating needs created by Tenant's
hybrid telephone equipment, computers or other equipment.
SECTION 5.3 TENANTS OBLIGATION. Tenant agrees to cooperate fully at all
times with Landlord and to abide by all regulations and requirements which
Landlord reasonably prescribes for the use of the above utilities and
services. Any failure to pay any excess costs as described in Section 5.2
above upon ten (10) days following demand by Landlord shall constitute a breach
of the obligation to pay Rent under this Lease and shall entitle Landlord to
the rights herein granted for such breach.
SECTION 5.4 SERVICE INTERRUPTION.
5.401 SERVICE INTERRUPTION. Landlord shall not be liable for and, except as
provided in subsection 5.402 below, Tenant shall not be entitled to any
abatement or reduction of Rent by reason of; Landlord's failure to
maintain temperature or electrical constancy levels or to furnish any of
the foregoing services when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbance or labor
dispute of any character, governmental regulation, moratorium or other
governmental action, inability by exercise of reasonable diligence to
obtain electricity, water or fuel, or by any other cause beyond
Landlord's reasonable control (collectively, "Uncontrollable Events"),
nor shall any such Uncontrollable Event or results or effects thereof be
construed as an eviction (constructive or actual) of Tenant or as a
breach of the implied warranty of suitability, or relieve Tenant from
the obligation to perform any covenant or agreement herein and in no
event shall Landlord be liable for damage to persons or property
(including, without limitation, business interruption), or be in default
hereunder, as a result of any such Uncontrollable Event or results or
effects thereof.
5.402 LIMITED RIGHT TO ABATEMENT OF RENT. If any portion of the Premises
becomes unfit for occupancy because Landlord fails to deliver any
service as required under Section 5.1 above for
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any period (other than a reconstruction period conducted pursuant to
Section 7.1 or Article 8 below) exceeding five (5) consecutive days
after written notice by Tenant to Landlord and provided such failure is
not caused by Tenant, Tenant's Contractors or any of their respective
agents or employees, Tenant shall be entitled to a fair partial
abatement of Basic Annual Rent and Additional Rent for any such portion
of the Premises from the failure of such service until such portion is
again fit for occupancy until such service is restored.
SECTION 5.5 MODIFICATIONS. Notwithstanding anything hereinabove to the
contrary, Landlord reserves the right from time to time to make reasonable
modifications to the above standards for utilities and services, but in no
event shall services be below the standard for comparable buildings in the
North Dallas/LBJ submarket.
ARTICLE 6
MAINTENANCE, REPAIRS, ALTERATIONS AND IMPROVEMENTS
SECTION 6.1 LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR. Landlord shall
(subject to Section 7.1, Section 7.4, Article 8 below and Landlord's rights
under Section 2.2 above and except for ordinary wear and tear) maintain
exterior walls, roof and load bearing elements of the Building. Except for load
bearing elements of the Building located within the Premises, Landlord shall not
be required to maintain or repair any portion of the Premises.
SECTION 6.2 TENANTS OBLIGATION TO MAINTAIN AND REPAIR.
6.201 TENANT'S OBLIGATION. Subject to Sections 6.1, 7.1 and 7.4 and Articles 5
and 8 of this Lease, Tenant shall, at Tenant's sole cost and expense,
(i) maintain and keep the interior of the Premises (including, but not
limited to, all fixtures, walls, ceilings, floors, doors, windows
[except replacement of exterior plate glass unless the replacement is by
reason of damage caused by Tenant], appliances and equipment which are a
part of the Premises) in good repair and condition, (ii) repair or
replace any damage or injury done to the Building or any other part of
the Property caused by Tenant, Tenant's agents, employees, licensees,
invitees or visitors or resulting from a breach of its obligations under
this Section 6.2 and (iii) indemnify and hold Landlord harmless from any
and all costs, expenses (including reasonable attorneys' fees), claims
and causes of action arising from or incurred by and/or asserted in
connection with such maintenance, repairs, replacements, damage or
injury or Tenant's breach of its obligations under this subsection
6.201. All repairs and replacements performed by or on behalf of Tenant
shall be performed in a good and workmanlike manner and in accordance
with the standards applicable to alterations or improvements performed
by tenant. Tenant shall continue to pay Rent, without abatement, during
any period that repairs or replacements are performed or required to be
performed by Tenant under this Section 6.2.
6.202 RIGHTS OF LANDLORD. Landlord shall have the same rights with respect to
repairs performed by Tenant as Landlord has with respect to improvements
and alterations performed by Tenant under subsection 6.303 below. In the
event Tenant fails, in the reasonable judgment of Landlord, to maintain
the Premises in good order, condition and repair, or otherwise satisfy
its repair and replacement obligations under subsection 6.201 above,
after five (5) days written notice, Landlord shall have the right to
perform such maintenance, repairs and replacements at tenant's expense.
Tenant shall pay to Landlord on demand any such cost or expense incurred
by Landlord, together with interest thereon at the rate specified in
Section 15.10 below from the date of demand until paid.
SECTION 6.3 IMPROVEMENTS AND ALTERATIONS.
6.301 LANDLORD'S CONSTRUCTION OBLIGATION. Landlord's sole construction
obligation under this Lease is as set forth in the Work Letter attached
hereto as Exhibit D.
6.302 ALTERATION OF BUILDING. Landlord hereby reserves the right and at all
times shall have the right to repair, change, redecorate, alter,
improve, modify, renovate, enclose or make additions to any part of the
Property (including structural elements and load bearing elements within
the Premises) and to enclose and/or change the arrangement and/or
location of driveways or parking areas (subject to Section 15.17) or
landscaping or other Common Areas of the Property, all without being
held guilty of an actual or constructive eviction of Tenant or breach of
the implied warranty of suitability and without an abatement of Rent
(the "Reserved Right"). Without in any way limiting the generality of
the foregoing, Landlord's Reserved Right shall include, but not be
limited to, the right to (i) construct scaffolding and other structures
and perform all work and other activities associated with such changes,
alterations, improvements, modifications, renovations and/or additions,
(ii) repair, change, renovate, remodel, alter, improve, modify or make
additions to the arrangement, appearance, location and/or size of
entrances or passageways, doors and doorways, corridors, elevators,
elevator lobbies, stairs, toilets or other Common Areas or Service
Areas, (iii) temporarily close any Common Area and/or temporarily
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suspend Building services and facilities in connection with any repairs,
changes, alterations, modifications, renovations or additions to any
part of the Building, (iv) repair, change, alter or improve plumbing,
pipes and conduits located in the Building, including without
limitation, those located within the Premises, the Common Areas, the
Service Corridors or the Service Areas (hereinafter defined of the
Building and (v) repair, change, modify, alter, improve, renovate or
make additions to the Building central heating, ventilation, air
conditioning, electrical, mechanical or plumbing systems. When
exercising the Reserved Right, Landlord will interfere with Tenant's use
and occupancy of the Premises as little as is reasonably practicable.
6.303 ALTERATIONS, ADDITIONS, IMPROVEMENTS AND INSTALLATIONS BY TENANT. Tenant
shall not, without the prior written consent of Landlord, make any
changes, modifications, alterations, additions or improvements (other
than Tenant's Improvements under the Work Letter) to, or install any
equipment or machinery (other than office equipment and unattached
personal property) on, the Premises (all such changes, modifications,
alterations, additions, improvements (other than Tenant's Improvements
under the Work Letter) and installations approved by Landlord are herein
collectively referred to as "Installations") if any such Installations
would (i) affect structural or load bearing portions of the Premises,
(ii) result in a material increase of electrical usage above the normal
type and amount of electrical current to be provided by Landlord, (iii)
result in a material increase in Tenant's usage of heating or air
conditioning, (iv) materially impact mechanical, electrical or plumbing
systems in the Premises or the Building, (v) materially affect areas of
the Premises which can be viewed from Common Areas, (vi) require
materially greater or more difficult cleaning work (e.g., kitchens,
reproduction rooms and interior glass partitions) or (vii) violate any
provision in Article 4 above or Rider H-1 or Rider H-2 attached hereto.
As to Installations not covered by the preceding sentence, Tenant will
not perform same without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. All Installations
shall be at Tenant's sole cost and expense. Without in any way limiting
Landlord's consent rights, Landlord shall not be required to give its
consent until (a) Landlord approves the contractor or person making such
Installations and approves such contractor's insurance coverage to be
provided in connection with the work, (b) Landlord approves final and
complete plans and specifications for the work and (c) the appropriate
governmental agency, if any, has approved the plans and specifications
for such work. All work performed by Tenant or its contractor relating
to the Installations shall conform to applicable governmental laws,
rules and regulations, including, without limitation, the Disability
Acts. Upon completion of the Installations, Tenant shall deliver to
Landlord "as built" plans. If Landlord performs such Installations as
Tenant's request, Tenant shall pay Landlord, as additional Rent, the
cost thereof plus fifteen percent (15%) as reimbursement for Landlord's
overhead. Each payment shall be made to Landlord within ten (10) days
after receipt of an invoice from Landlord. All Installations that
constitute improvements constructed within the Premises shall be
surrendered with the Premises at the expiration or earlier termination
of this Lease, unless Landlord requests that same be removed pursuant to
Section 1.3 above, Tenant shall indemnify and hold Landlord harmless
from any and all costs, expenses (including reasonable attorneys' fees),
demands, claims, causes of action and liens arising from or in
connection with any Installations performed by or on behalf of Tenant.
All Installations performed by or on behalf of Tenant will be performed
diligently and in a first-class workmanlike manner and in compliance
with all applicable laws, ordinances, regulations and rules of any
public authority having jurisdiction over the Building and/or Tenant's
and Landlord's insurance carriers. Landlord will have the right, but not
the obligation, to inspect periodically the work on the Premises and may
reasonably require changes in the method or quality of the work.
6.304 APPROVALS. Any approval by Landlord (or Landlord's architect and/or
engineers) of any of Tenant's contractors or Tenant's drawings, plans or
specifications which are prepared in connection with any construction of
improvements (including without limitation, Tenant's Improvements) in
the Premises shall not in any way be construed as or constitute a
representation or warranty of Landlord as to the abilities of the
contractor or the adequacy or sufficiency of such drawings, plans or
specifications or the improvements to which they relate, for any use,
purpose or condition.
ARTICLE 7
INSURANCE, FIRE AND CASUALTY
SECTION 7.1 TOTAL OR PARTIAL DESTRUCTION OF THE BUILDING OR THE PREMISES. In
the event that the Building should be totally destroyed by fire or other
casualty or in the event the Building (or any portion thereof) should be so
damaged that rebuilding or repairs cannot be completed, in Landlord's
reasonable opinion, within one hundred eighty (180) days after the date of such
damage, Landlord may, at its option, terminate this Lease, in which event Basic
Annual Rent and Additional Rent shall be abated during the unexpired portion of
this Lease effective with the date of such damage. Landlord shall exercise the
termination right pursuant to the preceding sentence, if at all, by delivering
written notice of termination to Tenant within ten (10) days after determining
that the repairs cannot be completed within such one hundred eighty (180) day
period. In the event that the Premises should
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be so damaged by fire or other casualty that rebuilding or repairs cannot be
completed, in Landlord's reasonable opinion, within one hundred eighty (180)
days after the date of such damage, Tenant may, at its option terminate this
Lease, in which event Basic Annual Rent and Additional Rent shall be abated
during the unexpired portion of this Lease, effective the date of such damage.
Tenant shall exercise the termination right pursuant to the preceding sentence,
if at all, by delivering written notice of termination to Landlord within
fifteen (15) days after being advised by Landlord that the repairs cannot be
completed within such one hundred eighty (180) day period. In the event the
Building or the Premises should be damaged by fire or other casualty and, in
Landlord's reasonable opinion, the rebuilding or repairs can be completed within
one hundred eighty (180) days after the date of such damage, or if the damage
should be more serious but neither Landlord nor Tenant elect to terminate this
Lease pursuant to this Section, in either such event Landlord shall, within
sixty (60) days after the date of such damage, commence to rebuild or repair the
Building and the Premises (including Tenant's Improvements, but only to the
extent of insurance proceeds actually received by Landlord for the repair of
Tenant's Improvements), and shall pursue with reasonable diligence the repair
and restoration of the Building and the Premises to substantially the same
condition which existed immediately prior to the happening of the casualty,
except that Landlord shall not be required to rebuild, repair or replace any
part of the furniture, equipment, fixtures, inventory, supplies or any other
personalty or any other improvements (except Tenant's Improvements, but only to
the extent of insurance proceeds actually received by Landlord for the repair of
Tenant's Improvements) which may have been placed by Tenant or other tenants
within the Building or at the Premises. Landlord shall allow Tenant a fair
diminution of Basic Annual Rent and Additional Rent during the time the Premises
are unfit for occupancy; provided, that if such casualty was caused by Tenant,
its agents, employees, licensees or invitees, Basic Annual Rent and Additional
Rent shall be abated only to the extent Landlord is compensated for such Basic
Annual Rent and Additional Rent by loss of rents Insurance, if any.
Notwithstanding Landlord's restoration obligation, in the event any mortgagee
under a deed of trust, security agreement or mortgage on the Building should
require that the insurance proceeds be used to retire or reduce the mortgage
debt or if the insurance company issuing Landlord's fire and casualty insurance
policy fails or refuses to pay Landlord the proceeds under such policy, Landlord
shall have no obligation to rebuild and this Lease shall terminate upon notice
by Landlord to Tenant. Any insurance which may be carried by Landlord or Tenant
against loss or damage to the Building or to the Premises shall be for the sole
benefit of the party carrying such insurance and under its sole control.
SECTION 7.2 TENANT'S INSURANCE.
7.201 TYPES OF COVERAGE. Tenant covenants and agrees that from and after the
date of delivery of the Premises from Landlord to Tenant, Tenant will
carry and maintain, at its sole cost and expense, the insurance set
forth in paragraphs (a), (b), (c) and (d) of this subsection.
(a) PUBLIC LIABILITY INSURANCE. General Comprehensive Public Liability
Insurance covering the Premises and Tenant's use thereof against claims
for personal or bodily injury or death or property damage occurring
upon, in or about the Premises (including contractual indemnity and
liability coverage), such insurance to insure both Tenant and, as
additional named insureds, Landlord and its subsidiaries, directors,
agents and employees and the Property Manager, and to afford protection
to the limit of not less than $1,000,000.00, combined single limit, in
respect to injury or death to any number of persons and all property
damage arising out of any one (1) occurrence, with a deductible
acceptable to Landlord. If the Agreed Rentable Area of the Premises is
more than 30,000 square feet, then, in addition to and not in lieu of
the above stated coverage, Tenant shall carry umbrella or so called
excess coverage in an amount not less than $1,000,000.00 over Tenant's
base coverage amount. This insurance coverage shall extend to any
liability of Tenant arising out of the indemnities provided for in this
Lease.
(b) PROPERTY INSURANCE. Property insurance on an all-risk extended
coverage basis (including coverage against fire, wind, tornado,
vandalism, malicious mischief, water damage and sprinkler leakage)
covering all fixtures, equipment and personalty located in the Premises,
in an amount not less than one hundred percent (100%) of full
replacement cost thereof. Such policy will be written in the names of
Tenant, Landlord and any other parties reasonably designated by Landlord
from time to time, as their respective interests may appear. The
property insurance may, with the consent of the Landlord, provide for a
reasonable deductible.
(c) WORKERS COMPENSATION INSURANCE. Worker's compensation insurance
insuring against and satisfying Tenant's obligations and liabilities
under the worker's compensation laws of the State of Texas.
(d) EMPLOYERS LIABILITY INSURANCE. Employer's liability insurance in an
amount not less than $1,000,000.00.
7.202 OTHER REQUIREMENTS OF INSURANCE. All such insurance will be issued and
underwritten by companies reasonably acceptable to Landlord and will
contain endorsements that (a) such insurance may not lapse with respect
to Landlord or Property Manager or be canceled or amended with respect
to Landlord or Property Manager without the insurance company giving
Landlord and Property Manager at least thirty (30) days prior written
notice of such cancellation
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or amendment, (b) Tenant will be solely responsible for payment
of premiums, (c) in the event of payment of any loss covered by
such policy, Landlord or Landlord's designees will be paid first
by the insurance company for Landlord's loss and (d) Tenant's
insurance is primary in the event of overlapping coverage which
may be carried by Landlord.
7.203 PROOF OF INSURANCE. Tenant shall deliver to Landlord duplicate
originals or all policies of insurance required by this Section
7.2 or duly executed originals of the certificates of such
insurance evidencing in-force coverage, within ten (10) days
prior to the commencement of construction of Tenant's
Improvements. Further, Tenant shall deliver to Landlord renewals
thereof at least thirty (30) days prior to the expiration of the
respective policy terms.
SECTION 7.3 LANDLORD'S INSURANCE.
7.301 TYPES OF COVERAGE. Landlord covenants and agrees that from and
after the date of delivery of the Premises from Landlord to
Tenant, Landlord will carry and maintain, at its sole cost and
expense, the insurance set forth in paragraphs (a) and (b) of
this subsection.
(a) PUBLIC LIABILITY INSURANCE. General Comprehensive Public
Liability Insurance covering the Building and all Common Areas,
but excluding the Premises, insuring against claims for personal
or bodily injury or death or property damaging occurring upon,
in or about the Building or Common Areas to afford protection to
the limit of not less than $2,000,000.00 combined single limit
in respect to injury or death to any number of persons and
property damage arising out of any one (1) occurrence. This
insurance coverage shall extend to any liability of Landlord
arising out of the indemnities provided for in this Lease.
(b) FIRE AND EXTENDED COVERAGE INSURANCE. Landlord shall at all
times during the term hereof maintain in effect a policy or
policies of fire and extended coverage insurance covering the
Building (excluding property required to be insured by Tenant)
in such amounts as Landlord may from time to time determine,
providing protection against all perils included within the
standard Texas form of fire and extended coverage insurance
policy, together with insurance against sprinkler damage,
vandalism, malicious mischief and such other risks as Landlord
may from time to time determine and with any such deductibles as
Landlord may from time to time determine.
7.302 SELF INSURANCE. Any insurance provided for in subsection 7.301
above may be effected by self-insurance or by a policy or
policies of blanket insurance covering additional items or
locations or assureds, provided that the requirements of this
Section 7.3 are otherwise satisfied. Tenant shall have no rights
in any policy or policies maintained by Landlord.
SECTION 7.4 WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waives any rights it may have against the other
(including, but not limited to, a direct action for damages) on account of any
loss or damage occasioned to Landlord or Tenant, as the case may be (whether or
not such loss or damage is caused by the fault, negligence or other tortious
conduct, acts or omissions of Landlord or Tenant or their respective officers,
directors, employees, agents or invitees), to their respective property, the
Premises, its contents or to any other portion of the Building or the Property
arising from any risk covered by the current Texas State Board of Insurance
promulgated form of property insurance and fire and extended coverage insurance
required to be carried by Tenant and Landlord, respectively, under subsections
7.201(b) and 7.301(b) above. If a party waiving rights under this Section is
carrying a fire and extended coverage insurance policy in the promulgated form
used in the State of Texas and an amendment to such promulgated form is passed,
such amendment shall be deemed not a part of such promulgated form until it
applies to the policy being carried by the waiving party. Without in any way
limiting the foregoing waivers and to the extent permitted by applicable law,
the parties hereto each, on behalf of their respective insurance companies
insuring the property of either Landlord or Tenant against any such loss, waive
any right of subrogation that Landlord or Tenant or their respective insurers
may have against the other party or their respective officers, directors,
employees, agents or invitees and all rights of their respective insurance
companies based upon an assignment from its insured. Each party to this Lease
agrees immediately to give to each such insurance company written notification
of the terms of the mutual waivers contained in this Section and to have said
insurance policies properly endorsed, if necessary, to prevent the invalidation
of said insurance coverage by reason of said waivers. The foregoing waiver
shall be effective whether or not the parties maintain the required insurance.
SECTION 7.5 INDEMNITY
7.501 TENANT'S INDEMNITY. Tenant will indemnify and hold Landlord,
Property Manager and their respective officers, directors,
employees and agents harmless from all claims, demands, actions,
damages, loss, liabilities, judgments, costs and expenses,
including without limitation, attorney's fees and court costs
(each a "Claim" and collectively the "Claims") which (i) are
suffered by, recovered from or asserted against Landlord, (ii)
are not paid by insurance carried by Tenant or Landlord (without
in any way affecting the requirements of or Landlord's rights
under
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subsection 7.202[d] above) and (iii) arise from or in connection with
(a) the use or occupancy of the Premises by Tenant and/or any accident,
injury or damage occurring in or at the Premises or (b) any breach by
Tenant of any representation or covenant in this Lease; provided,
however, such indemnification of Landlord by Tenant shall not include
any Claim waived by Landlord under Section 7.4 above, any Claim to the
extent caused by the negligence, gross negligence or willful misconduct
of Landlord or any Claim relating to hazardous or toxic materials except
to the extent such Claim arises out of a breach by Tenant of any of the
provisions of subsection 4.102 above or Rider H-1 or Rider H-2 attached
hereto.
7.502 LANDLORD'S INDEMNITY. Landlord will indemnify and hold Tenant and its
officers, directors, employees and agents harmless from all Claims which
are suffered by, recovered from or asserted against Tenant and which are
not paid by proceeds of insurance carried by Landlord or Tenant and
which arise from or in connection with (a) the use of the Common Areas
and/or any accident, injury or damage occurring in or on the Common
Areas or (b) any breach by Landlord of any representation or covenant in
this Lease; provided, however, such indemnification of Tenant by
Landlord shall not include any Claim waived by Tenant under Section 7.4
above, any Claim to the extent caused by the negligence, gross
negligence or willful misconduct of Tenant or any Claim relating to
hazardous or toxic materials except to the extent such Claim arises out
of a breach by Landlord of any of the provisions of subsection 4.102
above or Rider H-1 or Rider H-2 attached hereto.
ARTICLE 8
CONDEMNATION
SECTION 8.1 CONDEMNATION RESULTING IN CONTINUED USE NOT FEASIBLE. If the
Property or any portion thereof that, in Landlord's reasonable opinion, is
necessary to the continued efficient and/or economically feasible use of the
Property shall be taken or condemned in whole or in part for public purposes,
or sold to a condemning authority in lieu of taking, then the term of this
Lease shall, at the option of Landlord, forthwith cease and terminate.
SECTION 8.2 TOTAL CONDEMNATION OF PREMISES. In the event that all or
substantially all of the Premises is taken or condemned or sold in lieu thereof
or Tenant will be unable to use a substantial portion of the Premises for
a period of one hundred eighty (180) consecutive days by reason of a temporary
taking, either Landlord or Tenant may terminate this Lease by delivering
written notice thereof to the other within ten (10) business days after the
taking, condemnation or sale in lieu thereof.
SECTION 8.3 CONDEMNATION WITHOUT TERMINATION. If upon a taking or condemnation
or sale in lieu of the taking of all or less than all of the Property which
gives either Landlord or Tenant the right to terminate this Lease pursuant to
Section 8.1 or 8.2 above and neither Landlord nor Tenant elect to exercise such
termination right, then this Lease shall continue in full force and effect,
provided that, if the taking, condemnation or sale includes any portion of the
Premises, the Basic Annual Rent and Additional Rent shall be redetermined on the
basis of the remaining square feet of Agreed Rentable Area of the Premises.
Landlord, at Landlord's sole option and expense, shall restore and reconstruct
the Building to substantially its former condition to the extent that the same
may be reasonably feasible, but such work shall not be required to exceed the
scope of the work done by Landlord in originally constructing the Building, nor
shall Landlord in any event be required to spend for such work an amount in
excess of the amount received by Landlord as compensation or damages (over and
above amounts going to the mortgagee of the property taken) for the part of the
Building or the Premises so taken.
SECTION 8.4 CONDEMNATION PROCEEDS. Landlord shall receive the entire award
(which shall include sales proceeds) payable as a result of a condemnation,
taking or sale in lieu thereof of the Premises. Tenant hereby expressly assigns
to Landlord any and all right, title and interest of Tenant now or hereafter
arising in and to any such award with respect to the Premises but not Tenant's
tangible, personal property. Tenant shall, however, have the right to recover
from such authority through a separate award which does not reduce Landlord's
award, any compensation as may be awarded to Tenant on account of moving and
relocation expenses and depreciation to and removal of Tenant's physical
property and Tenant's Improvements in excess of the Finish Allowance.
ARTICLE 9
LIENS
Tenant shall keep the Premises free from all liens arising out of any work
performed, materials furnished or obligations incurred by or for Tenant and
Tenant shall indemnify and hold Landlord harmless from any and all claims,
causes of action, damages, expenses (including reasonable attorneys' fees),
arising from or in connection with any such liens. In the event that Tenant
shall not, within TWENTY (20) DAYS following notification to Tenant of the
imposition of any such lien, cause the same to be released of record by payment
or the posting of a bond in amount, form and substance acceptable to Landlord,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right but not the obligation, to cause the same to be released by such
means as it shall deem proper, including payment of or defense against the claim
giving rise to such lien. All amounts paid or incurred by Landlord in connection
therewith shall be paid by Tenant to Landlord on demand and shall bear interest
from the date of demand until paid at the rate set forth in Section 15.10 below.
Nothing in this Lease shall be deemed or construed in any way
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as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
specific improvement, alteration or repair of or to the Building or the Premises
or any part thereof, nor as giving Tenant any right, power or authority to
contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any mechanic's or other liens
against the interest of Landlord in the Property or the Premises.
ARTICLE 10
TAXES ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, prior to their becoming delinquent,
any and all taxes and assessments levied against, and any increases in Real
Estate Taxes as a result of; any personal property or trade or other fixtures
placed by Tenant in or about the Premises and any improvements (other than
Tenant's Improvements) constructed in the Premises by or on behalf of Tenant. In
the event Landlord pays any such additional taxes or increases, Tenant will,
within ten (10) days after demand, reimburse Landlord for the amount thereof.
ARTICLE 11
SUBLETTING AND ASSIGNING
SECTION 11.1 SUBLEASE AND ASSIGNMENT. Tenant shall not assign this Lease, or
allow it to be assigned, in whole or in part, by operation of law or otherwise
or mortgage or pledge the same, or sublet the Premises or any part thereof or
permit the Premises to be occupied by any firm, person, partnership or
corporation or any combination thereof, other than Tenant, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
In no event shall any assignment or sublease ever release Tenant from any
obligation or liability hereunder. No assignee or sublessee of the Premises or
any portion thereof may assign or sublet the Premises or any portion thereof.
Consent by Landlord to one or more assignments or sublettings shall not operate
as a waiver of Landlord's rights as to any subsequent assignments and/or
sublettings. All reasonable legal fees and expenses incurred by Landlord in
connection with any assignment or sublease proposed by Tenant will be the
responsibility of Tenant and will be paid by Tenant within five (5) days of
receipt of an invoice from Landlord.
SECTION 11.2 LANDLORD'S RIGHTS RELATING TO ASSIGNEE OR SUBTENANT. If this
Lease or any part hereof is assigned or the Premises or any Premises thereof are
sublet, Landlord may at its option collect directly from such assignee or
sublessee all rents becoming due to Tenant under such assignment or sublease and
apply such rent against any sums due to Landlord by Tenant hereunder. Tenant
hereby authorizes and directs any such assignee or sublessee to make such
payments of rent direct to Landlord upon receipt of notice from Landlord and
Tenant agrees that any such payments made by an assignee or sublessee to
Landlord shall, to the extent of the payments so made, be a full and complete
release and discharge of rent owed to Tenant by such assignee or sublessee. No
direct collection by Landlord from any such assignee or sublessee shall be
construed to constitute a novation or a release of Tenant or any guarantor of
Tenant from the further performance of its obligations hereunder. Receipt by
Landlord of rent from any assignee, sublessee or occupant of the Premises or any
part thereof shall not be deemed a waiver of the above covenant in this Lease
against assignment and subletting or a release of Tenant under this Lease. in
the event that, following an assignment or subletting, this Lease or the rights
and obligations of Tenant hereunder are terminated for any reason, including
without limitation in connection with default by or bankruptcy of Tenant (which,
for the purposes of this Section 11.2, shall include all persons or entities
claiming by or through Tenant), Landlord may, at its sole option, consider this
Lease to be thereafter a direct lease to the assignee or subtenant of Tenant
upon the terms and conditions contained in this Lease.
ARTICLE 12
TRANSFERS BY LANDLORD, SUBORDINATION AND
TENANT'S ESTOPPEL CERTIFICATE
SECTION 12.1 SALE OF THE PROPERTY. In the event of a sale or conveyance by
Landlord of the Property, the same shall operate to release Landlord from any
and all liability under this Lease arising after the date of such sale, provided
the purchasee is a fully capitalized, ongoing bona fide business entity, which
in writing assumes all obligations of Landlord hereunder including without
limitation all obligations regarding the Security Deposit.
SECTION 12.2 SUBORDINATION, ATTORNMENT AND NOTICE. This Lease is subject and
subordinate to (i) any lease wherein Landlord is the tenant and to the liens of
any and all mortgages and deeds of trust, regardless of whether such lease,
mortgage or deed of trust now exists or may hereafter be created with regard to
all or any part
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of the Property, (ii) any and all advances (including interest thereon) to be
made under any such lease, mortgage or deed of trust and (iii) all
modifications, consolidations, renewals, replacements and extensions of any
such lease, mortgage or deed of trust; provided that the foregoing
subordination in respect of any mortgage or deed of trust placed on the
Property after the date hereof shall not become effective until and unless
the holder of such mortgage or deed of trust delivers to Tenant a
non-disturbance agreement (which may include Tenant's agreement to attorn as
set forth below) permitting Tenant, if Tenant is not then in default under, or
in breach of any provision of, this Lease, to remain in occupancy of the
Premises in the event of a foreclosure of any such mortgage or deed of trust
upon the terms and conditions herein contained. Tenant also agrees that any
lessor, mortgagee or trustee may elect (which election shall be revocable) to
have this Lease superior to any lease or lien of its mortgage or deed of trust
and, in the event of such election and upon notification by such lessor,
mortgagee or trustee to Tenant to that effect, this Lease shall be deemed
superior to the said lease, mortgage or deed of trust, whether this Lease is
dated prior to or subsequent to the date of said lease, mortgage or deed of
trust. Subject to the foregoing, Tenant shall, in the event of the sale or
assignment of Landlord's interest in the Premises (except in a sale-leaseback
financing transaction), or in the event of the termination of any lease in a
sale-leaseback financing transaction wherein Landlord is the lessee, attorn to
and recognize such purchaser, assignee or mortgagee as Landlord under this
Lease. Tenant shall, in the event of any proceedings brought for the
foreclosure of, or in the event of the exercise of the power of sale under, any
mortgage or deed of trust covering the Premises, attorn to and recognize
purchaser at such sale, assignee or mortgagee, as the case may be, as Landlord
under this Lease. The above subordination and attornment clauses shall be
self-operative (Subject to the proviso herein contained) and no further
instruments of subordination or attornment need be required by any mortgagee,
trustee, lessor, purchaser or assignee. In confirmation thereof, Tenant agrees
that, upon the request of Landlord, or any such lessor, mortgagee, trustee,
purchaser or assignee, Tenant shall execute and deliver whatever instruments
may be required for such purposes and to carry out the intent of this Section
12.2. Landlord acknowledges to Tenant, that as of the date of this Lease and as
of the Commencement Date, the Property, or any part thereof, shall be subject
to no ground lease, mortgage, or deed of trust.
SECTION 12.3 TENANTS ESTOPPEL CERTIFICATE. Tenant shall, upon the request of
Landlord or any mortgagee of Landlord, without additional consideration,
deliver an estoppel certificate, consisting of reasonable statements required
by Landlord, any mortgagee or purchaser of any interest in the Property, which
statements may include but shall not be limited to the following: this Lease is
in full force and effect, with rental paid through ___________________________;
this Lease has not been modified or amended; and Landlord is not in default and
Landlord has fully performed all of Landlord's obligations hereunder. If Tenant
is unable to make any of the statements contained in the estoppel certificate
because the same is untrue, Tenant shall with specificity state the reason why
such statement is untrue. Tenant shall, if requested by Landlord or any such
mortgagee, deliver to Landlord a fully executed instrument in form reasonably
satisfactory to Landlord evidencing the agreement of Tenant to the mortgage or
other hypothecation by Landlord of the interest of Landlord hereunder.
ARTICLE 13
DEFAULT
SECTION 13.1 DEFAULTS BY TENANT. The occurrence of any of the events
described in subsections 13.101 through 13.108 shall constitute a default by
Tenant under this Lease.
13.101 FAILURE TO PAY RENT. With respect to the first two payments of
Rent not made by Tenant when due in any twelve (12) month
period, the failure by Tenant to make either such payment to
Landlord within three (3) business days after Tenant receives
written notice specifying that the Payment was not made when
due. With respect to any other payment of Rent, the failure by
Tenant to make such payment of Rent to Landlord when due, no
notice of any such failure being required.
13.102 FAILURE TO PERFORM. Except for a failure covered by subsection
13.101 above or 13.103 below, any failure by Tenant to observe
and perform any provision of this Lease to be observed or
performed by Tenant where such failure continues for thirty (30)
days after written notice to Tenant, provided that if such
failure cannot be cured within said thirty (30) day period,
Tenant shall not be in default hereunder so long as Tenant
commences curative action within such thirty (30) day period,
diligently and continuously pursues the curative action and
fully and completely cures the failure within sixty (60) days
after such written notice to Tenant.
13.103 CONTINUAL FAILURE TO PERFORM. The third failure by Tenant in
any twelve (12) month period to perform and observe a particular
provision of this Lease to be observed or performed by Tenant
(other than the failure to pay Rent, which in all instances will
be covered by subsection 13.101 above), no notice being required
for any such third failure.
13.104 BANKRUPTCY, INSOLVENCY, ETC. Tenant (i) cannot meet its
obligations as they become due, (ii) becomes or is declared
insolvent according to any law, (iii) makes a transfer in fraud
of creditors according to any applicable law, (iv) assigns or
conveys all or a substantial portion of its property for the
benefit of creditors or (v) Tenant files a petition for relief
under the Federal Bankruptcy Code or any other present or future
federal or state insolvency, bankruptcy or similar law
(collectively, "applicable bankruptcy law"); a receiver or
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trustee is appointed for Tenant or its property; the interest of Tenant
under this Lease is levied on under execution or under other legal
process; any involuntary petition is filed against Tenant under
applicable bankruptcy law; or any action is taken to reorganize or
modify Tenant's capital structure if either Tenant be a corporation or
other entity (provided that no such levy, execution, legal process or
petition filed against Tenant shall constitute a breach of this Lease if
Tenant shall vigorously contest the same by appropriate proceedings and
shall remove or vacate the same within ninety (90) days from the date of
its creation, service or filing).
13.105 ABANDONMENT. The abandonment of the Premises by Tenant.
13.106 VACATION. The vacating of the Premises by Tenant, which shall be
conclusively presumed if Tenant is absent from the Premises for ten (10)
consecutive days (other than during a period the Premises are unfit
for occupancy) or more or if Tenant shall fail to move into or take
possession of the Premises within ten (10) days after the date on which
Rent is to commence under the terms of this Lease.
13.107 LOSS OF RIGHT TO DO BUSINESS. If Tenant is a corporation or limited
partnership, Tenant fails to maintain its right to do business in the
State of Texas or fails to pay any applicable annual franchise taxes as
and when same become finally due and payable.
13.108 DISSOLUTION OR LIQUIDATION. If Tenant is a corporation or partnership,
Tenant dissolves or liquidates or otherwise fails to maintain its
corporate or partnership structure, as applicable.
With respect to the defaults described in subsections 13.103 through 13.108,
Landlord shall not be obligated to give Tenant notices of default and Tenant
shall have no right to cure such defaults.
SECTION 13.2 REMEDIES OF LANDLORD. Upon the occurrence of any default by Tenant
specified in Section 13.1 above, Landlord, at its option, may in addition to all
other rights and remedies provided herein or at law or in equity, exercise one
or more of the remedies set forth in subsections 13.201, 13.202 or 13.203 below.
13.201 TERMINATION OF THE LEASE. Upon the occurrence of a default by Tenant
hereunder, Landlord may, without judicial process, terminate this Lease
by giving written notice thereof to Tenant (whereupon all obligations
and liabilities of Landlord hereunder shall terminate) and, without
further notice and without liability, repossess the Premises. Landlord
shall be entitled to recover all loss and damage Landlord may suffer by
reason of such termination, whether through inability to relet the
Premises on satisfactory terms or otherwise, including without
limitation, the following (without duplication of any element of
damages):
(a) accrued Rent to the date of termination and Late Charges, plus
interest thereon at the rate established under Section 15.10 below from
the date due through the date paid or date of any judgment or award by
any court of competent jurisdiction, the unamortized cost of Tenant's
Improvements, brokers' fees and commissions, attorneys' fees, moving
allowances and any other costs incurred by Landlord in connection with
making or executing this Lease, the cost of recovering the Premises and
the costs of reletting the Premises (including, without limitation,
advertising costs, brokerage fees, leasing commissions, reasonable
attorneys' fees and refurbishing costs and other costs in readying the
Premises for a new tenant);
(b) the Present Value of the Rent (discounted at a rate of interest
equal to eight Percent [8%] per annum [the "Discount Rate"]) that would
have accrued under this Lease for the balance of the Lease term but for
such termination, reduced by the reasonable fair market rental value of
the Premies for such balance of the Lease term (determined from the
present value of the actual base rents, discounted at the Discount Rate,
received and to be received from Landlord's reletting of the Premises,
or, if the Premises are not relet, the base rents, discounted at the
Discount Rate, that would be received from a comparable lease and
comparable tenant for a comparable term and taking into account among
other things, the condition of the Premises, market conditions and the
period of time the Premises may reasonably remain vacant before Landlord
is able to re-lease the same to a suitable replacement tenant, it being
agreed that Landlord shall have no obligation to relet or attempt to
relet the Premises);
(c) plus any other costs or amounts necessary to compensate Landlord
for its damages.
13.202 REPOSSESSION AND RE-ENTRY. Upon the occurrence of a default by Tenant
hereunder, Landlord may, without judicial process, immediately terminate
Tenant's right of possession of the Premises (whereupon all obligations
and liability of Landlord hereunder shall terminate), but not terminate
this Lease, and, without notice, demand or liability, enter upon the
Premises or any part thereof, take absolute possession of the same,
expel or remove Tenant and any other person or entity who may be
occupying the Premises and change the locks. If Landlord terminates
Tenant's possession of the Premises under this subsection 13.202, (i)
Landlord shall have no
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obligation whatsoever to tender to Tenant a key for new locks installed
in the Premises, (ii) Tenant shall have no further right to possession
of the Premises and (iii) Landlord shall have no obligation whatsoever
to relet or attempt to relet the Premises. Landlord may, however, at
its sole option relet the Premises or any part thereof for such terms
and such rents as Landlord may in its sole discretion elect. If
Landlord elects to relet the Premises, rent received by Landlord from
such reletting shall be applied first, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord (in
such order as Landlord shall designate), second, to the payment of any
cost of such reletting, including, without limitation, refurbishing
costs, reasonable attorneys' fees, advertising costs, brokerage fees and
leasing commissions and third, to the payment of Rent due and unpaid
hereunder (in such order as Landlord shall designate), and Tenant shall
satisfy and pay to Landlord any deficiency upon demand therefor from
time to time. Landlord shall not be responsible or liable for any
failure to relet the Premises or any part thereof or for any failure to
collect any rent due upon any such reletting. No such re-entry or
taking of possession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless a written
notice of such termination is given to Tenant pursuant to subsection
13.201 above. If Landlord relets the Premises, either before or after
the termination of this Lease, all such rentals received from such lease
shall be and remain the exclusive property of Landlord and Tenant shall
not be, at any time, entitled to recover any such rental. Landlord may
at any time after a reletting elect to terminate this Lease.
13.203 CURE OF DEFAULT. Landlord may, without judicial process, enter upon the
Premises, without having any liability therefor and so whatever Tenant
is obligated to do under the terms of this Lease and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur
in effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by the negligence
of Landlord or otherwise.
13.204 CONTINUING OBLIGATIONS. No repossession of or re-entering upon the
Premises or any part thereof pursuant to subsection 13.202 or 13.203
above or otherwise and no reletting of the Premises or any part thereof
pursuant to subsection 13.202 above shall relieve Tenant of its
liabilities and obligations hereunder, all of which shall survive such
repossession or re-entering. In the event of any such repossession or
re-entering upon the Premises or any part thereof by reason of the
occurrence of a default, Tenant will continue to pay to Landlord Rent
required to be paid by Tenant.
13.205 CUMULATIVE REMEDIES. No right or remedy herein conferred upon or
reserved to Landlord is intended to be exclusive of any other right or
remedy and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or
hereafter existing at law or in equity or by statute. In addition to
the other remedies provided in this Lease, Landlord shall be entitled,
to the extent permitted by applicable law, to injunctive relief in case
of the violation, or attempted or threatened violation, of any of the
covenants, agreements, conditions or provisions of this Lease, or to a
decree compelling performance of any of the covenants, agreements,
conditions or provisions of this Lease, or to any other remedy allowed
to Landlord at law or in equity.
SECTION 13.3 DEFAULTS BY LANDLORD. Except as set forth in Section 5.4,
Landlord shall be in default under this Lease if Landlord fails to perform any
of its obligations hereunder and said failure continues for a period of thirty
(30) days after Tenant delivers written notice thereof to Landlord (to each of
the addresses required by this Section) and each mortgagee who has a lien
against any portion of the Property and whose name and address has been
provided to Tenant, provided that if such failure cannot reasonably be cured
within said thirty (30) day period, Landlord shall not be in default hereunder
if the curative action is commenced within said thirty (30) day period and is
thereafter diligently pursued until cured. Except as set forth in Section 5.4,
in no event shall (i) Tenant claim a constructive or actual eviction or that
the Premises have become unsuitable hereunder or (ii) a constructive or actual
eviction or breach of the implied warranty of suitability be deemed to have
occurred under this Lease, prior to the expiration of the notice and cure
periods provided under this Section 13.3. Any notice of a failure to perform
by Landlord shall be sent to Landlord at the addresses and to the attention of
the parties set forth in the Basic Lease Provisions. Any notice of a failure
to perform by Landlord not sent to Landlord at all addresses and/or to the
attention of all parties required under this Section and to each mortgagee who
is entitled to notice or not sent in compliance with Article 14 below shall be
of no force or effect.
SECTION 13.4 LANDLORD'S LIABILITY.
13.401 TENANT'S RIGHTS IN RESPECT OF LANDLORD DEFAULT. Tenant is granted no
contractual right of termination by this Lease, except to the extent
and only to the extent set forth in Sections 5.4, 7.1, 8.2 and 12.2
above and Rider H-2 attached hereto. In the event that Landlord
commits a default hereunder, Tenant may pursue any remedies available
to Tenant at law or in equity; provided, however, Landlord's liability
hereunder shall be limited as provided in Section 13.402 hereof. If
Tenant shall recover a money judgment against Landlord, such
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judgment shall be satisfied only out of the right, title and interest of
Landlord in the Property as the same may then be encumbered and Landlord
shall not be liable for any deficiency. If Landlord is found to be in
default hereunder by reason of its failure to give a consent that it is
required to give hereunder, Tenant's sole remedy will be an action for
specific performance or injunction. The foregoing sentence shall in no
event be construed as mandatorily requiring Landlord to give consents
under this Lease. In no event shall Landlord be liable to Tenant for
consequential or special damages by reason of a failure to perform (or a
default) by Landlord hereunder or otherwise. In no event shall Tenant
have the right to levy execution against any property of Landlord other
than its interest in the Property as hereinbefore expressly provided.
Notwithstanding the foregoing, however, Tenant shall also have the right
to satisfy a judgment against Landlord out of (a) the proceeds collected
by Landlord or which Landlord has the right to collect from any insurer
with respect to damage or destruction of all or any part of the Project;
(b) the proceeds of any sale of all or any part of Landlord's right,
title and interest in all or any part of the Project; (c) the proceeds
of any loan secured in whole or in part by the project or all or any
part of Landlord's right, title or interest in the Project; and (d) any
and all rents collected by Landlord or which Landlord has the right to
collect with respect to all or any part of the Project.
13.402 CERTAIN LIMITATIONS ON LANDLORD'S LIABILITY. Unless covered by
subsection 7.502 above or caused by Landlord's gross negligence or
willful misconduct, Landlord shall not be liable to Tenant for any
claims, actions, demands, costs, expenses, damage or liability of any
kind, (ii) caused by or arising out of fire, explosion, falling
sheetrock, gas, electricity, water, rain, snow or dampness, or
leaks in any part of the Premises, (iii) caused by or arising out of
damage to the roof, pipes, appliances or plumbing works or any damage to
or malfunction of heating, ventilation or air conditioning equipment or
(iv) caused by tenants or any persons wither in the Premises or
elsewhere in the Building (other than Common Areas) or by occupants of
property adjacent to the Building or Common Areas or by the public or by
the construction of any private, public or quasi-public work. In no
event shall Landlord be liable to Tenant for any loss of or damage to
property of Tenant or of others located in the Premises or the Building
by reason of theft or burglary.
SECTION 13.5 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. It is the intent of
Landlord and Tenant to waive all of the provisions (other than Section 17.555)
of the Texas Deceptive Trade Practices - Consumer Protection Act, Subchapter E
of Chapter 17 of the Texas Business and Commerce Code (the "DTPA") as such
provisions are or may be applicable to this Lease and the transaction evidenced
hereby. Accordingly, Landlord and Tenant hereby represent and agree as follows:
(a) Tenant represents to Landlord that Tenant is not in a significantly
disparate bargaining position with respect to this Lease and the
transaction evidenced hereby.
(b) Tenant represents to Landlord that Tenant is represented by legal
counsel in connection with this Lease.
(c) Tenant represents to Landlord that this Lease does not involve a
purchase or lease of a family residence occupied or to be occupied as
Tenant's residence and that, with respect to this Lease, Tenant is a
business consumer as that term is used in the DTPA (i.e. Tenant is an
individual, partnership or corporation who seeks or acquires by purchase
or lease, any goods or services for commercial or business use).
(d) Landlord and Tenant agree that the total consideration paid or to be
paid by Tenant over the term of this Lease exceeds $500,000.00, failing
which this part (d) shall be deemed deleted.
(e) Tenant represents to Landlord that Tenant has assets of $5 million
or more according to the most recent financial statement of Tenant
prepared in accordance with generally accepted accounting principles,
failing which Landlord and Tenant shall have their respective legal
counsel sign this Lease in the space provided on the signature page
hereof. Tenant further represents that it has knowledge and experience
in financial and business matters that enable it to evaluate the merits
and risks of this transaction.
(f) Landlord and Tenant hereby agree, for themselves, their agents,
property managers, brokers and contractors and their respective heirs,
personal representatives, successors and assigns, that all of the
provisions of the DTPA (except for Section 17.555 thereof) which
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are or may be applicable to this Lease and the transaction evidenced
hereby are hereby WAIVED, including specifically, without limitation,
all rights and remedies resulting from or arising out of any and all
acts or practices of the other party or their agents, property managers
or brokers or their respective heirs, personal representatives or
assigns in connection with this Lease and/or the transaction evidenced
hereby, regardless of whether such acts or practices occurred before or
after the execution of this Lease. The provisions of this Section shall
survive the execution and any termination of this Lease. IF PART (d)
ABOVE IS DEEMED DELETED, THIS SECTION 13.5 SHALL NOT BE APPLICABLE AND
SHALL BE WITHOUT FORCE OR EFFECT.
SECTION 13.6 LANDLORD'S LIEN. Any landlord's lien, whether statutory, common
law, contractual or otherwise, is hereby waived.
ARTICLE 14
NOTICES
Any notice or communication required or permitted in this Lease shall be given
in writing, sent by (a) personal delivery, (b) expedited delivery service with
proof of delivery, (c) United States mail, Postage Prepaid, registered or
certified mail, return receipt requested or (d) prepaid telegram (provided that
such telegram is confirmed by expedited delivery service or by mail in the
manner previously described), addressed as provided in Item 15 of the Basic
Lease Provisions and Section 13.3 above or to such other address or to the
attention of such other person as shall be designated from time to time in
writing by the applicable party and sent in accordance herewith. Notice also
may be given by telex or fax, provided each such transmission is confirmed (and
such confirmation is supported by documented evidence) as received and further
provided a telex or fax number, as the case may be, is set forth in Item 15 of
the Basic Lease Provisions. Any such notice or communication shall be deemed
to have been given either at the time of personal delivery or, in the case of
delivery service or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or in the case of telegram or telex
or fax, upon receipt. COPIES OF ANY NOTICES TO TENANT SHALL BE SENT TO PRAHBAT
GOYAL, MCAFEE ASSOCIATES, INC., 2710 WALSH AVENUE, SANTA CLARA, CALIFORNIA
95051 AND KENT H. ROBERTS, MOSELEY & STANDERFER, P.C., 500 HAMPTON COURT, 4311
OAK LAWN AVENUE, LB14, DALLAS, TEXAS 75219.
ARTICLE 15
MISCELLANEOUS PROVISIONS
SECTION 15.1 BUILDING NAME AND ADDRESS. Tenant shall not, without the
written consent of Landlord, use the name of the Building for any purpose other
than as the address of the business to be conducted by Tenant in the Premises
and in no event shall Tenant acquire any rights in or to such names. Landlord
shall have the right at any time to change the name, number or designation by
which the Building is known.
SECTION 15.2 SIGNAGE. Tenant shall not inscribe, paint, affix or display
any signs, advertisements or notices on or in the Building, except for such
tenant identification information as Landlord permits to be included or shown
on the directory in the main lobby and adjacent to the access door or doors to
the Premises. REFERENCE IS MADE TO RIDER NO. 5.
SECTION 15.3 NO WAIVER. No waiver by Landlord or by Tenant of any provision
of this Lease shall be deemed to be a waiver by either party of any other
provision of this Lease. No waiver by Landlord of any breach by Tenant shall
be deemed a waiver of any subsequent breach by Tenant of the same or any other
provision. No waiver by Tenant of any breach by Landlord shall be deemed a
waiver of any subsequent breach by Landlord of the same or any other
provision. The failure of Landlord or Tenant to insist at any time upon the
strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Lease shall not be construed as a
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waiver or a relinquishment thereof for the future. Landlord's consent to or
approval of any act by Tenant requiring Landlord's consent or approval shall
not be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act of Tenant. Tenant's consent to or approval of
any act by Landlord requiring Tenant's consent or approval shall not be deemed
to render unnecessary the obtaining of Tenant's consent to or approval of any
subsequent act of Landlord. No act or thing done by Landlord or Landlord's
agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Premises, unless done in writing signed by Landlord. The
delivery of the keys to any employee or agent of Landlord shall not operate as
a termination of this Lease or a surrender of the Premises. The acceptance of
any Rent by Landlord following a breach of this Lease by Tenant shall not
constitute a waiver by Landlord of such breach or any other breach. The payment
of Rent by Tenant following a breach of this Lease by Landlord shall not
constitute a waiver by Tenant of any such breach or any other breach. No waiver
by Landlord or Tenant of any provision of this Lease shall be deemed to have
been made unless such waiver is expressly stated in writing signed by the
waiving party. No payment by Tenant or receipt by Landlord of a lesser amount
than stated in writing signed by the waiving party. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly installment of Rent due
under this Lease shall be deemed to be other than on account of the earliest
Rent due hereunder, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
which may be available to Landlord.
SECTION 15.4 APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
SECTION 15.5 COMMON AREAS. "Common Areas" will mean all areas, spaces,
facilities and equipment (whether or not located within the Building) made
available by Landlord for the common and joint use of Landlord, Tenant and
others designated by landlord using or occupying space in the Building,
including but not limited to, tunnels, walkways, sidewalks and driveways
necessary for access to the Building, Building lobbies, landscaped areas, public
corridors, Public rest rooms, Building stairs, elevators open to the public,
service elevators (provided that such service elevators shall be available only
for tenants of the Building and other designated by Landlord), drinking
fountains and any such other areas and facilities, if any, as are designated by
Landlord), drinking fountains and any such other areas and facilities, if any,
as are designated by Landlord from time to time as Common Areas. Common areas
shall not include the Garage. "Service Corridors" shall mean all loading docks,
loading areas and all corridors that are not open to the public but which are
available for use by Tenant and others designated by Landlord. "Service Areas"
will refer to areas, spaces, facilities and equipment serving the Building
(whether or not located within the Building) but to which Tenant and other
occupants of the Building will not have access, including, but not limited to,
mechanical, telephone, electrical and similar rooms and air and water
refrigeration equipment. Tenant is hereby granted a nonexclusive right to use
the Common Areas and Service Corridors during the term of this Lease for their
intended purposes, in common with others designated by Landlord, subject to the
terms and conditions of this Lease, including, without limitation, the Rules and
Regulations. The Building, Common Areas, Service Corridors and Service Areas
will be at all times under the exclusive control, management and operation of
the Landlord. Tenant agrees and acknowledges that the Premises (whether
consisting of less than one floor or consisting of one or more full floors
within the Building) do not include, and Landlord hereby expressly reserves for
its sole and exclusive use, any and all mechanical, electrical, telephone and
similar rooms, janitor closets, elevator, pipe and other vertical shafts and
ducts, flues, stairwells, any area above the acoustical ceiling and any other
areas not specifically shown on Exhibit A as being part of the Premises.
SECTION 15.6 SUCCESSORS AND ASSIGNS. Subject to Article 11 hereof, all of the
covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
SECTION 15.7 BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker named in item 11 of the Basic Lease Provisions and
that it knows of no other real estate brokers or agents who are or might be
entitled to a commission in connection with this Lease. Tenant agrees to
indemnify and hold harmless Landlord from and against any liability or claim,
whether meritorious or not, arising in respect to brokers and/or agents not so
named. Landlord has agreed to pay the fees of the broker (but only the broker)
named in Item 11 of the Basic Lease Provisions to the extent that Landlord has
agreed to do so pursuant to a written agreement with such broker.
SECTION 15.8 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the application of such provisions to other persons or circumstances
and the remainder of this lease shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
SECTION 15.9 EXAMINATION OF LEASE. Submission by Landlord of this instrument
to Tenant for examination or signature does not constitute a reservation of or
option for lease. This Lease will be effective as a lease or otherwise only
upon execution by and delivery to both Landlord and Tenant.
SECTION 15.10 INTEREST ON TENANT'S OBLIGATIONS. Any amount due from Tenant to
Landlord which is not paid within thirty (30) days after the date due shall
bear interest at the lower of (i) eighteen percent (18%) per annum or (ii) the
highest rate from time to time allowed by applicable law, from the date such
payment is due until paid, but the payment of such interest shall not excuse or
cure the default.
SECTION 15.11 TIME. Time is of the essence in this Lease and in each and all
of the provisions hereof. Whenever
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a period of days is specified in this Lease, such period shall refer to
calendar days unless otherwise expressly stated in this Lease.
SECTION 15.12 DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as singular. If more
than one person is named as Tenant, the obligations of such persons are joint
and several. The headings and titles to the articles, sections and subsections
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
SECTION 15.13 AUTHORITY OF TENANT. Tenant and each person signing this Lease
on behalf of Tenant represents to Landlord as follows: Tenant, if a
corporation, is duly incorporated and legally existing under the laws of the
state of its incorporation and is duly qualified to do business in the State of
Texas. Tenant, if a partnership or joint venture, is duly organized under the
Texas Uniform Partnership Act. Tenant, if a limited partnership, is duly
organized under the applicable limited partnership act of the State of Texas
or, if organized under the laws of a state other than Texas, is qualified under
said Texas limited partnership act. Tenant has all requisite power and all
governmental certificates of authority, licenses, permits, qualifications and
other documentation to lease the Premises and to carry on its business as now
conducted and as contemplated to be conducted. Each person signing on behalf of
Tenant is authorized to do so. The foregoing representations in this Section
15:13 shall also apply to any corporation, partnership, joint venture or
limited partnership which is a general partner or joint venturer of Tenant.
SECTION 15.14 FORCE MAJEURE. Whenever a period of time is herein prescribed
for action to be taken by Landlord or Tenant, the party taking the action shall
not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of such party; provided, however, in no event shall the
foregoing apply to the financial obligations of either Landlord or Tenant to
the other under this Lease, including Tenant's obligation to pay Basic Annual
Rent, Additional Rent or any other amount payable to Landlord hereunder.
SECTION 15.15 RECORDING. This Lease shall not be recorded. However, Landlord
shall have the right to record a short form or memorandum hereof, at Landlord's
expense, at any time during the term hereof and, if requested, Tenant agrees
(without charge to Landlord) to join in the execution thereof.
SECTION 15.16 NO REPRESENTATIONS. Landlord and Landlord's agents have made no
warranties, representations or promises (express or implied) with respect to
the Premises, the Building or any other part of the Property (including,
without limitation, the condition, use or suitability of the Premises, the
Building or the Property), except as herein expressly set forth and no rights,
easements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this Lease.
SECTION 15.17 PARKING. If the Property includes a Garage, there shall be an
Exhibit F attached hereto, which shall set forth the agreements between
Landlord and Tenant relating to parking. If there is no Garage included in the
Property, then the remaining provisions of this Section shall be applicable
with respect to parking. The parking areas shall be designated for automobile
parking on a non-exclusive basis for all Property tenants (including Tenant) and
their respective employees, customers, invitees and visitors. Parking and
delivery areas for all vehicles shall be in accordance with parking regulations
established from time to time by Landlord, with which Tenant agrees to conform.
Tenant shall only permit parking by its employees, customers and agents of
automobiles in appropriate designated parking areas.
TENANT COVENANTS THAT ALL TIMES DURING THE TERM OF THE LEASE THAT TENANT WILL
NOT USE IN EXCESS OF 3.55 PARKING SPACES FOR EACH ONE THOUSAND (1,000) RENTABLE
SQUARE FEET IN THE PREMISES FOR TENANT'S EMPLOYEES, INVITEES AND AGENTS.
SECTION 15.18 ATTORNEYS' FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action (including, without limitation, all costs of
appeal) and such amount shall be included in any judgment rendered in such
proceeding.
SECTION 15.19 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on the Property or
lands adjacent to the Property shall in no way affect this Lease or impose any
liability on Landlord (even if Landlord is the adjacent land owner).
SECTION 15.20 RELOCATION.
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[TEXT DELETED]
SECTION 15.21 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease.
SECTION 15.22 ENTIRE AGREEMENT. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease and no prior agreement, understanding or representation pertaining to any
such matter shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Lease, as of the date first written in this Lease.
<TABLE>
<S> <C>
For purposes of Section 13.5(e) LANDLORD
only, Landlord's attorney and
Tenant's attorney have executed Blue Lake Partners, Ltd., A Texas Limited partnership
this Lease:
By: Granite Properties, Inc., a general partner
- ----------------------------
Attorney for Landlord By: /s/ JAMES H. KIRCHHOFF
------------------------------
Name: James H. Kirchhoff
----------------------------
Title: Vice President
---------------------------
TENANT
McAfee Associates, Inc., a Delaware Corporation
------------------------------------------------
[SIGNED] By: PRABHAT K. GOYAL
- ---------------------- ------------------------------
Attorney for Tenant Name: Prabhat K. Goyal
----------------------------
Title: CFO
---------------------------
</TABLE>
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EXHIBIT A
THE PREMISES
[MAP]
<PAGE> 25
EXHIBIT A
THE PREMISES
[MAP]
<PAGE> 26
EXHIBIT "B"
BEING a tract of land, situated in the Noah Good Survey, Abstract No. 520 band
being all of Lot 1, Block C of The Centre, an addition to the City of Farmers
Branch, Texas, as recorded in Volume 79206, Page 0358 of the Deed Records for
all of Dallas County, Texas, and being more particularly described as follows:
BEGINNING at a point in the West line of Greenview Boulevard (a 74' R.O.W.),
said point being South 381.52 feet from the most Westerly corner clip of the
South line of Alpha Road, (an 80' R.O.W.);
THENCE South along the said West line of Greenview Boulevard, a distance of
484.00 feet to a point for corner;
THENCE 45 00'00" W, a distance of 14.14 feet to a point in the North line of
McEwen Road (a 60' R.O.W.);
THENCE West along the said north line of McEwen Road, a distance of 472.03 feet
to the beginning of a curve to the left having a central angle of 53 07'00" and
a radius of 202.50 feet;
THENCE along said curve in a Southwesterly direction, a distance of 181.73 feet
to a point for corner in the said North line of McEwen Road;
THENCE North, a distance of 574.96 feet to a point for corner;
THENCE East a distance of 444.00 feet to the PLACE OF BEGINNING and containing
224,020 square feet or 5.1248 acres of land, more or less.
Page 1 of 2
<PAGE> 27
EXHIBIT B-1
PROJECT LEGAL DESCRIPTION
[MAP]
<PAGE> 28
EXHIBIT C
RENTABLE AREA CALCULATIONS
The rentable area of The Premises is The Agreed Rentable Area of The
Premises set forth in Item 2b of the Basic Lease Provisions. Rentable areas
shown in the Basic Lease Provisions and The Riders which are a part of This
Lease are agreed to be as shown regardless of minor variations resulting from
actual construction. All other rentable area calculations shall be calculated
in accordance with The remaining provisions of This Exhibit C.
The term "Rentable Area" as used in the lease shall mean:
(a) As to each floor of the Building in which the Premises are located
and on where the entire space rentable to tenants is or will be leased to one
tenant (hereinafter referred to as "Single Tenant Floor"), Rentable Area shall
be: (i) the entire area bounded by the inside surface of the four exterior
glass walls (or the inside surface of the permanent exterior wall where there
is no glass) on such floor, including all areas used for elevator lobbies,
corridors, special stairways, elevators, restrooms, mechanical rooms,
electrical rooms and telephone closets without deduction for columns and other
structural portions of the Building or vertical Penetrations that are included
for the special use of Tenant but excluding the area contained within the
exterior walls of the Building stairs, fire towers, vertical ducts, elevator
shafts, flues, vents stacks and pipe shafts, plus (ii) a prorata portion of the
area covered by the elevator lobbies, corridors, restrooms, mechanical rooms
and telephone closets in the Building not located on the Single Tenant Floor
but for such Tenant's use and/or benefit.
(b) As to each floor of the Building in which the Premises are located
and on which space is or will be leased to more than one tenant (hereinafter
referred to as "Multi-Tenant Floor") Rentable Area attributable to each such
lease shall be the total of (i) Usable Area defined as the entire area included
within the Premises covered by such lease, being the area bounded by the inside
surface of any exterior glass walls (or the inside surface of the permanent
exterior wall where there is no glass) of the Building bounding such Premises,
the exterior of all walls separating such Premises from any public corridors or
other public areas on such floor and the centerline of all walls separating
such Premises from other areas leased or to be leased to other tenants on such
floor, and (ii) a prorata portion of the area covered by the elevator lobbies,
corridors, restrooms, mechanical rooms, electrical rooms and telephone closets
in the Building.
(c) For purposes of establishing the Tenant's proportionate share
based on the Percentage of Rentable Areas of the Premises to the Rentable area
of the Building, the Rentable Area of the Premises and Rentable Area of the
Building are deemed to be as set forth in this provision.
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EXHIBIT D
WORK LETTER
PLANS AGREED UPON/FINISH ALLOWANCE
Blue Lake Partners, Ltd., a Texas limited partnership ("Landlord"), and McAfee
Associates, Inc., a Delaware Corporation ("Tenant") have entered into that
certain Lease Agreement dated [illegible] 14, 1996 (the "Lease") for the lease
of certain space in the office building located at 4099 McEwen Road in Dallas,
Texas (the "Building"). Pursuant to subsection 1.201 of the Supplemental Lease
Provisions, Landlord and Tenant are entering into this Work Letter (this
"Agreement"). Any capitalized term not defined herein shall have the meaning
assigned to it in the Supplemental Lease Provisions. Landlord and Tenant
mutually agree as follows:
1. Plans.
1.1 Approved Plans. Landlord and Tenant have agreed that the Premises will
be improved in accordance with the plans and specifications (or description
thereof) approved and initialed by Landlord and Tenant (the "Construction
Plans" and all improvements required thereby, "Tenant's Improvements"). Tenant
represents to Landlord that Tenant has furnished to Landlord and the party
preparing the Construction Plans all information necessary such that (following
construction of Tenant's Improvements in accordance with the Construction
Plans) Tenant, the Premises and Tenant's Improvements will be in compliance
with the Disability Acts. Tenant shall indemnify and hold harmless Landlord
from and against any and all claims, liabilities and expenses (including,
without limitation reasonable attorneys' fees and expenses) incurred by or
asserted against Landlord by reason of or in connection with any violation of
the Disability Acts by Tenant and/or Tenant's Improvements. The foregoing
indemnity shall not include any claims, liabilities or expenses (including
reasonable attorneys' fees and expenses) arising out of the negligence or
gross negligence of Landlord or Landlord's employees, agents or contractors.
1.2 Changes to Approved Plans. If any re-drawing or re-drafting of either
the Space Plan or the Construction Plans is necessitated by Tenant's requested
changes (all of which shall be subject to Landlord's approval), the expense of
any such re-drawing or re-drafting required in connection therewith and the
expense of any work and improvements necessitated by such re-drawing or
redrafting will be charged to Tenant.
1.3 Coordination of Planners and Designers. If Tenant shall arrange for
interior design services, whether with Landlord's space planner or any other
planner or designer, it shall be Tenant's responsibility to cause necessary
coordination of its agents' efforts with Landlord's agents to ensure that no
delays are caused to either the planning or construction of the Tenant's
Improvements.
2. Construction and Cost of Tenant's Improvements.
2.1 Construction Obligation and Finish Allowance. Landlord agrees to
construct, based upon the lowest of five (5) competitive bids for such work,
Tenant's Improvements, at Tenant's cost and expense; provided, however,
Landlord shall provide Tenant with an allowance up to $7.00 per square foot of
Agreed Rentable Area (the "Finish Allowance"), which allowance shall be
disbursed by Landlord, from time to time, for payment of (in the following
priority) (i) the contract sum required to be paid to the general contractor
engaged to construct Tenant's Improvements (the "Contract Sum"), (ii) the fees
of the preparer of the Construction Plans and (iii) payment of the Construction
Management Fee (hereinafter defined). Upon completion of Tenant's Improvements
and in consideration of Landlord administering the construction of Tenant's
Improvements, Tenant agrees to pay Landlord a fee equal to five percent (5%) of
the Contract Sum to construct Tenant's Improvements (the "Construction
Management Fee") (the foregoing costs are collectively referred to as the
"Permitted Costs").
2.2 Excess Costs. If the sum of the Permitted Costs exceeds the Finish
Allowance, then Tenant shall pay all such excess costs ("Excess Costs"),
provided, however, Landlord will, prior to the commencement of construction of
Tenant's Improvements, advise Tenant of the Excess Costs, if any, and the
Contract Sum. Tenant shall have two (2) business days from and after the
receipt of such advice within which to approve or disapprove the Contract Sum
and Excess Costs. If Tenant fails to approve same by the expiration of the
second such business day, then Tenant shall be deemed to have approved the
Proposed Contract Sum and Excess Costs. If Tenant disapproves the Contract Sum
and Excess Costs within such two (2) business day period, then Tenant shall
either reduce the scope of Tenant's Improvements such that there shall be no
Excess Costs or, at Tenant's option, Landlord shall obtain two (2) additional
bids, provided that each day beyond such two (2) business day period and until
the rebid is accepted by Tenant shall constitute a Tenant Delay hereunder.
Subject to the last sentence of this subsection, the foregoing process shall
continue until a Contract Sum and resulting Excess Costs, if any, are accepted
or deemed accepted by Tenant. Landlord and Tenant must approve (or be deemed to
have approved the Contract Sum for the construction of Tenant's Improvements in
writing prior to the commencement of construction. If Tenant fails to accept a
Contract Sum by November 25, 1996, Landlord shall have the right to terminate
this Lease.
2.3 Liens Arising from Excess Costs. Tenant agrees to keep the Premises
free from any liens arising out of nonpayment of Excess Costs. In the event
that any such lien is filed and Tenant, within ten (10) days following such
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filing fails to cause same to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause the same to be
released by such means as it in its sole discretion deems proper, including
payment of or defense against the claim giving rise to such lien. All sums
paid by Landlord in connection therewith shall constitute Rent under the Lease
and a demand obligation of Tenant to Landlord and such obligation shall bear
interest at the rate provided for in Section 15.10 of the Supplemental Lease
Provisions from the date of payment by Landlord until the date paid by Tenant.
2.4 Construction Deposit. Tenant shall remit to Landlord an amount (the
"Prepayment") equal to the projected Excess Costs, if any, within five (5)
working days after commencement of construction by Landlord. On or prior to
the Commencement Date, Tenant shall deliver to Landlord the actual Excess
Costs, minus the Prepayment previously paid. Failure by Tenant to timely
tender to Landlord the full Prepayment shall permit Landlord to stop all work
until the Prepayment is received. All sums due Landlord under this Section 2.4
shall be considered Rent under the terms of the Lease and nonpayment shall
constitute a default under the Lease and entitle Landlord to any and all
remedies specified in the Lease.
3. Delays. Delays in the completion of construction of Tenant's
Improvements or in obtaining a certificate of occupancy, if required by the
applicable governmental authority, caused by Tenant, Tenant's Contractors
(hereinafter defined) or any person, firm or corporation employed by Tenant or
Tenant's Contractors shall constitute "Tenant Delays". In the event that
Tenant's Improvements are not Substantially Complete by the Commencement Date
referenced in Item 8 of the Basic Lease Provisions, then the Commencement Date
referenced in Item 8 shall be amended to be the Adjusted Substantial Completion
Date (hereinafter defined) and the Expiration Date referenced in Item 9 of the
Basic Lease Provisions shall be adjusted forward by the same number of days as
is the Commencement Date, so that the term of the Lease will be the term set
forth in Item 7 of the Basic Lease Provisions. The Adjusted Substantial
Completion Date shall be the date Tenant's Improvements are Substantially
Complete, adjusted backward, however, by one day for each day of Tenant Delays,
if any. The foregoing adjustments in the Commencement Date and the Expiration
Date shall be Tenant's sole and exclusive remedy in the event Tenant's
Improvements are not Substantially Complete by the initial Commencement Date
set forth in Item 8 of the Basic Lease Provisions.
4. Substantial Completion and Punch List. The terms "Substantial
Completion" and "Substantially Complete," as applicable, shall mean when
Tenant's Improvements are completed in accordance with the Construction Plans
subject only to minor items ("Punch List Items") which may be completed in a
manner so that Tenant can reasonably use the Premises for the Permitted Use (as
described in Item 12 of the Basic Lease Provisions) without material
interruption. When Landlord considers Tenant's Improvements to be
Substantially Complete, Landlord will notify Tenant and within two (2) business
days thereafter, Landlord's representative and Tenant's representative shall
conduct a walk-through of the Premises and identify any necessary touch-up work
repairs and minor completion items as are necessary for final completion of
Tenant's Improvements. Neither Landlord's representative nor Tenant's
representative shall unreasonably withhold his agreement on punch list items.
Landlord will use reasonable efforts to cause the contractor to complete all
punch list items within thirty (30) days after agreement thereon.
5. Tenant's Contractors. If Tenant should desire to enter the Premises or
authorize its agent to do so prior to the Commencement Date of the Lease, to
perform approved work not requested of the Landlord, Landlord shall permit such
entry if:
(a) Tenant shall use only such contractors which Landlord shall
approve in its reasonable discretion and Landlord shall have
approved the plans to be utilized by Tenant, which approval will
not be unreasonably withheld or delayed; and
(b) Tenant, its contractors, workmen, mechanics, engineer, space
planners or such others as may enter the Premises (collectively,
"Tenant's Contractors"), work in harmony with and do not in any
way disturb or interfere with Landlord's space planners,
architects, engineers, contractors, workmen, mechanics or other
agents or independent contractors in the performance of their
work (collectively, "Landlord's Contractors"), it being
understood and agreed that if entry of Tenant or Tenant's
Contractors would cause, has caused or is causing a material
disturbance to Landlord or Landlord's Contractors, then Landlord
may, with notice, refuse admittance to Tenant or Tenant's
Contractors causing such disturbance; and
(c) Tenant (notwithstanding the first sentence of subsection 7.201
of the Supplemental Lease Provisions), Tenant's Contractors and
other agents shall provide landlord sufficient evidence that
each is covered under such Workers' Compensation, public
liability and property damage insurance as Landlord may
reasonably request for its protection.
Landlord shall not be liable for any injury, loss or damage to any of Tenant's
installations or decorations made prior to the Commencement Date and not
installed by Landlord's contractors. Tenant shall indemnify and hold harmless
Landlord and Landlord's Contractors from and against any and all costs,
expenses, claims, liabilities and causes of action arising out of or in
connection with work performed in the Premises by or on behalf of Tenant (but
excluding work performed by Landlord or Landlord's Contractors). Landlord is
not responsible for the function and maintenance of improvements, equipment,
cabinets or fixtures not installed by Landlord. Such entry by Tenant and
Tenant's Contractors pursuant to this Section 5 shall be deemed to be under all
of the terms, covenants, provisions and
26
<PAGE> 31
conditions of the Lease except the covenant to pay Rent.
6. Construction Representatives. Landlord's and Tenant's representatives for
coordination of construction and approval of change orders will be as follows,
provided that either party may change its representative upon written notice to
the other:
LANDLORD'S REPRESENTATIVE:
NAME Dennis Kelly or Jim Barron
-------------------------------
ADDRESS 4099 McEwen, Suite 370
-------------------------------
Dallas, Texas 75244
-------------------------------
PHONE (972) 386-6810
-------------------------------
TENANT'S REPRESENTATIVE:
NAME Bill Beecher Copies To:
------------------------------- Evan Collins
ADDRESS 5944 Luther Lane 2710 Walsh Avenue
------------------------------- Santa Clara,Ca
Dallas, Texas 75225 408-653-3140
-------------------------------
PHONE 361-1014
-------------------------------
Kent Roberts
500 Hampton Court
4311 Oak Lawn Avenue
Dallas, Texas 75219
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement simultaneously with the execution and delivery of the Lease
LANDLORD
Blue Lake Partners, Ltd., a Texas Limited partnership
By: Granite Properties, Inc., a general partner
By: /s/ JAMES H. KIRCHHOFF
-------------------------
Name: James H. Kirchhoff
-------------------------
Title: Vice President
-------------------------
TENANT
McAfee Associates, Inc., a Delaware Corporation
-------------------------------------------------
By: /s/ PRABHAT K. GOYAL
-------------------------
Name: Prabhat K. Goyal
-------------------------
Title: CFO
-------------------------
27
<PAGE> 32
EXHIBIT E
ACCEPTANCE OF PREMISES MEMORANDUM
This Acceptance of Premises Memorandum is being executed pursuant to that
certain Lease Agreement (the "Lease") dated the ____ day of __________, 19__
between Blue Lake Partners, Ltd., a Texas limited partnership and McAfee
Associates, Inc., a Delaware Corporation ("Tenant"), pursuant to which Landlord
leased to Tenant and Tenant leased from Landlord certain space in the office
building located at 4099 McEwen Road in Dallas, Texas (the "Building").
Landlord and Tenant hereby agree that:
1. Except for the Punch List Items (as shown on the attached Punch List),
Landlord has fully completed the construction work required under the
terms of the Lease and the Work Letter attached thereto.
2. The Premises are tenantable, Landlord has no further obligation for
construction (except with respect to Punch List Items) and Tenant
acknowledges that the Building, the Premises and Tenant's Improvements
are satisfactory in all respects, except for the Punch List Items and
are suitable for the permitted Use.
3. The Commencement Date of the Lease is the ____ day of _________, 19__.
If the date set forth in Item 8 of the Basic lease Provisions is
different than the date set forth in the preceding sentence, then Item 8
of the Basic lease Provisions is hereby amended to be the Commencement
Date set forth in the preceding sentence.
4. The Expiration Date of the Lease is the ____ day of _________, 19__. If
the date set forth in Item 9 of the Basic Lease Provisions is different
than the date set forth in the preceding sentence, then Item 9 of the
Basic Lease Provisions is hereby amended to be the Expiration Date set
forth in the preceding sentence.
5. Tenant acknowledges receipt of the current Rules and Regulations for the
Building.
6. Tenant represents to Landlord that Tenant has obtained a Certificate of
Occupancy covering the Premises.
7. All capitalized terms not defined herein shall have the meaning
assigned to them in the Lease.
Agreed and Executed this ____ day of _________, 19__.
LANDLORD
Blue Lake Partners, Ltd., a Texas limited partnership
By: Granite Properties, Inc., general partner
By: __________________________________
James H. Kirchhoff
----------------------------------
Vice President
----------------------------------
TENANT
McAfee, Inc., a California Corporation
-------------------------------------------------
By: /s/ PRABHAT K. GOYAL
----------------------------------
Name: Prabhat K. Goyal
----------------------------------
Title: CFO
----------------------------------
28
<PAGE> 33
RIDER NO. 1
BUILDING RULES AND REGULATIONS
1. The operating hours for the Building shall be as follows:
(A) Mondays - Fridays (except State and Federal holidays)
7:00 A.M. - 7:00 P.M.
(B) Saturdays - 7:00 A.M. - 1:00 P.M.
Landlord agrees to furnish to Tenant two (2) suite keys and two
(2) after-hour building keys without charge. Additional keys
will be furnished at a nominal charge.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Premises for
Tenant to Landlord for Landlord's approval and supervision before
performance of any contractual service. This provision shall apply to
all work performed in the Building including installation of telephones,
telegraph equipment, electrical devices and attachments and
installations of any nature affecting floors, walls, woodwork, trim,
windows, ceilings equipment or any other physical portion of the
Building.
3. No Tenant shall at any time occupy any part of the Building as sleeping
or lodging quarters.
4. Tenant shall not place, install or operate on Premises or in any part of
the Building any engine, stove or machinery or conduct mechanical
operations or cook thereon or therein, or place or use in or about
Premises any explosives, gasoline, kerosene, oil, acids, caustics, or
any other inflammable, explosive, or hazardous material without prior
written consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from Tenant's area or public rooms
regardless of whether such loss occurs when area is locked against entry
or not.
6. No birds, fowl, dogs, animals or pets of any kind shall be brought into
or kept in or about the Premises.
7. Landlord will not permit entrance to Tenant's offices by use of pass key
controlled by Landlord to any person at any time without permission by
Tenant, except employees, contractors, or service personnel directly
supervised by Landlord.
8. None of the entries, passages, doors, hallways or stairways shall be
blocked or obstructed, or any rubbish, litter, trash or material of any
nature placed, emptied or thrown into these areas, nor shall such areas
be used at any time except for ingress or egress by Tenant, Tenant's
agents, employees or invitees.
9. The water closets, restrooms and other water fixtures shall not be used
for any purpose other than those for which they were constructed. No
person shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb the occupants of the Building by the use of any
musical instruments, the making of noxious odors or mucous noises, or
other unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
12. Tenant shall not store any materials, equipment, products, by-products,
rubbish, refuse, etc., outside the Premises.
13. Tenant shall comply with all local and federal codes and ordinances.
14. Tenant and its agents, employees and invitees shall observe and comply
with the driving and parking signs and markers on the Building grounds
and surrounding areas.
15. Corridor and passage doors, when not in use, shall be kept closed.
16. All deliveries of other than hand-carried items must be made via the
service entrances and service elevators. Any deliveries of an abnormally
large, bulky or voluminous nature, such as furniture, office machinery,
file cabinets, etc., can only be made after obtaining approval from
Landlord and at those times specified by Landlord, before 7:30 A.M. and
after 5:30 P.M. on weekdays or on Saturday or Sunday. A certificate of
insurance from the moving company showing that the movers have workman's
compensation and have named the building owner as additionally insured
must be delivered to the management office 24 hours prior to the
delivery.
17. The common areas of the Building including lobbies, corridors,
stairwells, and restrooms are currently designated as non-smoking.
18. The complex currently employs a 24-hour a day, seven day a week courtesy
patrol and Landlord agrees to provide such service in such a manner as
is customary in buildings of comparable size, quality and in the general
vicinity of the complex.
29
<PAGE> 34
RIDER NO. 2
RENEWAL OPTION
1. If, and only if, on the Expiration Date and the date Tenant notifies
Landlord of its intention to renew the term of this Lease (as provided
below), (i) Tenant is not in default under this Lease, (ii) Tenant then
occupies and the Premises then consist of at least all the original
Premises and (iii) this Lease is in full force and effect, then Tenant,
but not any assignee or subtenant of Tenant, shall have and may exercise
an option to renew this Lease for one (1) additional term of five (5)
years (the "Renewal Term") upon the same terms and conditions contained
in this Lease with the exceptions that (x) this Lease shall not be
further available for renewal and (y) the rental for the Renewal Term
shall be the "Renewal Rental Rate", but in no event will the Base Annual
Rent be less than the Base Annual Rent for the last twelve (12) calendar
months of the initial term of the Lease. The Renewal Rental Rate is
hereby defined to mean the then prevailing rents (including, without
limitation, those similar to the Basic Annual Rent and Additional Rent)
payable by renewal tenants having a credit standing substantially
similar to that of Tenant, for properties of equivalent quality, size,
utility and location as the Premises, including any additions thereto,
located within the area described below and leased for a renewal term
approximately equal to the Renewal Term. The Renewal Rental Rate will
take into consideration the tenant inducements offered in the renewal
transactions considered by Landlord in determining the Renewal Rental
Rate. THE TENANT'S OPERATING EXPENSE STOP AND TENANT'S REAL ESTATE TAXES
STOP SHALL BE ADJUSTED TO BE THE ACTUAL SUCH EXPENSES FOR THE YEAR THE
RENEWAL OCCURS.
2. If Tenant desires to renew this Lease, Tenant must notify Landlord in
writing of its intention to renew on or before the date which is at
least six (6) months but no more than twelve (12) months prior to the
Expiration Date. Landlord shall, within the next sixty (60) days, notify
Tenant in writing of Landlord's determination of the Renewal Rental Rate
and Tenant shall, within the next twenty (20) days following receipt of
Landlord's determination of the Renewal Rental Rate, notify Landlord in
writing of Tenant's acceptance or rejection of Landlord's determination
of the Renewal Rental Rate. If Tenant timely notifies Landlord of
Tenant's acceptance of Landlord's determination of the Renewal Rental
Rate, this Lease shall be extended as provided herein and Landlord and
Tenant shall enter into an amendment to this Lease to reflect the
extension of the term and changes in Rent in accordance with this Rider.
If (x) Tenant timely notifies Landlord in writing of Tenant's rejection
of Landlord's determination of the Renewal Rental Rate or (y) Tenant
does not notify Landlord in writing of Tenant's acceptance or rejection
of Landlord's determination of the Renewal Rental Rate within such
twenty (20) day period, this Lease shall end on the Expiration Date and
Landlord shall have no further obligations or liability hereunder.
3. The area with respect to which the Renewal Rental Rate will be
determined is North Dallas/LBJ Corridor.
Initial:
Landlord: [initialed]
Tenant: [initialed]
30
<PAGE> 35
RIDER NO. 3
TENANT'S RIGHT OF FIRST REFUSAL
Prior to leasing any of the area described on Schedule A attached to this Rider
("Right of First Refusal Space"), Landlord shall deliver to Tenant a written
statement ("Statement") which shall reflect Landlord's and the prospective
tenant's agreement with respect to rent, term, finish allowances, tenant
inducements and the description of the applicable Right of First Refusal Space.
Tenant shall have five (5) business days after receipt of the Statement within
which to notify Landlord in writing that it desires to lease the applicable
Right of First Refusal Space upon the terms and conditions contained in the
Statement. Failure by Tenant to notify Landlord within such five (5) business
day period shall be deemed an election by Tenant not to lease the applicable
Right of First Refusal Space at that time and Landlord shall have the right to
lease such space to the proposed tenant upon the terms and conditions contained
in the Statement. Should a lease not be consummated with the proposed tenants,
the aforementioned rights will remain in full force and effect.
Notwithstanding the above, Tenant's right of opportunity on the First Right of
Refusal Space will be subordinate to any and all existing renewal, expansion
and refusal rights of existing tenants.
Furthermore, Landlord shall have the right to renew, expand, or extend the
lease of any existing tenant in the Building without offering such premises to
Tenant pursuant to this Rider No. 3.
Landlord agrees to use its best efforts to provide Tenant with as much notice
as possible as it relates to non-renewing tenants.
Initial:
Landlord: [initialed]
Tenant: [initialed]
31
<PAGE> 36
RIDER NO. 4
CAP ON CERTAIN OPERATING EXPENSES
For the purpose of determining Additional Rent, Permitted Capital Past Through
Costs and Operating Expenses (exclusive of the Non-Capped Operating Expenses,
as hereinafter defined) for any calendar year shall not be increased over the
amount of Operating Expenses (exclusive of Non-Capped Operating Expenses)
during the calendar year in which the term of this Lease commences by more than
eight percent (8%) per year on a cumulative basis, compounded annually. It is
understood and agreed that there shall be no cap on Non-Capped Operating
Expenses, which are hereby defined to mean all Utility Expenses, Real Estate
Taxes and Insurance Premiums.
Initial:
Landlord: [INITIALED]
----------------------
Tenant: [INITIALED]
---------------------
32
<PAGE> 37
RIDER NO 5
---
SIGNAGE
At the point and time Tenant leases and occupies one third (1/3) of the building
or more, Landlord will grant Tenant the right, at Tenant's sole cost and
expense, to erect and install one (1) exterior Building type sign on the south
elevation of the Building in a location to be approved by Landlord. Landlord
reserves the right to approve style, type of construction, color, size and
location of the sign. Landlord's approval, shall be submitted to Tenant in
writing after receipt by Landlord of Tenant's request accompanied by drawings,
schematics and site location for said signage together with any applicable plans
and specifications for review. Installation shall be subject to: (i) Tenant's
receipt of all necessary governmental permits and approvals, (ii) Landlord's
written consent and (iii) supervision by Landlord of installation. Installation
shall include restoration of the Building's grounds and common areas and all
expenses associated with the same to be paid by Tenant.
Tenant agrees to remove any exterior building signage installed by Tenant at
Tenant's sole cost and expense when the Premises are vacated or the Lease Term
is terminated or otherwise cancelled and to restore the exterior of the Building
and Building grounds and common areas to their original condition.
Initial:
Landlord: [INITIALED]
--------------
Tenant: [INITIALED]
--------------
33
<PAGE> 38
RIDER NO. 6
GENERAL JANITORIAL SPECIFICATIONS
Janitorial services are to be performed nightly Monday through Friday or
Sunday through Thursday, five (5) days per week. Services to be furnished
shall include, but not be limited to: all office areas, including service
areas, all restrooms (private and public), all stairways, all elevators and
elevator lobbies, all entrance walkways (plaza), truck loading/receiving area,
active storage/files areas and janitorial areas.
Areas not serviced are: Mechanical and electrical equipment rooms, mechanical
and maintenance shops (maintenance offices should be cleaned), elevator pits,
dead storage areas and garage areas. While areas listed in this paragraph are
not included in regular services, they will be swept, mopped or cleaned on
request and handled on a work order as special work.
I. GENERAL CLEANING, FIVE DAYS PER WEEK:
A. All carpeting will be vacuumed and spot cleaned. Chair mats
should be lifted and areas underneath vacuumed monthly.
B. Empty and clean all wastebaskets, sand urns and/or jardinieres,
receptacles, ash trays, etc.; damp dust or wet wipe and dry
polish as necessary. (Liners will be placed in receptacles and
wastebaskets and replaced as needed.)
C. Remove all trash and wastepaper to designated collection points.
Bag trash and non-bag trash will be placed in designated area
and either removed nightly or placed in trash compactor (to be
designated by manager).
D. All horizontal surfaces of desks, other furniture and file
cabinets should be dusted with clean dry cloth as necessary.
Personal items, papers, folders, etc. will not be moved in order
to avoid misplacement or breakage. NOTE: Computer keyboards
will not be dusted.
E. All chairs will be dusted and replaced around desks and
conference tables.
F. Drinking fountains will be cleaned and disinfected, and all
exposed metal shall be polished and kept free of foreign matter.
G. All interior doors and partition panels will be cleaned to
remove smudge marks and dust.
H. All glass doors, windows around front and rear entrances and
glass panels will be cleaned and polished.
I. All tenant's entrance doors, frames, glass and adjacent metal
will be cleaned and polished. Partition glass will be spot
cleaned to remove smudges and fingerprints.
J. Vacuum entrance mats nightly.
K. All thresholds shall be cleaned and polished nightly.
L. Wash and polish all restroom mirrors, powder shelves, bright
work, dispensers, etc.
M. Clean and sanitize all restroom fixtures. Toilet, wash basins,
urinals, shower walls, and floors to be kept free of scale and
mildew. Wash and sanitize top and underside of toilet seats and
benches.
N. Refill soap, towel, and tissue containers, and holders.
O. Wipe down toilet partitions and counters and walls around wash
basins.
P. Mop all restroom and shower room floors.
Q. Mop hard surfaced floors.
R. Mop outside main lobby entrances.
S. Sweep outside loading dock truck area.
T. Dust mop and sweep loading dock and service elevator area.
page 1 of 4
<PAGE> 39
U. Wipe clean window sills.
V. Empty and sanitize all receptacles and sanitary disposals.
W. Clean building directory and remove fingerprints and smudges.
X. All counter tops of wet bar areas will be wiped down nightly and
sinks will be cleaned if free of dishes.
Y. Blackboards and chalk trays will be cleaned as requested.
Z. Clean all lobby furniture, remove fingerprints and smudges from
metal and glass trim on furniture.
AA. Sweep exterior porch access to buildings.
II. GENERAL CLEANING - WEEKLY
A. Vacuum upholstery in executive areas.
B. Spray buff hard tile floors.
C. Machine scrub, wash, buff all resilient tile, and concrete
floors.
D. Wash down with disinfectant all ceramic tile walls, toilet
partitions, ledges and sills in restrooms.
E. Wash all door glass and sidelights.
F. Paneled walls will be dusted with a clean dry cloth.
G. Loading dock will be hosed down and cleaned of all foreign
matter.
H. Sweep and dust service elevator lobbies.
III. GENERAL CLEANING - MONTHLY
A. Dust all cabinets, files, chairs, chair rails, paneling, sills,
trim and baseboards.
B. Dust pictures, frames and picture glass.
C. Dust exterior of lighting fixtures and air conditioning grills.
D. Venetian blinds are to be dusted or vacuumed.
E. Remove high cobwebs from all entry areas.
IV. GENERAL CLEANING - QUARTERLY
A. Dust and spot clean where necessary all vertical surfaces such
as walls, partitions, ventilating louvers, and other surfaces
not reached in nightly or monthly cleaning.
B. High dust (ladder required) all shelves, cabinets and other
objects in tenant offices.
C. Vacuum upholstery and draperies.
D. Wash desk floor mats if necessary.
V. ELEVATOR CLEANING
A. Elevator carpet will be vacuumed daily, spot cleaned as
required, and shampooed monthly.
B. Exterior doors and trim will be dusted and fingerprint and
smudges removed daily.
C. Thresholds will be cleaned and polished as needed.
D. Fingerprints and smudges will be removed daily from the interior
metal doors and panels.
E. Ceiling will be dusted monthly.
F. Elevator thresholds will be brushed clean and polished daily.
G. Service elevator will be cleaned daily, after cleaning personnel
have completed their work.
Page 2 of 4
<PAGE> 40
VI. FLOOR CLEANING
A. Hard Surface (granite included)
1. Common areas: Sweep, mop nightly and spray buff nightly,
scrub and refinish monthly and strip and refinish
semi-annually.
2. Tenant areas: Dust mop and mop nightly, spray buff
weekly, scrub and refinish monthly, strip and refinish
quarterly.
3. Restroom floors: Strip and reseal monthly, keep grout
clean at all times.
4. Scrub and polish door thresholds daily.
B. Concrete Floors
1. Dust mop nightly, damp mop weekly and scrub and seal
quarterly.
2. Police building stairwells nightly, wet mop quarterly,
scrub and seal annually.
C. Wood Floors
1. Dust mop daily.
2. Spot damp mop for spillage daily.
3. Wax and buff floors according to installers instruction.
D. Carpet Floor
1. Thorough nightly vacuuming.
2. Spot removal as required.
3. Common area carpet on multi-tenant floors will be
shampooed quarterly.
E. Granite Floors
1. Wet mopped and buffed nightly.
2. Wash and scrub weekly.
3. Grout will be kept clean and free of spotting at all
times.
F. Outside Sidewalks
1. Police and sweep as required.
2. Sweep and hose down monthly, per managers instructions.
VII. WINDOW CLEANING
A. The exterior surfaces of the building windows will be cleaned
twice per year.
VIII. SPECIAL RULES AND REGULATIONS
A. No computer should ever be unplugged. If lamps, etc. are
unplugged so outlet may be used for vacuuming, all unplugged
items should be re-plugged and left as originally found.
B. Vending machines, refrigerators, microwave ovens, etc. in tenant
spaces are not to be used by the cleaning crew. No eating is
allowed in tenant space of common areas.
C. Telephones may not be used by cleaning crew, except by cleaning
supervisor, who may use management office or security desk
telephones for business or emergency calls only.
D. No radios or other personal property of tenants may be used by
cleaning crew.
E. Cleaning crew will work behind closed doors when possible. All
exterior suite doors will be closed and locked while cleaning is
being performed.
F. Cleaning crew shall perform all work Monday through Friday or
Sunday through Thursday commencing at 6:00 p.m. and completing
no later than 7:00 am.
Page 3 of 4
<PAGE> 41
G. Cleaning crew shall observe the same holidays observed by the building.
Cleaning crew will work on holidays that the building is open for normal
business.
H. Unless the Tenant is in the office, cleaning personnel will turn off all
lights and lock all lockable tenant and common area doors when cleaning
is complete.
IX. ADDITIONAL REQUIREMENTS
A. Specification Intent: The outlined specifications for cleaning and
related frequencies contained in this Exhibit are intended as a frame
work for a janitorial contractor to provide the cleaning standards
normally provided in a Building located in The Centre; and are not
intended to be all inclusive. The contractor is expected to provide the
manpower, supervision and equipment to produce these cleaning
standards.
Page 4 of 4
<PAGE> 42
RIDER NO. 7
RIGHT TO AUDIT
If a statement reflecting annual Operating Expenses is delivered to Tenant
pursuant to subsection 2.202 of the Supplemental Lease Provisions, Tenant shall
have the right to perform an annual audit at Tenant's expense on Landlord's
books and records to the extent necessary to verify Landlord's calculation of
actual Additional Rent for the prior calendar year, provided that such audit
shall be conducted by a certified Public accountant and further provided that
the auditor's report reflecting the results of such audit shall be promptly
delivered to Landlord. Any such audit shall be conducted, if at all, (i) within
ninety (90) days after the receipt of the annual statement of actual Additional
Rent from Landlord, (ii) during Landlord's normal business hours, (iii) at the
place where Landlord maintains its records (or such other place as Landlord
shall deliver the appropriate records) and (iv) only after Landlord has
received ten (10) days prior written notice. If the audit report reflects an
overcharge in additional rent of more than five percent (5%), then Landlord
shall reimburse Tenant for reasonable costs incurred by Tenant for such audit.
If the audit report reflects that estimated Additional Rent was overcharged or
undercharged in the audited calendar year and provided Landlord agrees with
such audit, Tenant shall within twenty (20) days after receipt of such report
pay to Landlord the amount of any underpayment or, if applicable, Landlord
shall allow Tenant a credit against the next accruing installment of Additional
Rent in the amount of any overpayment.
Initial:
Landlord: [INITIALED]
----------------------
Tenant: [INITIALED]
---------------------
34
<PAGE> 43
RIDER H-1
(HAZARDOUS MATERIALS SURVEYS)
NO KNOWN HAZARDOUS MATERIALS
Landlord has heretofore engaged one or more independent contractors to perform
limited surveys at the Property to determine if hazardous materials exist on or
at the Property (whether one or more, the "Survey"). The scope of visual
inspection, testing and sampling performed in connection with the Survey is set
forth in the written report (whether one or more, the "Written Report")
submitted to Landlord by independent contractor(s) performing the Survey.
However, the Tenant is advised that neither extensive testing nor sampling of
any portion of the Property was performed in connection with the Survey of the
Property. A copy of each Written Report is on file in the Property Manager's
office and Tenant shall have the right to inspect each such report. Except as
expressly stated in the next following sentence, Landlord makes no
representations or warranties whatsoever (express or implied) to Tenant
regarding (x) the Survey (including, without limitation, the contents, accuracy
and/or scope thereof) or the Written Report or (y) the presence or absence of
hazardous or toxic materials or wastes in, at, or under the Premises or the
Property, Landlord is not aware of (i) any written reports or surveys concerning
the Building other than the Written Report and the Survey on file with the
Property Manager and (ii) any fact that makes the Written Report or Survey
inaccurate in any material respect. Tenant (a) shall not rely on and has not
relied on the Survey or the Written Report, the same having been provided for
information purposes only and (b) acknowledges that Tenant has taken such
actions as Tenant deems appropriate to fairly evaluate the Premises and has
otherwise satisfied itself that the Premises are acceptable and suitable from an
environmental perspective without limiting Landlord's obligations under the
Lease. Tenant shall furnish Landlord with a complete and legible copy of any
study, report, test, survey or investigation performed by or on behalf of Tenant
at any time involving the Premises and shall fully restore all areas and
improvements where samples were taken or work was performed and repair all
damage resulting from any of the same and shall indemnify and hold Landlord
harmless from any against all claims, actions, liabilities, damages, losses,
injuries or deaths in connection with or arising out of or from any inspection,
testing, sampling or similar or dissimilar activity conducted by or on behalf of
Tenant at or in the Premises or the Property for hazardous or toxic materials or
wastes.
Initial:
Landlord: [INITIALED]
----------------------
Tenant: [INITIALED]
---------------------
35
<PAGE> 44
RIDER H-2
TENANT'S STUDY, TESTING AND INSPECTION RIGHTS
Prior to commencement of any tenant finish work to be performed by Landlord,
Tenant shall have the right to make such studies and investigations and conduct
such tests and surveys of the Premises from an environmental standpoint as
Tenant deems necessary or appropriate, subject to the condition that all such
studies and investigations shall be completed prior to the commencement of any
tenant finish work to be performed by Landlord. Tenant shall restore the Premies
and hold Landlord harmless from and indemnify Landlord against all loss, damages
and claims resulting from or relating to Tenant's studies, tests and
investigations. If such study, test, investigation or survey evidences hazardous
or toxic materials which effect the Premises, Tenant shall have the right to
terminate this Lease provided such right shall be exercised, if at all, prior to
the commencement of any tenant finish work to be performed by Landlord and
within five (5) days after Tenant receives the evidence of hazardous or toxic
materials. If Tenant does not exercise such right prior to commencement of any
such tenant finish work and within such five (5) day period, Tenant's right to
terminate this Lease shall be null and void and of no further force or effect.
Initial:
Landlord: [INITIALED]
----------------------
Tenant: [INITIALED]
---------------------
36
<PAGE> 1
EXHIBIT 10.48
RESIGNATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Richard Kreysar ("Kreysar") is currently employed by McAfee
Associates, Inc. (the "Company") as its vice-president of Network Management
Products. Due to changes in the business, the Company and Kreysar agree that
their employment relationship will be terminated. Effective as of November 1,
1996, Kreysar resigns from his position as an officer of the Company. The
Company and Kreysar agree that he will remain an employee of the Company in the
position of VP Special Projects until February 1, 1997. Kreysar hereby resigns
from his employment with the Company effective February 1, 1997 (the
"Resignation Date").
2. In exchange for the release of claims set forth below, the
Company agrees to provide Kreysar with the following benefits:
(a) continued payment of Kreysar's salary at his current
base salary rate (i.e. $12,542.16 per month), less applicable withholding,
through the Resignation Date;
(b) continued provision of the Company's standard group
employee health insurance coverages through the Resignation Date. As of
February 2, 1997, Kreysar shall be entitled to elect continued insurance
coverage at his own expense in accordance with applicable provisions of federal
law (COBRA);
(c) with respect to any stock options granted to Kreysar
by the Company, such stock options shall remain subject to the terms and
conditions of the Company's Stock Option Plan and Stock Option Agreements
between Kreysar and the Company with the Resignation Date being the date of
termination of his employment for all purposes thereunder;
(d) Kreysar shall continue to accrue vacation through
the Resignation Date; and
(e) Kreysar shall continue to participate in the
Company's 401(k) Plan to the same extent as other employees (including matching
contributions) through the Resignation Date and he may also continue to
participate in the Employee Stock Purchase Plan through his Resignation Date.
Kreysar understands and acknowledges that he shall not be entitled to any
benefits from the Company other than those expressly set forth in this
paragraph 2.
3. In exchange for the benefits described in Paragraph 2 above,
Kreysar and his successors and assigns release and absolutely discharge the
Company and its shareholders, directors, employees, agents, attorneys, employee
benefit plans, legal successors and assigns of and from any and all claims,
actions, and causes of action, whether now known or unknown, which Kreysar now
has, or at any other time had, or
1
<PAGE> 2
shall or may have against the Company based upon or arising out of any matter,
cause, fact, thing, act or omission whatsoever occurring or existing at any
time to and including the date hereof, including, but not limited to, any
claims of wrongful discharge or national origin, race, age, sex or other
discrimination under the Civil Rights Act of 1964, the Age Discrimination in
Employment Act of 1967, the Fair Employment and Housing Act or any other
applicable law. The Company and its shareholders, directors, employees,
agents, attorneys, employee benefit plans, legal successors and assigns,
release and absolutely discharge Kreysar and his successors and assigns of and
from any and all claims, actions and causes of action, whether now known or
unknown, which the Company now has or any other time had, or shall or may have
against Kreysar based upon or arising out of his employment with the Company.
4. Kreysar and the Company acknowledge that they have read
section 1542 of the Civil Code of the State of California which states:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
Kreysar and the Company each hereby waives any right or benefit which he or it
has or may have under section 1542 of the Civil Code of the State of California
to the full extent that he or it may lawfully waive such rights and benefits
pertaining to the subject matter of this general release of claims.
5. Kreysar acknowledges and agrees that he shall continue to be
bound by and comply with the terms of the Employee Agreement Regarding
Confidentiality and Inventions between the Company and Kreysar.
6. Kreysar agrees that for a period of one year after the
Resignation Date, he shall not, either directly or indirectly, solicit the
services, or attempt to solicit the services of any employee of the Company or
its affiliated entities to any other person or entity.
7. The prevailing party shall be entitled to recover from the
losing party its attorneys' fees and costs incurred in any lawsuit or other
action brought to enforce any right arising out of this Agreement.
8. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
negotiations and agreements, whether written or oral, with the exception of any
agreements described in Paragraphs 2(c), 2(e), and 5. This Agreement may not
be altered or amended except by a written document signed by the Company and
Kreysar.
KREYSAR UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO
SIGNING THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST
THE COMPANY BY SIGNING THIS
2
<PAGE> 3
AGREEMENT. KREYSAR FURTHER UNDERSTANDS THAT HE MAY HAVE 21 DAYS TO CONSIDER
THIS AGREEMENT, THAT HE MAY REVOKE IT AT ANY TIME DURING THE 7 DAYS AFTER HE
SIGNS IT, AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL THE 7-DAY PERIOD HAS
PASSED. KREYSAR FURTHER ACKNOWLEDGES THAT HE IS SIGNING THIS AGREEMENT
KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN
PARAGRAPH 2.
Dated: 11/19, 1996 /s/ RICHARD KREYSAR
-------------------------------------
Richard Kreysar
Dated: ___________, 1996 McAfee Associates, Inc.
By: /s/ PRABHAT K. GOYAL
----------------------------------
Its:
---------------------------------
3
<PAGE> 1
EXECUTION COPY EXHIBIT 10.50
STOCK EXCHANGE AGREEMENT
AMONG
McAFEE ASSOCIATES, INC.,
FSA COMBINATION CORPORATION,
SCHUIJERS HOLDING B.V. AND
THE SHAREHOLDERS OF SCHUIJERS HOLDING B.V.
FEBRUARY 28, 1997.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - THE EXCHANGE
1.1 Shares Being Exchanged
1.2 Closing
1.3 Exchange of Shares
1.4 Pooling of Interests
1.5 Currency
Article II - REPRESENTATIONS AND WARRANTIES OF SHBV AND SHAREHOLDERS
2.1 Organization of SHBV and McAfee Nederland B.V.
2.2 Capitalization
2.3 Authority, No Conflict, Required Filings and Consents
2.4 SHBV Financial Statements
2.5 No Undisclosed Liabilities
2.6 Accounts Receivable
2.7 Absence of Certain Changes or Events
2.8 Taxes
2.9 Intellectual Property
2.10 Agreements, Contracts and Commitments
2.11 Labour Difficulties; No Discrimination
2.12 Trade Regulation
2.13 Litigation
2.14 Employee Benefit Plans
2.15 Compliance with Laws
2.16 Governmental Authorizations and Regulations
2.17 Corporate Documents
2.18 No Misrepresentation
2.19 Restrictions on Business Activities
2.20 No Brokers.
2.21 Insurance
2.22 Interested Party Transactions
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C>
2.23 Pooling Matters
2.24 Books and Records
2.25 Government Contracts
2.26 Severance Arrangements
2.27 Banking Relationships
2.28 Distribution Agreements
2.29 Assets of Shareholders
Article III - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
3.1 Purchase for Own Account
3.2 Restricted Securities
3.3 Further Limitations on Disposition
3.4 Legends
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF MCAFEE AND SUB
4.1 Organization and Good Standing
4.2 Authority, No Conflict, Required Filings and Consents
4.3 Litigation
ARTICLE V - CONDUCT OF BUSINESS
5.1 Covenants of SHBV
5.2 Cooperation
5.3 Notice of Breach
ARTICLE VI - ADDITIONAL AGREEMENTS
6.1 No Solicitation
6.2 SHBV Consents
6.3 Access of Information
6.4 Legal Conditions to Exchange
6.5 Public Disclosure
6.6 Additional Agreements, Reasonable Efforts
6.7 SHBV Affiliates Agreement
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII - CONDITIONS TO EXCHANGE
7.1 Conditions to Each Party's Obligation to Effect the Exchange
7.2 Additional Conditions to Obligations of McAfee and Sub
7.3 Additional Conditions to Obligations of SHBV
ARTICLE VIII - TERMINATION AND AMENDMENT
8.1 Termination
8.2 Effect of Termination
ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
ARTICLE X - INDEMNIFICATION AND ESCROW
10.1 Indemnity
10.2 Escrow Fund
10.3 Escrow Period
10.4 Protection of Escrow Fund
10.5 Claims upon Escrow Fund
10.6 Objection to Claims
10.7 Resolution of Conflicts
10.8 Third-Party Claims
10.9 Limits
10.10 Dismissal of Employees
10.11 Shareholder's Agent
ARTICLE XI - MISCELLANEOUS
11.1 Notices
11.2 Interpretation
11.3 Counterparts
11.4 Entire Agreement; No Third Party Beneficiaries
11.5 Governing Law
11.6 Assignment
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<S> <C>
11.7 Attachments and Schedules
11.8 Severability
11.9 Fees and Expenses
11.10 Amendment
11.11 Extension, Waiver
SCHEDULES
- ---------
A. Schedule of Shareholders
B. Notarial deed of transfer of shares
C. SHBV Disclosure Schedule
LIST OF EXHIBITS
- ----------------
Exhibit 7.1 (c) Escrow Agreement
Exhibit 7.2 (g) Employment Agreement
Exhibit 7.2 (h) Non-Competition Agreement(s)
Exhibit 7.2 (j) Registration Rights Agreement
Exhibit 7.2 (n) Assignment of Rights
</TABLE>
- 5 -
<PAGE> 6
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE Agreement (the "Agreement"), dated as of February
1997, is entered into by and among McAfee Associates, Inc., a Delaware
corporation ("McAfee"), FSA Combination Corporation, a Delaware
corporation and indirect subsidiary of McAfee ("Sub"), Schuijers Holding B.V.,
a Dutch private company with limited liability ("SHBV"), and the Shareholders
of SHBV ("Shareholders"), all of whom are listed on the Schedule of
Shareholders attached hereto as Schedule A.
WHEREAS, the Boards of Directors of McAfee, Sub and SHBV deem it
advisable and in the best interests of themselves and their respective
stockholders that Sub acquire all the outstanding stock of SHBV in exchange for
shares of Common Stock of McAfee (the "Exchange"); and
WHEREAS, the Exchange is intended to be treated as a "pooling of
interests" under United States generally accepted accounting principles ("US
Gaap");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and Agreements, the parties agree as set
forth below.
ARTICLE I
THE EXCHANGE
1.1 Shares Being Exchanged. Subject to the terms and conditions
of this Agreement, at the Closing (as defined below), each Shareholder agrees
to sell, assign, and transfer to Sub that number of shares of stock of SHBV
("SHBV Stock") set forth opposite such Shareholders' name on the Schedule of
Shareholders in exchange for that number of shares of Common Stock of McAfee
("McAfee Stock") as provided in Section 1.3
- 6 -
<PAGE> 7
hereof. The parties hereby agree that Sub may assign its obligations hereunder
to another indirect subsidiary of McAfee.
1.2 Closing. The closing of the Exchange (the "Closing")
will take place on a date to be specified by McAfee and SHBV which shall be no
later than the second business day after satisfaction of the latest to occur of
the conditions set forth in Article VII of this Agreement, but in any event no
later than March 1, 1997 (the "Closing Date"), at the offices of De Brauw
Blackstone Westbroek, Atrium - 7th Floor Strawinskylaan 3115, 1077 ZX
Amsterdam, or such other place as agreed to in writing by McAfee, the
Shareholders and SHBV.
1.3 Exchange of Shares.
(a) Subject to the provisions of an escrow as provided in
Article X hereof (the "Escrow"), each share of SHBV issued and outstanding
immediately prior to the Closing, which is 40,000 shares in the aggregate,
shall be tendered to Sub and exchanged for that number of shares of McAfee
Stock that results by dividing (i) the quotient that results from dividing US$
3,750,000 by the average closing price of McAfee's common stock as quoted on
Nasdaq National Market during the twenty (20) consecutive trading days ending
at the close of market on February 21, 1997, by (ii) the total number of shares
of SHBV Stock outstanding immediately prior to the Closing Date (each an
"Exchange Share" and collectively the "Exchange Shares").
(b) No fractional shares of McAfee Stock shall be issued
in the exchange. In the event the Exchange would result in any Shareholder
being entitled to a fraction of a share of McAfee Stock, such fractional share
shall be rounded down to the nearest whole number.
(c) At Closing, the Exchange Shares shall be transferred
by the Shareholders to Sub upon the execution of a notarial deed of transfer of
shares before a Dutch notary in accordance with Schedule B.
1.4 Pooling of Interests. The parties intend that the
Exchange he treated as a "pooling of interests" under US Gaap.
- 7 -
<PAGE> 8
1.5 Currency. Unless otherwise specified, all
references in this Agreement "cash," "cent," "dollars," or "$" shall mean
United States dollars.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHBV AND SHAREHOLDERS
Each of SHBV and the Shareholders hereby, jointly and severally,
represent and warrant to McAfee and Sub that the statements contained in this
Article II are true and correct, except as set forth in the Disclosure Schedule
delivered by, and accepted by, SHBV to McAfee and Sub on or before the date of
this Agreement (The "SHBV Disclosure Schedule"). Unless otherwise indicated,
the term "SHBV", as used in this Agreement, shall also include McAfee
Nederland B.V. ("McAfee Nederland") and Go Tech Europe B.V. ("Go Tech Europe").
2.1 Organization of SHBV
(a) SHBV is a corporation duly organized, validly existing and in
good standing under the laws of the Netherlands, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted, and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition or results of operations (a
"Material Adverse Effect") of SHBV.
(b) SHBV does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for an equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, except for McAfee Nederland
and Go Tech Europe, which are wholly-owned subsidiaries of SHBV.
- 8 -
<PAGE> 9
2.2 Capitalization.
(a) The authorized capital stock of SHBV consists of
200,000 shares of each one Dutch guilder. As of the date hereof, (i) 40,000
shares of SHBV are issued and outstanding and are held by the Shareholders, and
(ii) no shares of SHBV were held in the treasury of SHBV.
(b) All of the outstanding shares of SHBV have been duly
authorized and are validly issued, fully paid and non-assessable. The
Shareholders own all of the outstanding shares of SHBV, free and clear of any
liens, claims, encumbrances or proprietary interests of any third party. There
are no obligations, contingent or otherwise, of SHBV to repurchase, redeem or
otherwise acquire any shares of SHBV, or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity.
(c) Except as set forth in this Section 2.2, there are no
equity securities of any class of SHBV, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which SHBV or any shareholder is
a party or by which any of them is bound obligating SHBV to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of SHBV or obligating SHBV to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right, commitment
or agreement. There are no voting trusts or other agreements or understandings
to which SHBV or any shareholder is a party with respect to the voting of the
SHBV stock.
(d) All of the shares of McAfee Nederland, which is
40,000 shares of each one Dutch guilder, are owned by SHBV, free and clear of
any liens, claims, encumbrances or proprietary interest of any third party.
- 9 -
<PAGE> 10
(e) All of the shares of Go Tech Europe, which are 40,000
shares of each one Dutch guilder, are owned by SHBV, free and clear of any
liens, claims encumbrances or proprietary interest of any third party.
2.3 Authority; No Conflict; Required Filings and Consents.
(a) SHBV and the Shareholders have all requisite power,
corporate or otherwise, and authority to enter into this Agreement and the
other Transaction Documents to which they are a party and to carry out their
respective obligations and consummate the transactions contemplated hereunder
and thereunder. "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement, the Employment Agreement, the Escrow Agreement,
the Non-competition Agreement, the Affiliates Agreements (as defined herein)
and such other documents, agreements or instruments contemplated hereunder or
thereunder. The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action, corporate
or otherwise, on the part of SHBV and the Shareholders. This Agreement has
been duly executed and delivered by SHBV and the Shareholders and constitutes
the valid and binding obligation of SHBV and the Shareholders, enforceable
against each of them in accordance with its terms. The other Transaction
Documents, when duly executed and delivered by SHBV and the Shareholders, will
constitute valid and binding obligations of SHBV and the Shareholders,
enforceable in accordance with their respective terms.
(b) the execution and delivery of this Agreement and the
other Transaction Documents by SHBV and the Shareholders do not, and the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents will not, (i) conflict with, or result in any violation
or breach of any provision of the Articles of Association of SHBV and McAfee
Nederland, (ii) result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or
- 10 -
<PAGE> 11
acceleration of any obligation or loss of any benefit) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which SHBV is a party
or by which any of its properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to SHBV or any
of its properties or assets, except in the case of (ii) and (iii) for any such
breaches, conflicts, violations, defaults, terminations, cancellations,
accelerations or losses of benefits which would not have a Material Adverse
Effect on SHBV. No consent of any person who is a party to a contract to which
SHBV is a party is required to be obtained on the part of SHBV to permit the
transactions contemplated herein, except where the failure to obtain such
consent would not have a Material Adverse Effect on SHBV.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to SHBV in connection with the
execution and delivery of this Agreement, the other Transactional Documents, or
the consummation of the transactions contemplated hereby, except for consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on SHBV.
2.4 SHBV Financial Statements. SHBV has delivered to
McAfee, SHBV's consolidated balance sheet as of December 31, 1996 and
consolidated statement of operations and statement of shareholders' equity for
the twelve months ended December 31, 1996 together with the consolidated
unaudited balance sheet as of January 31, 1997 and consolidated statement of
operations for the one-month period then ended (collectively, the "SHBV
Financial Statements"). The SHBV Financial Statements, as put together by KPMG
Accountants NV in accordance with the "Samenstellingsverklaring", agree with
SHBV's books and records, have been prepared in accordance with Dutch generally
accepted accounting
- 11 -
<PAGE> 12
principles ("Dutch Gaap") consistently applied and fairly present in all
respects the financial position of SHBV as of their respective dates and the
results of SHBV's operations for the periods then ended, subject to normal
year-end adjustments and except that the unaudited statements may not contain
the notes required by Dutch Gaap. Except as stated in the SHBV Financial
Statements, SHBV is not a guarantor or indemnitor of any indebtedness of any
person, firm or corporation.
2.5 No Undisclosed Liabilities. SHBV does not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in the SHBV Financial Statements in accordance with Dutch Gaap), and
whether due or to become due, which individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on SHBV, other than (i)
liabilities reflected in the SHBV Financial Statements, (ii) liabilities
specifically described in this Agreement or the SHBV Disclosure Schedule, and
(iii) normal or recurring liabilities incurred since the date of the SHBV
Financial Statements in the ordinary course of business consistent with past
practices and are not material to SHBV.
2.6 Accounts Receivable. The accounts receivable shown
on the latest interim balance sheet contained in the SHBV Financial Statements
arose in the ordinary course of business and have been collected or are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts and returns provided for in such balance sheet.
Allowances for doubtful accounts and returns are adequate and have been
prepared in accordance with the past practices of SHBV. The accounts
receivable of SHBV arising after the date of the SHBV Financial Statements and
prior to the Closing arose in the ordinary course of business and have been
collected or are collectible in the book amounts thereof, less allowances for
doubtful accounts and warranty returns determined in accordance with the past
practices of SHBV. None of the accounts receivable are subject to any material
claim of offset or recoupment, or counterclaim and SHBV has no knowledge of any
specific facts that would be reasonably likely to give rise to any such claim.
- 12 -
<PAGE> 13
No material amount of receivables are contingent upon the performance by SHBV
of any obligation and no agreement for deduction or discount has been made with
respect to any accounts receivable.
2.7 Absence of Certain Changes or Events. Since January
31, 1997, SHBV has conducted its business in the ordinary course and in a
manner consistent with past practices and, since such date, SHBV has not, had
or incurred any of the following (a "Material Adverse Change"):
(a) suffered any material adverse change in its
financial condition, its results of operations or its business, or any material
adverse changes in its unaudited balance sheet at January 31, 1997 (analysed as
if prepared according to Dutch Gaap), including but not limited to cash
distributions or material decreases in the net assets of SHBV;
(b) suffered any damage, destruction, loss, or
change whether covered by insurance or not, that could reasonably be expected
to have a Material Adverse Effect on SHBV;
(c) granted or agreed to make any material
increase in the compensation payable or to become payable by SHBV to its
officers or employees:
(d) declared, set aside or paid any dividend or
made any other distribution on or in respect of the shares of the capital stock
of SHBV or declared any direct or indirect redemption, retirement, purchase or
other acquisition by SHBV of such shares;
(e) issued any shares of capital stock of SHBV or
any warrants, rights, options or entered into any commitment relating to the
shares of SHBV or altered any outstanding security;
(f) made any change in the accounting methods or
practices it follows, whether for general financial or tax purposes, or any
change in depreciation or amortization policies or rates adopted therein;
- 13 -
<PAGE> 14
(g) sold, leased, abandoned or otherwise disposed
of any real property or any material amounts of machinery, equipment or other
operating property other than in the ordinary course of business;
(h) sold, assigned, transferred, licensed or
otherwise disposed of any patent, trademark, trade name, brand name, copyright
(or pending application for any patent, trademark or copyright), invention,
proprietary rights, software, work of authorship, process, know-how, formula or
trade secret or interest thereunder or other material intangible asset except
in the ordinary course of its business;
(i) suffered any labour dispute or charge for
unfair labour practice;
(j) entered into any material commitment or
transaction (including without limitation any borrowing or capital expenditure)
other than in the ordinary course of business;
(k) permitted or allowed any of its property or
assets to be Subjected to any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance of any kind;
(l) made any capital expenditure or commitment
for additions to property, plant or equipment individually in excess of
$10,000, or in the aggregate, in excess of $25.000;
(m) paid, loaned or advanced any amount to, or
sold, transferred or leased any properties or assets to, or entered into any
Agreement or arrangement with any of its affiliates, officers, directors or
stockholders or any Affiliate of any of the foregoing;
(n) made any amendment to or terminated any
material agreement;
- 14 -
<PAGE> 15
(o) agreed to take any action described in this
Section 2.7 or which would constitute a breach of any of the representations
contained in this Agreement;
(p) any amendments or changes in its charter
documents; or
(q) except as disclosed in the SHBV Disclosure
Schedule, taken any other action that would have required the consent of
McAfee pursuant to Section 5.1 (a) through (o) of this Agreement (and which
has not been obtained) had such action occurred after the date of this
Agreement and that would be reasonably likely to have a Material Adverse
Effect on SHBV.
2.8 Taxes.
(a) Definitions.
(i) The term "Taxes and Social Security Contributions" as
used in this paragraph 2.8 is defined as all taxes and contributions including
but not limited to corporate income tax ("vennootschapsbelasting") including
disinvestment payments WIR ("WIR desinvesteringsbetalingen"), wage withholding
tax ("loonbelasting") , social security contributions both national
contributions ("volksverzekeringen") and employee social security contributions
("werknemersverzekeringen"), value added tax ("omzetbelasting"), customs and
excise duties ("invoerrechten en accijnzen"), capital tax
("kapitaalsbelasting") and other legal transaction taxes ("belastingen van
rechtsverkeer"), dividend withholding tax ("dividendbelasting"), municipal
real estate taxes ("gemeentelijke onroerend goedbelasting"), other municipal
taxes and duties ("overige gemeentelijke belastingen en leges") and
environmental taxes and duties ("milieuheffingen"), including any interest
("heffings- en invorderingsrente") and penalties ("verhogingen en boetes")
relating thereto, due, payable, levied, imposed upon or claimed to be owed in
The Netherlands and in the Relevant Jurisdictions.
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(ii) The Term "Relevant Jurisdictions" as used in this
paragraph 2.8 is defined as all countries and states in which the Company
conducts its business, owns or uses properties and assets, in any case this
term includes the Netherlands.
(iii) The term "Company" as used in this paragraph 2.8 is
defined as (both collectively and separately) Schuijers Holding B.V., Go Tech
Europe B.V. and McAfee Nederland B.V., which companies form a fiscal unity
for Netherlands corporate income tax.
(b) Financial Accounts. The financial accounts of the
Company fully and correctly reflect the amounts materially payable by the
Company on account of Taxes and Social Security Contributions. In the
financial accounts full and complete reserves have been provided for any
contingent or deferred liability on account of Taxes and Social Security
Contributions ("latente belastingen").
(c) Filing Requirements. The Company has filed all Tax
and Social Security Contributions returns which should have been filed. If
extension of filing of tax returns has been obtained relating to tax periods
which have ended before the Closing date, the costs relating to the
preparation and filing of these returns will be for the account of the
Shareholders. No final reminders for the filing of returns have been received
with respect to tax periods for which no final assessment has been received
on or before the Closing Date.
(d) Taxes and Social Security Contributions Paid. The
Company has paid all Taxes and Social Security Contributions materially due
at the Closing date. If Taxes and/or Social Security Contributions are
materially due but not yet paid, a provision has been taken up in the balance
sheet as at the latest interim balance sheet contained in the SHBV Financial
Statements. For the purpose of this provision "material" shall mean that any
unpaid Taxes and Social Security Contributions shall not exceed US$10,000.
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<PAGE> 17
(e) Tax Exempt Transactions. The company has never
claimed exemptions from, or reductions of Taxes or Social Security
Contributions to which it was not entitled. No tax free reorganisations
either for corporate income tax purposes or for capital tax purposes have
been granted or claimed during the current financial year and the five
preceding years.
(f) Tainted Capital. The Company has no capital that is
tainted by reason of article 44 Personal Income Tax Act or article 3 para 2
of the Dividend Withholding Tax Act ("fusie-agio").
(q) Special Tax Regime. The Company is not subject to
any special regime regarding Taxes or Social Security Contributions.
(h) Disputes, Investigations, Audits, Objections and
Appeals. No disputes exists or are to the best knowledge and belief of the
Shareholders expected with the Tax of Social Security Contribution
authorities regarding the Tax and Social Security Contributions position of
the Company or any of its properties, assets or income or regarding the Tax
and Social Security Contribution returns filed by the Company.
No audits or investigations by the Tax or Social Security Contribution
authorities are presently being made or are to the best knowledge and belief of
the Shareholders expected regarding the Tax and Social Security Contributions
position of the Company or any of its properties, assets or income or regarding
the Tax and Social Security Contribution returns filed by the Company.
To the best knowledge and belief of the Shareholders, no requests for exchange
of information are pending regarding Taxes and Social Security Contributions
relating to the Company or the Company's business relations.
No objection ("bezwaar") or appeal ("beroep" or "cassatie") is presently
pending or will to the best knowledge and belief of the Shareholders
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<PAGE> 18
be filed or may have to be filed with the Tax or Social Security authorities or
the competent Court or Courts.
(i) No Prior Neglect in Payment of Taxes/No Fines. The
Company has always duly and timely paid Taxes and Social Security
Contributions.
Fines for late filing or late payment of Taxes and Social Security
Contributions have never been imposed on the Company.
(j) No Criminal Investigations/Fraud. The Company or, to
the best knowledge of the Shareholders, one or more of the Company's managing
directors ("bestuurders")' in their position as managing director, has never
been the subject of a criminal investigation relating to or involving Taxes or
Social Security Contributions.
The Company or one or more of the Company's managing directors ("bestuurders")
in their position as managing director, never has been accused or found guilty
of fraud relating to or involving Taxes or Social Security Contributions.
(k) No Collection Procedures. No collection procedures
have been initiated against the Company or any of its properties, assets or
income for account of any Taxes or Social Security Contributions. The Company
has not received any reminders ("aanmaningen") or warrants ("dwangbevelen")
relating to the payment of Taxes or Social Security Contributions.
(l) No Chain Liability/No Liability for Taxes of Third
Parties. The Company has not acted as a managing director ("bestuurder") of any
entity in the sense of the General Tax Act ("lichaam in de zin van de Algemene
Wet inzake rijksbelastingen").
The Company has not and to the best knowledge and belief of the Shareholders,
will not be considered to form a permanent establishment or be considered to be
a permanent representative of any other company,
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<PAGE> 19
association or organisation. The Company has not and to the best knowledge and
belief of the Shareholders, will not be considered the leader of a permanent
establishment of any other company, association or organisation. The Company
has not and to the best knowledge and belief of the Shareholders, will not be
considered the leader of a permanent establishment of any other company,
association or organisation ("leider van een vaste inrichting").
The Company has never acted as the liquidator ("vereffenaar") of any entity in
the sense of the General Tax Act ("lichaam in de zin van de Algemene Wet inzake
rijksbelastingen").
The Company has never been involved in the transfer of the place of actual
management and control of any entity that is subject to Netherlands corporate
income tax.
The Company has never acted as an executor of a will (executeurtestamentair").
The Company has never acted as an insurer as mentioned in article 11b, section
1 of the Wage Withholding Tax Act of 1964.
The Company has never acted as an insurer as mentioned in article 45, section 5
of the Income Tax Act of 1964 on behalf of an individual.
The Shareholders confirm that, to the best of their knowledge, all payments,
being gross payments, made by SHBV to Amitges Beheer B.V. until the Closing
Date with respect to management fees and management bonuses as agreed between
the Shareholders, SHBV and Amitges Beheer B.V. are not subject to withholding
by SHBV of wagetax and/or social security contributions.
(m) Sufficient Tax Records and Accounts. The Company has
sufficient records and accounts as required by the tax laws of The Netherlands
and of the Relevant Jurisdictions. The authorities competent
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<PAGE> 20
for Tax and Social Security Contributions have never rejected the records and
accounts of the Company as basis for the computation of liability to Taxes and
Social Security Contributions.
The Company's records and accounts allow the determination of non deductible or
partly deductible costs in the sense of the "Oort" legislation.
(n) Full Disclosure. The Shareholders have disclosed
fully and completely all facts, circumstances and have submitted to McAfee and
Sub all documents which to their best knowledge and belief influence or may
influence the position of the Company regarding Taxes and Social Security
Contributions, including but not limited to any agreement, ruling, or
compromise with any Tax Authority or Social Security Authority. The Company
does not have the intention to conclude up to the Closing date with any Tax
Authority or Social Security Authority any agreement, ruling or compromise.
2.9 Intellectual Property.
(a) SHBV owns, is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications for such patents, trademarks,
trade names, service marks and copyrights, processes, formulae, methods,
schematics, technology, know-how, computer software programs or applications
and tangible or intangible proprietary information or material (excluding
Commercial Software as defined below) that are necessary to (i) conduct the
business of SHBV as currently conducted and as proposed to be conducted, (ii)
or to distribute new products or versions of existing products planned for
distribution (including without limitation all distribution rights), free and
clear of all liens, claims or encumbrances (all of which are referred to as the
"SHBV Intellectual Property Rights"). The Licensed Intellectual Property, as
defined below, grants SHBV such rights as are employed in or necessary to the
business of SHBV as conducted and as proposed to be conducted and are valid and
enforceable and in
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<PAGE> 21
full force and effect. The SHBV Disclosure Schedule contains an accurate and
complete list of (i) all patents and patent applications and all registered
trademarks, registered copyrights, registered trade names and service marks
used by SHBV in its business as conducted and as proposed to be conducted,
including the jurisdictions in which each such item has been issued or
registered or in which any such application for such issuance and registration
has been filed, (ii) all licenses, sublicenses and other agreements pursuant to
which any person is authorized to use any SHBV Intellectual Property Rights,
and (iii) all licenses, sublicenses and other agreements as to which SHBV is a
party and pursuant to which SHBV is authorized to use any third party
technology, trade secret, know-how, process, patents, trademarks or copyrights,
including software ("Licensed Intellectual Property").
(b) SHBV is not, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other Agreement relating to the SHBV Intellectual Property Rights or any
Licensed Intellectual Property.
(c) all patents, registered trademarks, service
marks and copyrights claimed by or issued to SHBV or which relate to SHBV
Products are valid and subsisting. SHBV (i) has not received notice that it
has been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party;
(ii) has no knowledge that the manufacturing, marketing, licensing, sale or
other exploitation of SHBV Products infringes any patent, trademark, service
mark, copyright, trade secret or other proprietary right of any third party;
and (iii) has no knowledge of any claim challenging or questioning the
validity or effectiveness of any of its licenses or agreements relating
thereto or to any SHBV Intellectual Property Right. There is no valid basis
for any claim of the type specified in the immediately preceding sentence
which would be reasonably likely in any material way to relate to or
interfere with
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<PAGE> 22
the continued enhancement and exploitation by SHBV of any of the SHBV Products.
None of the SHBV Products nor the use or exploitation of any patents,
trademarks, trade names, copyrights, software, technology, know-how or
processes by SHBV in its current business infringes on the rights of, or
constitutes misappropriation of, any proprietary information or intangible
property right of any third person or entity, including without limitation any
patent, trade secret, copyright, trademark or trade name.
(d) SHBV has not granted any third party any right to manufacture
or reproduce any product of SHBV or any adaptations, translations, or
derivative works based on any product of SHBV or any portion thereof. Except
with respect to the rights of third parties to the Licensed Intellectual
Property, no third party has any right to manufacture, reproduce, distribute,
market or exploit any works or materials of which any products of SHBV are a
"derivative work" as that term is defined in the United States Copyright Act,
Title 17. U.S.C. Section 101.
(e) no employee of SHBV is in violation of any term of any
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such employee with SHBV or, to
SHBV's knowledge, any other party because of the nature of the business
conducted by SHBV or proposed to be conducted by SHBV.
(f) each person presently or previously employed by SHBV
(including independent contractors, if any) with access to confidential
information is bound to the confidentiality and non-disclosure clause 8.4 of
the Labour Condition Regulations of SHBV dated September 1, 1996
(Arbeidsvoorwaardenreglement). Such confidentiality and non-disclosure clause
of such Labour Conditions Regulations constitute valid and binding obligations
of SHBV and such person, enforceable in accordance with their respective terms.
Neither performing or the requirements of such clause, nor the carrying on of
SHBV's business as employees by such persons, nor the conduct of SHBV's
business as currently anticipated,
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<PAGE> 23
will conflict with or result in a breach of the terms, conditions or provisions
of or constitute a default under any contract, covenant or instrument under
which any of such persons is obligated.
(g) No product liability or warranty claims which individually or
in the aggregate which could reasonably be expected to exceed US$25,000 have
been communicated to or to SHBV's knowledge, threatened against SHBV nor, to
SHBV's knowledge, is there any specific situation, set of facts or occurrence
that provides a valid basis for such claim.
(h) "Commercial Software" means packaged commercially available
software programs generally available in a shrink-wrap format through retail
channels which have been licensed to SHBV pursuant to end-user licenses and
which are used internally in SHBV's business but are in no way a component of
or incorporated in or specifically required to develop or support any product
of SHBV.
2.10 Agreements. Contracts and Commitments. Section 2.10 of the
SHBV Disclosure Schedule sets forth a list of any of the following written or
oral contracts, understandings, agreements, proposed transactions, and other
instruments (collectively, "Major Contracts"), copies of each of which written
contracts, agreements or instruments have been delivered to McAfee's counsel:
(a) licenses of any patent, copyright, trade secret or
other proprietary right by SHBV;
(b) continuing contracts for the future purchase, sale or
manufacture of products, material, supplies, equipment or services requiring
payment to or from SHBV in an amount in excess of $25,000 per annum:
- 23 -
<PAGE> 24
(c) contracts providing for the development of software
for, or license of software to, SHBV, or other Intellectual Property Rights
used or incorporated in one or more of the Company's products;
(d) joint venture contracts or other agreements which
have involved or is reasonably expected to involve a sharing of profits or
losses in excess of $25,000 per annum with any other party;
(e) indentures, mortgages, promissory notes, loan
agreements, guarantees or other agreements or commitments for the borrowing of
money, for a line of credit or for a leasing transaction of a type required to
be capitalized;
(f) leases or other agreements under which SHBV is lessee
of or holds or operates any items of tangible personal property or real
property owned by any third party and under which payments to such third party
exceed $25,000 per annum;
(g) all agreements or arrangements for the sale,
distribution, or transfer of any assets, properties or rights;
(h) agreements which restrict SHBV from engaging in any
aspect of its business or competing in any line of business in any geographic
area or in any functional area or that requires SHBV to distribute or use
exclusively a third party technology or product;
(i) sales contracts, commitments or proposals (including,
without limitation, porting and development projects) of SHBV in excess of
US$25,000 or not in conformity with the standard McAfee license agreement;
(j) written dealer, distributor, sales representative,
original equipment manufacturer, value added remarketeer or other agreements
for the ongoing distribution of SHBV products;
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<PAGE> 25
(k) contracts or commitments for the employment of any
officer, employee or consultant or any other type of contract or understanding
with any officer, employee or consultant which is not immediately terminable
without cost or other liability (except for limitations on such termination
rights as exist under applicable laws);
(l) any other loan or credit agreements, notes, bonds,
mortgages, indentures, leases or other material agreements which are not
otherwise disclosed elsewhere in the SHBV Disclosure Schedule, the breach or
termination of which would have a Material Adverse Effect on SHBV;
(m) any agreements relating to SHBV Intellectual Property
Rights or other material agreements relating to SHBV Products; and
(n) obligations or understandings which are material to
the financial position of SHBV with respect to the return to SHBV of inventory
or merchandise in the possession of wholesalers, distributors, retailers, or
other customers.
All contracts, agreements and instruments listed or described pursuant
to this Section 2.10 are valid, binding, in full force and effect,and
enforceable by SHBV in accordance with their respective terms except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles. To SHBV's and the
Shareholders' knowledge, no party to any Major Contract intends to cancel,
modify or amend such contract, agreement or arrangement, and neither SHBV or
any party to a Major Contract is in breach of such contract, agreement or
arrangement and no party to any major contract will terminate such contract,
Agreement or arrangement as a result of the Exchange.
All sales contracts, commitments or proposals (including, without
limitation, porting and development project of SHBV under
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<PAGE> 26
US$25,000 and/or in conformity with the standard McAfee licence agreement are
valid, binding, in full force and effect, and enforceable by SHBV in accordance
with their respective terms except that such enforceability may be subject to
(i) bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles. To SHBV's and the Shareholders' knowledge, no party to
any Major Contract intends to cancel, modify or amend such contract, agreement
or arrangement, and neither SHBV or any party to a Major Contract is in breach
of such contract, agreement or arrangement and no party to any Major Contract
will terminate such contract, agreement or arrangement as a result of the
Exchange.
2.11 Labour Difficulties: No Discrimination.
(a) SHBV is not in material violation of any
applicable laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours.
(b) There is no unfair labour practice complaint
against SHBV actually pending or to SHBV's knowledge, threatened.
(c) There is no strike, labour dispute, slowdown,
or stoppage actually pending or, to SHBV's knowledge, threatened against SHBV.
(d) There have been no union representation
claims made to SHBV with respect to the employees of SHBV, and to SHBVI's
knowledge, no union organizing activities are taking place.
(e) SHBV has not experienced any material work
stoppage or other material labour difficulty.
(f) There has been no claim against SHBV based on
actual or alleged race, age, sex, disability or other harassment or
discrimination,
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<PAGE> 27
or similar tortious conduct, nor, to SHBV's knowledge, is there any valid basis
for any such claim.
2.12 Trade Regulation. SHBV has not within the past three years
terminated its relationship with or refused to ship products to any dealer,
distributor, OEM, third party marketing entity or customer which had
theretofore paid or been obligated to pay SHBV in excess of Ten Thousand
dollars ($10,000) over any consecutive twelve (12) month period. All of the
prices charged by SHBV in connection with the marketing or sale of any products
or services have been in compliance with all applicable laws and regulations.
No claims have been communicated or threatened against SHBV with respect to
wrongful termination of any dealer, manufacturer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other material violation of any laws or regulations
relating to anti-competitive practices or unfair trade practices of any kind,
and, to SHBV's knowledge, no specific situation, set of facts, or occurrence
provides any valid basis for any such claim.
2.13 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against SHBV pending or threatened, nor is there
any judgment, decree, injunction, rule or order of any governmental entity or
arbitrator outstanding against SHBV.
2.14 Employee Benefit Plans. SHBV is not a party to any oral or
written (i) union or collective bargaining Agreement, (ii) agreement with any
officer or other key employee of SHBV, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving SHBV of the nature contemplated by this Agreement, (iii) agreement
with any officer of SHBV providing any term of employment or compensation
guarantee extending for a period longer than six months from the date hereof or
for the payment of compensation in excess of $50,000 per annum, or (iv)
agreement or plan, including any stock option plan, stock appreciation right
plan, restricted stock plan or stock purchase plan, any of the benefits of
which will
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be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. There is no unfunded prior
service cost with respect to any bonus, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option, or other employee
benefit or fringe benefit plans, whether formal or informal, maintained by
SHBV. SHBV has no bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal.
2.15 Compliance with Laws. SHBV has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation or applicable laws and
regulations of foreign governments with respect to the conduct of its business,
or the ownership or operation of its business, except for failures to comply or
violations which would not be reasonably likely to have a Material Adverse
Effect on SHBV.
2.16 Governmental Authorizations and Regulations. All licenses,
franchises, permits and other governmental authorizations held by SHBV are
valid and sufficient for the business presently carried on by SHBV.
2.17 Corporate Documents. SHBV has furnished to McAfee, or its
representatives, for its examination: (i) its minute books containing all
records of all proceedings, consents, actions, and meetings of the
stockholders, the board of directors and any committees thereof and (ii) all
permits, orders, and consents issued by any regulatory agency with respect to
SHBV, or any securities of SHBV, and all applications for such permits, orders,
and consents. The corporate minute books and other corporate records of SHBV
are complete and accurate in all material respects, and the signatures
appearing on all documents contained therein are the true signatures of the
persons purporting to have signed the same. All actions reflected in such
books and records were duly and
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validly taken in material compliance with the laws of the applicable
jurisdiction.
2.18 No Misrepresentation. No representation or warranty by SHBV
in this Agreement, any other Transaction Document, nor any certificate or
schedule furnished or to be furnished by or on behalf of SHBV pursuant to this
Agreement, when taken together with the foregoing, contains or shall contain
any untrue statement of material fact or omits or shall omit to state a
material fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading. SHBV has delivered true and complete copies of all documents
requested by McAfee and which are referred to in this Article II or in any
Schedule delivered by SHBV to McAfee. SHBV and the Shareholders make and have
made no representations or warranties to McAfee other than those specifically
expressed in this Article II. SHBV and the Shareholders make and have made no
representations and warranties as to the accuracy or completeness of any
information, whether in written, oral, magnetic or other form, that has been
disclosed to or made available to McAfee, other than the representations or
warranties specifically expressed in this Article II.
2.19 Restrictions on Business Activities. There is no judgment,
injunction, order or decree binding on SHBV which has or reasonably would be
expected to have the effect of prohibiting or materially impairing any current
business practice of SHBV, or any acquisition of material property by SHBV.
2.20 No Brokers. SHBV has not and will not incur any brokerage,
finder's, financial advisory, investment banking or similar fee in connection
with the transactions contemplated by this Agreement.
2.21 Insurance. SHBV maintains and has maintained fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance in amounts and scope typically maintained
by similarly situated businesses. Section 2.21 of the SHBV
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<PAGE> 30
Disclosure Schedule contains a list of all such insurance policies presently in
effect, and correct and complete copies of all such policies along with a
history of claims made under such policies have been provided to McAfee or
McAfee's counsel. The insurance policies listed in section 2.21 of the SHBV
Disclosure Schedule provide coverage for such risks on such conditions and in
such manner as is deemed adequate in the branch to which SHBV belongs, and the
premiums for such insurances have been paid for the period up to and including
the Closing Date.
2.22 Interested Party Transactions. No officer, director, employee
or consultant of SHBV nor any member of such person's immediate family
currently has or has had, either directly or indirectly, a material interest
in: (i) any person or entity which purchases from or sells, licenses or
furnishes to SHBV any goods, property, technology or intellectual or other
property rights or services; or (ii) any contractor Agreement to which SHBV is
a party or by which it may be bound or affected.
2.23 Pooling Matters. Neither SHBV nor any of its affiliates has,
and based upon consultation with its independent auditors, taken or agreed to
take any action that (without giving effect to this Agreement, the transactions
contemplated hereby or actions related thereto, or action taken or agreed to be
taken by McAfee or any of its affiliates) would adversely affect the ability
of McAfee to account for the business combination to be effected by the
Exchange as a "pooling of interests" under US Gaap.
2.24 Books and Records. The books, records and accounts of SHBV
(a) have been maintained at SHBV's principal place of business in accordance
with good business practices on a basis consistent with prior years, (b) are
stated in reasonable detail and accurately and fairly reflect the transactions
and dispositions of the assets of SHBV, and (c) accurately and fairly reflect
the basis for the SHBV Financial Statements. SHBV has devised and maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions
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are executed in accordance with management's general or specific authorization,
and (b) transactions are recorded as necessary (i) to permit preparation of SHBV
Financial Statements in conformity with Dutch Gaap, US Gaap or any other
criteria applicable to such statements and (ii) to maintain accountability for
asset.
2.25 Government Contracts. All representations, certifications and
disclosures made by SHBV to any Government Contract Party (as defined below)
have been in all material respects current, complete and accurate at the times
they were made. SHBV has no knowledge of, and has no reason to know of, any
acts, omissions or noncompliance with regard to any applicable public
contracting statute, regulation or contract requirement (whether express or
incorporated by reference) relating to any of SHBV's contracts with any
Government Contract Party (as defined below) in either case that have led to or
could lead to, either before or after the Closing Date, (a) any claim or
dispute involving SHBV and/or McAfee as successor in interest to SHBV and any
Government Contract Party, or (b) any suspension, debarment or contract
termination, or proceeding related thereto. SHBV has no knowledge of, and has
no reason to know of, any act or omission that relates to the marketing,
licensing or selling to any Government Contract Party of any of SHBV technical
data and computer software and that has led to or could lead to, either before
or after the closing date, any Material Adverse Effect on any of SHBV's rights
in and to its technical data and computer software. Except for (i) Dutch or
provincial government incentives for certain nonmaterial employees, and (11)
research tax credits, all of SHBV's development of technical data and computer
software was developed exclusively at private expense. For purposes of this
Agreement, the term "Government Contract Party" means any independent or
executive agency, division, subdivision, audit group or procuring office of
Dutch federal or provincial, or United States federal government, including any
prime contractor of either such federal government and any higher level
subcontractor of a prime contractor of either such federal government, and
including any employees or agents thereof, in each case acting in such
capacity.
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2.26 Severance Arrangements. Except as required by applicable law,
SHBV has not entered into any severance or similar arrangement in respect of
any employees that provides for any obligation (absolute or contingent) of SHBV
or any other person to make any payment to any such employee following
termination of employment.
2.27 Banking Relationships. The SHBV Disclosure Schedule sets
forth a complete and accurate description of all arrangements that SHBV has
with any banks, savings and loan associations or other financial institutions
providing for checking accounts, safe deposit boxes, borrowing arrangements,
and certificates of deposit or otherwise, indicating in each case account
numbers, if applicable, and the person or persons authorized to act or sign on
behalf of SHBV in respect of any of the foregoing.
2.28 Distribution Agreements. Section 2.28 of the SHBV Disclosure
Schedule lists any and all distribution contracts, agreements or arrangements
to which SHBV is a party and those parties for which SHBV distributes products.
Such agreements are valid, binding and in full force and effect. SHBV is not
in breach of any such agreement nor is SHBV aware that any other party to such
Agreement is in breach. No such agreement shall be breached or terminated as a
result of the Exchange.
2.29 Activities of Go Tech Nederland B.V.
(a) All assets, rights, contracts (except for (i) the rental
agreement for office space at the Jacob van Maerlantstraat 86 up to and
including 90, office unit 10a, at 's-Hertogenbosch, between Amgro Vught B.V.
and Go Tech Nederland B.V. (formerly named Communications and Productions
United B.V.), dated October 1, 1993 (the "Rental Agreement I") and (ii)the
rental agreement for office space at the Burgermeester van Lanschotlaan 2,
(first and second floor), at Vught, between 's-Hertogenbosch Meidoorn B.V. and
Go Tech Nederland B.V. (formerly named Communications and Productions United
B.V.), dated January 6, 1995, (the "Rental Agreement II")) and activities
related to the SHBV business
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within Go Tech Nederland B.V., a company owned by the Shareholders, have been
transferred to SHBV before Closing.
(b) The agreement dated January 1, 1995 between Go Tech Nederland
B.V. and SHBV in which it is agreed that all costs, rights and obligations in
relation to the Rental Agreement I shall be charged to SHBV, can be terminated
by SHBV with a termination notice of three months. Go Tech Nederland B.V.
shall not be entitled to any damages, cost or expenses in relation to such
termination.
(c) The agreement dated January 1,1995 between Go Tech Nederland
B.V. and SHBV in which it is agreed that all costs, rights and obligations in
relation to the Rental Agreement II shall be charged to SHBV, can be terminated
by SHBV with a termination notice of three months. Go Tech Nederland B.V.
shall not be entitled to any damages, cost or expenses in relation to such
termination.
(d) All agreements between SHBV and Go Tech Nederland B.V. in
which it is agreed that Go Tech Nederland B.V. will charge SHBV for costs made
in relation to its activities as value added reseller of McAfee Nederland B.V.
shall be terminated before Closing.
2.30 Assets. Section 2.30 of the SHBV Disclosure Schedule contains
a list of all assets owned by SHBV, which list is complete, accurate and not
misleading, and SHBV owns and possesses all of such assets, whether movable or
immovable, free and clear of any encumbrances and/or attachments.
2.31. Powers of Attorney. The power of attorney granted by SHBV to
Go Tech Nederland B.V. dated October 26, 1996, regarding the use of by Go Tech
Nederland B.V. of the giro account (no. 69.04.253) of SHBV has been withdrawn
before Closing. The power of attorney granted by McAfee Nederland to Go Tech
Nederland B.V. dated October 26, 1995, regarding the use by Go Tech Nederland
B.V. of the giro account (no. 68.30.922) of McAfee Nederland has been
withdrawn before Closing.
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2.32. Credit Agreement. The credit agreement entered into by SHBV,
McAfee Nederland and Go Tech Nederland B.V. as beneficiaries and ABN AMRO Bank
N.V. will be terminated before Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder hereby, jointly and severally, represents and warrants to
McAfee and Sub that:
3.1 Purchase for Own account. The Exchange Shares of McAfee to be
received in the Exchange will be acquired for investment for the Shareholders'
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and such Shareholder has no present intention
of selling, granting any participation in, or otherwise distributing the
Exchange Shares. By executing this Agreement, such Shareholder further
represents that the Shareholder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Exchange Shares.
3.2 Restricted Securities. Shareholder understands that the
Exchange Shares are characterized as "restricted securities" under the U.S.
federal securities laws inasmuch as they are being acquired in a transaction
not involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In addition, such Shareholder represents that it is familiar
with Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.3 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Shareholder further
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agrees not to make any disposition of all or any portion of the Exchange Shares
unless and until:
(a) There is then in effect a registration statement
under the Securities Act governing such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) Such Shareholder shall have notified McAfee of the
proposed disposition and shall have furnished McAfee with a detailed statement
of the circumstances surrounding the proposed disposition, and if reasonably
requested by McAfee, such Shareholder shall have furnished McAfee with an
opinion of counsel, reasonably satisfactory to McAfee that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that McAfee will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
3.4 Legends. It is understood that the certificates evidencing
the Exchange Shares may bear the following legend:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144 of such Act."
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF McAFEE AND SUB
McAfee and Sub represents and warrants to SHBV that the
statements contained in this Article IV are true and correct.
4.1 Organization and Good Standing. Each of McAfee and Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
to own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on McAfee or
Sub.
4.2 Authority: No Conflict: Required Filings and Consents.
(a) McAfee and Sub have or will have, prior to Closing,
all requisite corporate power and authority to enter into this Agreement and
the other Transaction Documents to which they are a party and to carry out
their obligations and consummate the transactions contemplated hereunder and
thereunder. The execution and delivery of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have or will have, prior to Closing, been duly authorized by all
necessary corporate action on the part of McAfee and, if applicable, Sub. This
Agreement has been duly executed and delivered by each of McAfee and Sub and
constitutes the valid and binding obligation of each of McAfee and Sub,
enforceable against it in accordance with its terms, except as limited by
applicable laws relating to bankruptcy laws or as may be limited by laws
relating to specific performance or other equitable remedies. The other
Transaction Documents, when duly executed and delivered by McAfee and, if
applicable, Sub, will constitute valid and binding obligations of McAfee and,
if applicable, Sub, enforceable in accordance with their respective terms,
except as
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limited by applicable laws relating to bankruptcy laws or as may be limited by
laws relating to specific performance or other equitable remedies.
(b) The execution and delivery of this Agreement and the
other Transaction Documents by McAfee and, if applicable, Sub, do not, and the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents will not, (i) conflict with, or result in any violation
or breach of any provision of the Certificate of Incorporation or Bylaws of
McAfee or Sub, (ii) result in any violation or breach of, or constitute (with
or without notice or lapse of time, or both) a default (or give rise to a right
of termination, cancellation or acceleration of any obligation or loss of any
benefit) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which McAfee or Sub is a party or by which either of them or any
of their properties or assets may be bound, or (iii) conflict with or violate
any permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to McAfee or Sub or any of their
properties or assets, except in the case of (ii) and (iii) for any such
breaches, conflicts, violations, defaults, terminations, cancellations,
accelerations or losses of benefits which would not be reasonably likely to
have a Material Adverse Effect on McAfee or Sub, taken as a whole. No consent
of any person who is a party to a contract that is material to McAfee's or
Sub's business, taken as a whole, is required to be obtained on the part of
McAfee or Sub to permit the transactions contemplated herein, except where the
failure to obtain such consent would not have a Material Adverse Effect on
McAfee or Sub, taken as a whole.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required
by or with respect to McAfee or Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby except for consents, authorizations,
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filings, approvals and registrations which, if not obtained or made, would be
reasonably likely to have a Material Adverse Effect on McAfee or Sub, taken as
a whole.
4.3. Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against McAfee pending, or to McAfee's knowledge,
threatened, which would be reasonably likely to have a Material Adverse Effect
on the ability of McAfee to consummate the transactions contemplated by this
Agreement or the other Transaction Documents.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of SHBV. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Closing, SHBV agrees (except to the extent that McAfee shall otherwise
consent in writing), to carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, to
pay its debts and taxes when due, Subject to good faith disputes over such
debts or taxes, to pay or perform other obligations when due, subject to good
faith disputes over such obligations, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, to the end that its goodwill and
ongoing businesses shall not be impaired in any material respect at the
Closing. SHBV shall promptly notify McAfee of any event or occurrence not in
the ordinary course of business of SHBV. Except as expressly contemplated by
this Agreement, SHBV shall not, without the prior written consent of McAfee:
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(a) Transfer or license to any person or entity or
otherwise extend, amend or modify any rights to the SHBV Intellectual Property
Rights other than in the ordinary course of business consistent with past
practices;
(b) Enter into or amend any agreement which grants
distribution rights to SHBV;
(c) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock;
(d) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into shares of its
capital stock, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities;
(e) Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division, or otherwise acquire or agree to acquire, other than in the ordinary
course of business, any assets which are material, individually or in the
aggregate, to the business of SHBV;
(f) Take any of the following actions: (i) increase or
agree to increase the compensation payable or to become payable to its officers
or employees, except for increases in salary or wages of non-officer employees
in the ordinary course of business and in accordance
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with past practices, (ii) grant any additional severance or termination pay to,
or enter into any employment or severance agreements with, officers, (iii)
grant any severance or termination pay to, or enter into any employment or
severance agreement, with any employee, (iv) enter into any collective
bargaining agreement, (v) establish, adopt, enter into or amend in any material
respect any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees;
(g) Incur any additional indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of SHBV or guarantee any debt
securities of others, other than indebtedness incurred under outstanding lines
of credit consistent with past practice;
(h) Amend or propose to amend its Articles of
Association, except as contemplated by this Agreement;
(i) Incur or commit to incur any capital expenditures
(other than for non-equipment related research and development expenses) in
excess of $25,000 in the aggregate;
(j) Dispose of any material portion of its assets, except
inventory in the ordinary course of business;
(k) Enter into any lease or contract for the purchase or
sale of any assets or other material portion of its property, real or personal,
except in the ordinary course of business;
(l) Amend or terminate any material contract, agreement
or license to which it is a party;
(m) Waive or release any material right or claim;
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(n) Initiate any litigation or arbitration proceeding; or
(o) Take, or agree in writing or otherwise to take, any
of the actions described in Sections (a) through (n) above, or any action which
is reasonably likely to make any of SHBV's representations or warranties
contained in this Agreement untrue or incorrect in any respect on the date made
or as of the Closing.
5.2 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Closing, each of McAfee and SHBV shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations and shall promptly provide the other party or its counsel with
copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Exchange and the transactions contemplated
hereby.
5.3 Notice of Breach. Each party shall promptly give written
notice to the other party upon becoming aware of the occurrence or, to its
knowledge, impending or threatened occurrence, of any event which would cause
any of its representations or warranties to be untrue on the Closing or cause a
breach of any covenant contained or referenced in this Agreement and will use
all reasonable commercial efforts to prevent or promptly remedy the same. Any
such notification shall not be deemed an amendment of the SHBV Disclosure
Schedule.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 No Solicitation.
(a) From and after the date of this Agreement until the
Closing, SHBV shall not, directly or indirectly, through any officer,
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director, employee, representative or agent of SHBV, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of all or substantially all of the assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or
similar transactions involving SHBV, other than the transactions contemplated
by this Agreement (any of the foregoing inquiries or proposals being referred
to in this Agreement as an "Acquisition Proposal"), (ii) engage in negotiations
or discussions concerning, or provide any non-public information to any person
or entity relating to, any Acquisition Proposal, or (iii) agree to, approve or
recommend any Acquisition Proposal.
(b) SHBV shall notify McAfee immediately (and no later
than 24 hours) after receipt by SHBV (or its advisors) of any Acquisition
Proposal or any request for information in connection with an Acquisition
Proposal or for access to the properties, books or records of SHBV by any
person or entity that informs SHBV that it is considering making, or has made,
an Acquisition Proposal. Such notice shall be made orally and in writing and
shall indicate in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact.
6.2 SHBV Consents. SHBV shall use its best efforts to obtain all
necessary consents, waivers and approvals under the SHBV Material Contracts in
connection with the Exchange.
6.3 Access to Information. Upon reasonable notice, SHBV shall
afford to the officers, employees, accountants, counsel and other
representatives of McAfee, access, during normal business hours during the
period prior to the Closing, to all its properties, books, contracts,
commitments and records and, during such period, and all other information
concerning its business, properties and personnel as McAfee may reasonably
request.
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6.4 Legal Conditions to Exchange. Each of McAfee and SHBV will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Exchange (which
actions shall include, without limitation, furnishing all information required
in connection with approvals of or filings with any Governmental Entity) and
will promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon either of them in connection
with the Exchange.
6.5 Public Disclosure. SHBV and McAfee shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Exchange or this Agreement and shall not issue any such
press release or make any such public statement prior to such consultation,
except in the case of McAfee if such press release is required to comply with
McAfee's disclosure obligations under Securities and Exchange Commission and
Nasdaq National Market rules and regulations.
6.6 Additional Agreements; Reasonable Efforts. Each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including cooperating fully with
the other party, including by provision of information. In case at any time
after the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
6.7 SHBV Affiliates Agreement. To ensure that the Exchange will
be accounted for as a "pooling of interests" and to ensure compliance with Rule
145 of the rules and regulations promulgated by the SEC under the Securities
Act, the affiliates of SHBV shall concurrently sign and deliver to McAfee, the
SHBV Affiliate Agreement in the form of Exhibit 6.7 (the "SHBV Affiliates
Agreement") agreeing that such affiliates
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will make no disposition of SHBV shares or McAfee stock from the date hereof
until McAfee shall have publicly released its first report of quarterly
financial statements that include the combined financial results of SHBV and
McAfee for a period of at least 30 days, and agreeing to certain other
restrictions as set forth in such SHBV Affiliates Agreement.
ARTICLE VII
CONDITIONS TO EXCHANGE
7.1 Conditions to Each Party's Obligation to Effect the Exchange.
The respective obligations of each party to this Agreement to effect the
Exchange shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity the failure of which to obtain
would be reasonably likely to have a Material Adverse Effect on McAfee or SHBV
shall have been filed, occurred or been obtained.
(b) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Exchange or
limiting or restricting McAfee's or SHBV's conduct or operation of the business
of McAfee or SHBV after the Exchange shall have been issued, nor shall any
proceeding brought by a domestic administrative agency or commission or other
domestic governmental Entity, seeking any of the foregoing be pending; nor
shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Exchange which makes the
consummation of the Exchange illegal.
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(c) Escrow Agreement. McAfee, the Escrow Agent and the
Shareholders' Agent shall have entered into an escrow agreement (the "Escrow
Agreement") in the form attached hereto as Exhibit 7.1(c).
7.2 Additional Conditions to Obligations of McAfee and Sub. The
obligation of McAfee and Sub to effect the Exchange is subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by McAfee in accordance with Section 11.11 hereof:
(a) Representations and Warranties. The representations
and warranties of SHBV and the Shareholders set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date.
(b) No Material Adverse Change. There shall have been no
Material Adverse Change in SHBV since the date of this Agreement.
(c) Performance of Obligations of SHBV. SHBV shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(d) Consents. SHBV shall have received all written
consents, waivers and approvals and taken such other actions necessary or
appropriate to allow the consummation of the transactions contemplated hereby
and to allow SHBV to carry on its business after the Exchange in the same
manner immediately prior to the Exchange, including any consents, waivers and
approvals under SHBV Material Contracts.
(e) Pooling Letter. McAfee shall have received from
Coopers & Lybrand, L.L.P. an opinion, in form and substance satisfactory to
McAfee, that the Exchange will be treated as a "pooling of interests" for
accounting purposes.
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(f) Due Diligence. McAfee and its legal counsel shall
have completed their due diligence investigation of SHBV to their sole
satisfaction and shall not have become aware, to their sole discretion, of any
facts or circumstances which could have an adverse effect on SHBV or McAfee.
(g) Employment Agreement. Ad Schuurkes ("Schuurkes") and
SHBV shall have executed and delivered the Employment Agreement in the form
attached as Exhibit 7.2(g) hereto (the "Employment Agreement"). Amitges Beheer
B.V. and SHBV acknowledge that the Employment Agreement replaces all prior
management and/or employment relationships between Amitges Beheer B.V. and
SHBV.
(h) Non-competition Agreement. Each of the Shareholders
and McAfee shall have executed and delivered the Non-competition Agreement in
the form attached hereto as Exhibit 7.2(h) hereto (the "Non-competition
Agreement").
(i) Regulatory Compliance and Approval. All permits,
consents, approvals and waivers from governmental authorities necessary to the
consummation of this Agreement and the transactions contemplated hereby and for
the operation of the business of SHBV after the consummation of the Exchange
and the ownership of the SHBV Intellectual Property Rights after the
consummation of the Exchange shall have been obtained.
(j) Registration Rights Agreement. McAfee and the
Shareholders shall have executed and delivered the Registration Rights
Agreement in the form attached hereto as Exhibit 7.2(j).
(k) Resignations of Directors. McAfee shall have
received originals of the resignations from office of each of the managing
director of SHBV and McAfee Nederland B.V.
(l) Acceptance SHBV Disclosure Schedule. McAfee shall
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have received the SHBV Disclosure Schedule, which shall be countersigned for
acceptance by McAfee and attached as Schedule C.
(m) Legal Opinion. McAfee shall have received a signed
legal opinion of the legal counsel of SHBV and the Shareholders in a form
acceptable to McAfee.
(n) Assignment of Rights. Go Tech Nederland B.V. and
SHBV shall have executed and delivered the Assignment of Rights statement in
the form attached as Exhibit 7.2 (n) hereto ("Assignment of Rights").
7.3 Additional Conditions to Obligations of the Shareholders and
SHBV. The obligation of the Shareholders and SHBV to effect the Exchange is
subject to the satisfaction of each of the following conditions, any of which
may be waived, in writing, exclusively by SHBV in accordance with Section 11.11
hereof.
(a) Representations and Warranties. The representations
and warranties of McAfee and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except
to the extent such representations speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date.
(b) Perform Obligations of McAfee and Sub. McAfee and Sub
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) Employment Agreement. The Company and Schuurkes
shall have executed and delivered the Employment Agreement.
(d) Non-competition Agreement. McAfee and each of the
Shareholders shall have executed and delivered the Non-Competition Agreement.
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(e) Affiliates Agreement. McAfee's affiliates shall have
executed and delivered affiliates Agreements to McAfee.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the matters presented
in connection with the Exchange by the Shareholders of SHBV:
(a) by mutual written consent of McAfee and SHBV; or
(b) by either McAfee or SHBV if the Exchange shall not
have been consummated by March 1, 1997 (provided that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any material obligation under this Agreement has been
the cause of or resulted in the failure of the Exchange to occur on or before
such date); or
(c) by either McAfee or SHBV, if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Exchange, except, if the party relying on such order, decree or ruling or other
action has not materially complied with its obligations under Section 6.4 of
this Agreement; or
(d) by McAfee if any of the conditions to McAfee's
obligations to effect the Exchange which are specified in Section 7.1 or
Section 7.2 have not been met or waived by McAfee at such time as such
condition is no longer reasonably capable of satisfaction (provided by McAfee
is not otherwise in material breach of its representations, warranties
covenants or Agreements under this Agreement);
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(e) by SHBV if any of the conditions to SHBV's obligation
to effect the Exchange which are specified in Section 7.1 or Section 7.3 have
not been met or waived by SHBV at such time as such condition is no longer
reasonably capable of satisfaction, including the failure to obtain any
required approval of its shareholders (provided SHBV is not otherwise in
material breach of its representations, warranties, covenants or agreements
under this Agreement); or
(f) by McAfee or SHBV, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of
the other party set forth in this Agreement, which breach shall not have been
cured, in the case of a representation or warranty, prior to the Closing or, in
the case of a covenant or agreement, within 10 business days following receipt
by the breaching party of written notice of such breach from the other party.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in section 8. 1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of McAfee, Sub,
SHBV, or their respective officers, directors or stockholders, as the case may
be, or Affiliates, and further except to the extent that such termination
results from the intentional breach by a party of any of its representations,
warranties or covenants set forth in this Agreement.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Notwithstanding any investigation conducted before or after the
Closing Date, and notwithstanding any actual or implied knowledge or notice of
any facts or circumstances which McAfee, the Shareholders or SHBV may have as a
result of such investigation or otherwise, McAfee, the Shareholders and SHBV
will be entitled to rely upon the other party's representations, warranties and
covenants set forth in this Agreement.
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The obligations of SHBV and the Shareholders with respect to their respective
representations, warranties, Agreements and covenants will survive the Closing
and continue in full force and effect until the date 12 months following the
Closing Date (the "Representation Termination Date"); provided, however, that
the representations and warranties of SHBV and the Shareholders as to all items
expected to be encountered in the audit process shall terminate when McAfee
publishes its audited Financial Statements for the fiscal year ending December
31, 1997 (the "Financial Termination Date"). McAfee and its advisor(s) have
reviewed documents provided by the Shareholders and SHBV in relation to their
due diligence investigation as mentioned in clause 7.2(f).
ARTICLE X
INDEMNIFICATION AND ESCROW
10.1 (a) Indemnity. From and after the Closing of the Exchange,
and Subject to the provisions of Section 9, McAfee and Sub shall be indemnified
and held harmless by the Shareholders against, and reimbursed for, any actual
liability, damage, loss, obligation, demand, judgment, fine, penalty, cost or
expense (excluding any indirect or consequential damages to McAfee (such as
lost profits), other than any such damages resulting from injunctive relief
granted as to an intellectual property claim, but including reasonable
attorneys' fees (excluding costs relating to in-house attorneys) and expenses,
and the costs of investigation (excluding in-house costs of investigation)
incurred in defending against or settling such liability, damage, loss, cost or
expense or claim therefor and any amounts paid in settlement thereof) imposed
on or reasonably incurred by McAfee or Sub as a result of any misrepresentation
or breach of any representation, warranty, Agreement or covenant on the part of
SHBV and/or any of the Shareholders under this Agreement (collectively the
"Damages"). Damages in each case shall be net of the amount of any insurance
proceeds, indemnity and contribution actually recovered by McAfee or Sub.
"Damages" as used herein is not limited to matters asserted by third parties,
but includes Damages incurred or sustained by McAfee
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or Sub in the absence of claims by a third party. For purposes of this
subsection 10.1 and Section 10.2, the term "McAfee" shall include SHBV and the
business of SHBV after the Closing.
10.1 (b) Limitation of liability. In the absence of fraud by
the Shareholders or SHBV, claims of McAfee under 10.1(a) can be made only if
the aggregate amount of all recoverable claims exceed $25,000 in which event
the total amount of such claims shall be recoverable. McAfee's indemnity
rights under 10.1(a) shall be limited to the Escrow Fund, except, however, that
the Shareholders, jointly and severally, shall indemnify McAfee, Sub and SHBV
from and against any and all damages, costs, expenses, taxes, tax liabilities
or social security contributions (including related penalties and interest)
that arise from or that are in connection with the prior management
relationship between Amitges Beheer B.V. and SHBV, during a period of time
ending at the end of the sixth (6th) month after the date on which the relevant
statute of limitations (termijn voor navordering of naheffing) has lapsed.
McAfee and Sub shall ensure, provided and to the extent that this will in its
sole judgment not adversely affect SHBV, that the Shareholders and its advisors
will be given the opportunity to participate in the defense (including
objections ("bezwaar") or appeal ("beroep" or "cassatie") to be filed with the
tax or social security authorities or the competent Court of Courts) of any
claim of the tax authorities in relation to the prior management relationship
between Amitges Beheer B.V. and SHBV. All costs and expenses in relation to
such defence (including objections ("bezwaar") or appeal ("beroep" or
"cassatie") to be filed with the tax or social security authorities or the
competent Court of Courts) will be borne by the Shareholders. The Shareholders
will keep McAfee, Sub and SHBV informed about the development of the defense
and McAfee, Sub and SHBV will be given the opportunity to comment on and to
review any and all relevant documents in relation to such defense.
10.2 Escrow Fund. As security for the indemnity provided for in
Section 10.1 hereof, 10% of the Aggregate Exchange Shares to be received
pursuant to Section 1.3 hereof (the "Escrow Shares") shall be deposited
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with and held in escrow by Greater Bay Trust Company (or other institution
selected by McAfee) as escrow agent (the "Escrow Agent"), as of the Closing
Date, such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth in this Agreement and the provisions of the
Escrow Agreement. Upon compliance with the terms hereof and Subject to the
provisions of this Section 10, McAfee and Sub shall be entitled to obtain
indemnity from the Escrow Fund for Damages covered by the indemnity provided
for in section 10.1 of this Agreement. McAfee shall compensate the escrow
agent for its services in maintaining the escrow fund. Unless and until the
escrow shares are delivered to the Shareholders in accordance with the
provisions of this Section 10 and the Escrow Agreement all Exchange Shares held
in the Escrow Fund shall be registered in the name of the Shareholders.
10.3 Escrow Period. The escrow fund shall remain in existence
during the period of time (the "Escrow Period") between the Closing and the
Representation Termination Date provided that the Escrow Fund shall remain
Subject to any indemnity claim for which notice has been duly given prior to
the applicable Termination Date, and until such time as such indemnity claim
has been finally decided, settled or adjudicated.
10.4 Protection of Escrow Fund. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, in accordance with the
terms of this Agreement and not as the property of McAfee or the Shareholders,
and shall hold and dispose of the Escrow Fund only in accordance with the terms
of the Escrow Agreement.
10.5 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on
or before the Representation Termination Date of a certificate signed by any
officer of McAfee (an "Officer's Certificate"):
(a) stating that McAfee has paid or properly accrued or
knows of facts giving rise to a reasonable probability that it shall have to
pay or accrue Damages in an aggregate stated amount with respect
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to which McAfee or Sub is entitled to payment from the Escrow Fund pursuant to
this Agreement (the "Damage Amount");
(b) specifying in reasonable detail the individual items
of Damages included in the amount so stated, the date each such item was paid
or properly accrued, or the basis for such anticipated liability and the
specific nature of the misrepresentation or breach to which such item is
related; and
(c) specifying the number of Escrow Shares to be
delivered to McAfee which in the aggregate shall equal the Damage Amount based
upon the value of each Escrow Share as of the Closing Date as determined based
upon the average Closing price of the McAfee Common Stock as traded on the
Nasdaq National Market for the 10 consecutive trading days ending one trading
day prior to the Closing Date (the "Average Share Price"); as adjusted for
stock dividends, stock splits and combinations which occur after the Closing),
the Escrow Agent shall, Subject to the provisions of Section 10.6 of this
Agreement, deliver to McAfee, that number of Escrow Shares specified in the
Officer's Certificate.
10.6 Objection to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of the Officer's Certificate
shall be delivered to the Shareholders' Agent (as defined below) and, for a
period of thirty (30) days after such delivery, the Escrow Agent shall not
deliver any Escrow Shares pursuant to Section 10.5 hereof unless the Escrow
Agent shall have received written authorization from the Shareholders' Agent to
make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of the Escrow Shares in accordance with
Section 10.5, provided that no such delivery may be made if the Shareholders'
Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
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<PAGE> 54
10.7 Resolution of Conflicts.
(a) Memorandum of Agreement. In case the Shareholders'
Agent shall properly object in writing pursuant to Section 10.6 to the
indemnity of McAfee in respect of any claim or claims made in any Officer's
Certificate, the Shareholders' Agent and McAfee shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Agent and McAfee should so agree, a memorandum
setting forth such Agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and distribute the Escrow Shares from the Escrow
Fund in accordance with the terms thereof.
(b) Arbitration. If no such agreement can be reached
after good faith negotiation within thirty (30) days, either McAfee or the
Shareholders' Agent may demand arbitration of the matter unless the amount of
the damage or loss at issue is pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both McAfee and the Shareholders' Agent agree to arbitration, and in such event
the matter shall be settled by arbitration conducted by three arbitrators.
McAfee and the Shareholders' Agent shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The decision of the
arbitrators so selected as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to this
Agreement, and, notwithstanding anything in Section 10.6, the Escrow Agent
shall be entitled to act in accordance with such decision and make or withhold
payments or distributions out of the Escrow Fund in accordance with such
decision.
(c) Judgment. Any such arbitration shall be held in
Santa Clara, California, USA under the commercial rules then in effect of the
American Arbitration Association ("AAA") . Judgment upon any award rendered by
the arbitrators may be entered in any court having jurisdiction.
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<PAGE> 55
For the purposes of this Section 10.7(c), in any arbitration hereunder in which
any claim or the amount thereof stated in the Officer's Certificate is at
issue, McAfee shall be deemed to be the non-prevailing party unless the
arbitrators award McAfee more than 50% of the amount in dispute; otherwise, the
Shareholders shall be deemed to be the non-prevailing party. The
non-prevailing party to an arbitration hereunder shall pay its own expenses,
the fees of each arbitrator, the administrative fee of AAA, and the expenses
(including, without limitation, attorneys' fees and costs) incurred by the
other party to the arbitration.
10.8 Third-Party Claims. In the event McAfee becomes aware of a
third-party claim which McAfee believes may result in a demand against the
Escrow Fund, McAfee shall promptly notify the Shareholders' Agent of such
claim. McAfee shall have the right to settle any claim with the written
consent of the Shareholders' Agent, which consent shall not be unreasonably
withheld. In the event that the Shareholders' Agent have consented to any such
settlement, the Shareholders shall not have any power or authority to object to
the amount of any claim by McAfee against the Escrow Fund for indemnity with
respect to such settlement. If any proceeding is commenced, or if any claim,
demand or assessment is asserted, in respect of which a claim for
indemnification is or might be made against the Escrow Fund based on matters
other than (i) SHBV Intellectual Property Rights or (ii) claims made by
customers of McAfee, SHBV or McAfee Nederland, the Shareholders may, at their
option, contest or defend any such action, proceeding, claim, demand or
assessment, with counsel selected by the Shareholders who is reasonably
acceptable to McAfee; provided, however, that if McAfee shall reasonably object
to such control, then the Shareholders and McAfee shall cooperate in the
defense of such matter; provided further, that the Shareholders shall not admit
any liability with respect thereto or settle, compromise, pay or discharge the
same without prior written consent of McAfee, which consent shall not be
unreasonably withheld. With respect to any claim for indemnification based on
matters relating to SHBV Intellectual Property Rights or customers of SHBV,
McAfee or McAfee Nederland, McAfee shall have the option to defend any such
proceedings; provided, however, that
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<PAGE> 56
McAfee shall conduct such defense in a commercially reasonable manner and
McAfee shall not admit any liability with respect thereto or settle,
compromise, pay or discharge the same without the prior written consent of the
Shareholders, which consent shall not be unreasonably withheld. The
Shareholders or McAfee, whichever is not controlling the defense of any
matter, shall be entitled, at their expense, to participate in such defense.
10.9 Limits. Notwithstanding any other provision in this Agreement
or any rule of law or equity:
(a) McAfee shall not be entitled to maintain a claim
against the Shareholders in respect of any Damages incurred by McAfee as a
result of McAfee's own gross negligence or willful misconduct, or that of its
employees, agents or contractors other than the Shareholders, or as a result of
any occurrence, matter or thing the occurrence, existence or non-disclosure of
which constitutes a material breach or failure of any representation, warranty,
covenant or other obligation of McAfee hereunder;
(b) McAfee shall not be entitled to recover any indirect,
consequential or special damages from the Shareholders: and
(c) McAfee shall be obligated to use reasonable efforts
to mitigate any Damages sustained by it in connection with any matter for which
the Shareholders may have liability to McAfee.
10.10 Dismissal of employees. McAfee, SHBV and the Shareholders
acknowledge that the employment relationship with certain employees of SHBV
identified by parties within 30 days after Closing, will have to be terminated
as soon as possible, but no later than 30 days after Closing. All costs and
expenses incurred in connection with such termination(s), including redundancy
or settlement payments, will be borne by SHBV up to a maximum amount equal to
the aggregate amount of salary that each of such employees receives during a
period equal to
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the one month notarial period plus one and one-half months for each full year
of service that such employee has been employed by the Company. To the extent
the costs and expenses incurred in connection with the termination(s) exceed
the amount as mentioned in the preceding sentence, such costs and expenses can
be claimed upon the Escrow Fund by McAfee.
10.11 Shareholders' Agent. Peter Peters (the "Shareholders' Agent")
shall be appointed by and constitute the agent and attorney-in-fact of each
Shareholder, for and on behalf of such Holders; to execute the Escrow
Agreement; to give and receive notices and communications; to authorize
delivery to McAfee of funds from the escrow in satisfaction of claims by
McAfee; to object to such deliveries; to agree, to negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims; and to take
all actions necessary or appropriate in the judgment of the Shareholders' Agent
for the accomplishment of the foregoing. If the Shareholders' Agent ceases to
act as a Shareholder' Agent for any reason, such Shareholders' Agent shall
notify McAfee and the Escrow Agent of such Shareholders' Agent intent to resign
as Shareholders' Agent and the Shareholders may by written notice to McAfee and
Escrow Agent appoint a successor Shareholders' Agent. The Shareholders' Agent
shall not be liable for any action taken or not taken as a Shareholders' Agent
in the absence of such Shareholders' Agent's gross negligence or willful
misconduct. A decision, act, consent or instruction of Shareholders' Agents
shall constitute a decision of all the Shareholders, and shall be final,
binding and conclusive upon each of the Shareholders, and the escrow agent,
McAfee may rely upon any decision, act, consent or instruction of Shareholders'
Agents as being the decision, act, consent or instruction of each and all of
the Shareholders.
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<PAGE> 58
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to McAfee, to
McAfee Associates, Inc.
2710 Walsh Avenue
Santa Clara, CA 95051-0963
Attention: William L. Larson,
President and chief executive officer
With a copy to:
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
155 Constitution Drive
Palo Alto, California 94025
Attention: Carla S. Newell
and
De Brauw Blackstone Westbroek
Tripolis 300
Burgerweeshuispad 301
1076 HR Amsterdam
P.O. Box 75084
1070 AB Amsterdam
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<PAGE> 59
Attention: R.I.V. Scherpenhuijsen Rom
(b) if to SHBV, to
SHBV
Van Lanschotlaan 2
5262 AG Vught
Attention: Chief Executive Officer
(c) if to the Shareholders,to
P.A.G. Peters
Konijnenlaan 4
2243 ER Wassenaar
with a copy to:
Bogaerts en Groenen, Advocaten
Postbus 127
5280 AC Boxtel
Attention: M. Bogaerts
All notices shall be effective on receipt.
11.2 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation". The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date first set forth in
this Agreement.
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<PAGE> 60
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same Agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement: No Third Party Beneficiaries. This
Agreement, the other Transaction Agreements and the Confidentiality Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire Agreement and supersede all prior Agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder other than the rights of the
Shareholders to receive the consideration specified in Article I of this
Agreement.
11.5 (a) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California without regard
to any applicable conflicts of law.
11.5 (b) Arbitration. All disputes, controversies or claims arising
out of or in connection with this Agreement and the Schedules and Exhibits
attached thereto, or for breach, including and any question regarding the
existence, validity or termination, thereof, shall exclusively be settled in
accordance with the commercial rules then in effect of the American Arbitration
Association ("AAA"). The arbitral tribunal shall be composed of three
arbitrators. The place of arbitration shall be Santa Clara, California, USA.
The arbitral procedure shall be conducted in the English language.
11.6 Assignment. Unless otherwise provided herein, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement will be binding
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upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns.
11.7 Attachments and Schedules. All attachments and schedules
attached hereto, together with the SHBV Disclosure Schedule, are incorporated
herein by reference.
11.8 Severability. In the event that any provision contained
herein shall be held to be invalid, illegal or unenforceable for any reason,
such invalidity, illegality or unenforceability shall not affect
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<PAGE> 62
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
11. Fees and Expenses. All costs and expenses, including
professional fees, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense. The Shareholders shall be responsible for any expenses incurred by
the Shareholders and SHBV.
11.10 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.11 Extension; Waiver. At any time prior to the Closing, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the Agreements or conditions contained herein. Any
Agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
IN WITNESS WHEREOF, McAfee, SHBV and the Shareholders have caused this
Stock Exchange Agreement to be signed by their respective officers thereto duly
authorized as of the date first written above.
Schuijers Holding B.V.
[SIGNATURE]
- -----------------------------
By: Amitges Beheer B.V.
--------------------------
Title: managing director
-----------------------
By: A.C.A. Schuurkes
--------------------------
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<PAGE> 63
McAfee Associates Inc.
[signature]
- -----------------------------
By: R. Terry Duryea
-------------------------
Title: Vice President
-----------------------
FSA Combination Corporation
[signature]
- -----------------------------
By: R. Terry Duryea
--------------------------
Title: Vice President
-----------------------
Shareholders
Amitges Beheer B.V.
[SIGNATURE]
- -----------------------------
By: A.C.A. Shuurkes
---------------------------
Title: managing director
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<PAGE> 64
[SIGNATURE]
- -----------------------------
Drs P.A.G. Peters
[SIGNATURE]
- -----------------------------
N.A.M. Huijbregts
This Agreement is co-signed by Go Tech Nederland B.V. in proof of its
acknowledgement of this Agreement and of its acceptance of its obligations
under this Agreement.
Go Tech Nederland B.V.
[SIGNATURE]
- -----------------------------
By: A.C.A. SCHUURKES
Title: managing director
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<PAGE> 65
The undersigned:
** [illegible], born in ** [illegible] on ** [illegible] residing in
5251 EJ Vlijmen, Meliestraat 40, married with Nicolaas Arnoldus Maria
Huijbregts ("Huijbregts").
WHEREAS:
Huijbreqts intends to enter into various agreements, inter alia a Stock
Exchange Agreement and additional agreements as referred to in the Stock
Exchange Agreement, regarding the transfer of 13,200 shares held by Huijbregts
in the share capital of the private company with limited liability: Schuijers
Holding B.V., with corporate seat in 's-Hertogenbosch, the Netherlands and
address at: 5262 AG Vught, Van Lanschotlaan 2, to FSA Combination Corporation,
a Delaware corporation in exchange for shares in the capital of McAfee
Associates, Inc., a Delaware Corporation.
declares:
the undersigned approves the entering into and performance by
Huijbregts of the Stock Exchange Agreement and additional agreements
pursuant to section 1:88 Civil Code.
Signed in ** 's Hertogenbosch on ** 27 February 1997.
[SIGNATURE] [SIGNATURE]
- -------------------------------
H.A.M. Huijbreqts
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<PAGE> 66
The undersigned:
** Mary Beti Duarte, born in ** Guaicara on ** 20-04-1949
residing in 2243 ER Wassenaar, Konijnenlaan 4, married with Adrianus Gerardus
Peters ("Peters").
WHEREAS:
Peters intends to enter into various agreements, inter alia a Stock Exchange
Agreement and additional agreements as referred to in the Stock Exchange
Agreement, regarding the transfer of 13,200 shares held by Peters in the share
capital of the private company with limited liability: Schuijers Holding BV.,
with corporate seat in 's-Hertogenbosch, the Netherlands and address at: 5262
AG Vught, Van Lanschotlaan 2, to FSA Combination Corporation, a Delaware
corporation in exchange for shares in the capital of McAfee Associates, Inc., a
Delaware Corporation.
declares:
the undersigned approves the entering into and performance by Peters
of the Stock Exchange Agreement and additional agreements pursuant to
section 1:88 Civil Code.
Signed in ** Wassenauer on ** 25 February 1997.
/s/ Mary B. D. Peters
- --------------------------------------
Name:
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<PAGE> 67
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ____ day of
February __, 1997, by and between McAfee Associates Inc., a Delaware
corporation (the "Company"), and the shareholders listed on Schedule A hereto
(collectively, the "Shareholders" and individually, a "Shareholder") of
Schuijers Holding B.V., a Dutch private company with limited liability ("SHBV").
RECITALS
WHEREAS, the Company, FSA Combination Corp. ("Sub"), SHBV and the
Shareholders are parties to the Stock Exchange Agreement, dated February __,
1997 (together with all exhibits, schedules, supplements and any amendments
thereto, the "Stock Exchange Agreement") , pursuant to which the Sub shall
acquire all the outstanding shares of capital stock of SHBV (the "Exchange");
WHEREAS, the execution and delivery of this Agreement is a condition
to the Closing of the Exchange;
WHEREAS, the Stock Exchange Agreement provides that, as of the Closing
Date, all the outstanding shares of capital stock of SHBV held by the
Shareholders immediately prior to the Closing shall be exchanged for shares of
common stock (the "Common Stock") of the Company (the "Exchange") and that such
Shareholders be granted registration rights as set forth herein; and
WHEREAS, all terms not otherwise defined herein shall have the same
meanings ascribed to them in the Stock Exchange Agreement;
<PAGE> 68
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) the term "Act" means the Securities Act of 1933, as
amended.
(b) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(c) The term "register", "registered," and "registration"
refer to a registration effected by preparing and
filing a registration statement or similar document
in compliance with the Act, and the declaration or
ordering of effectiveness of such registration
statement or document.
(d) The term "Registrable Securities" means the Common
Stock of the Company issued to the Shareholders in
the Exchange, and any Common Stock of the Company
issued as (or issuable upon the conversion or
exercise of any warrant, right or other security
which is issued as) a dividend or other distribution
with respect to such Common Stock.
(e) The term "Rule 144" shall mean Rule 144 promulgated
under the Act, as amended from time to time, or any
similar successor rule thereto that may be
promulgated by the SEC.
(f) The term "SEC" shall mean the Securities and Exchange
Commission.
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<PAGE> 69
1.2 Request for Registration.
(a) Subject to the limitations of subsection 1.2(c)
hereof, if the Company shall receive at any time
after at least six months following the Closing, a
written request from Shareholders holding a majority
of the then outstanding Registrable Securities that
the Company file a registration statement under the
Act, the Company will effect, as soon as practicable
after the receipt of such request, the registration
under the Act of all Registrable Securities which the
Shareholder or Shareholders request to be registered.
The Company shall not be required to register
Registrable Securities pursuant to this subsection
1.2(a) on more than one occasion.
(b) Notwithstanding the foregoing, if the Company shall
furnish to the Shareholders a certificate signed by
the Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to
the Company and its stockholders for such
registration statement to be filed, and it is
therefore essential to defer the filing of such
registration statement, the Company shall have the
right to defer taking action with respect to such
filing for a period of not more than 120 days after
receipt of the request of the Shareholders; provided,
however, that the Company may not utilize this right
more than once for the registration requested under
subsection 1.2(a) above.
(c) Notwithstanding the foregoing, the Company (i) shall
not be required to register any Registrable
Securities that are, at the effective date of the
registration statement, held in escrow, pursuant to
the terms of the Stock
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<PAGE> 70
Exchange Agreement and the Escrow Agreement and (ii)
at its election, (except those held in Escrow) can
register the Registrable Securities pursuant to the
terms of this Agreement, in which event, the
registration rights of the Shareholders under Section
1.2(a) shall be terminated.
1.3 Obligations of the Company.
Whenever required under this Section 1 to effect the
registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC as soon as practicable,
but in no event later than 90 days after a request
for registration has been made under Section 1.2, a
registration statement with respect to such
Registrable Securities and use reasonable efforts to
cause such registration statement to become
effective, and, subject to the provisions below, use
reasonable efforts to keep such registration
statement effective for a period of sixty (60) days
or, if earlier, until the distribution contemplated
in the registration statement has been completed. If
at any time after a registration statement becomes
effective, the Company advises the Shareholders
requesting registration in writing that due to the
existence of material information that has not been
disclosed to the public and included in the
registration statement it is necessary to amend the
registration statement, the Shareholders shall
suspend any further sale of Registrable Securities
pursuant to the Registration Statement until the
Company advises the Shareholders that the
registration statement has been amended. In such
event, the Company shall cause the registration
statement to be amended as soon as reasonably
practicable,
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<PAGE> 71
provided that the Company shall not be required to
amend the registration statement during any time when
the Company's officers and directors are prohibited
from buying or selling the Company's Common Stock
pursuant to the Company's insider trading policy.
Notwithstanding the foregoing sentence, the Company
shall file any amendment necessary for the
Shareholders to recommence their sales under the
registration statement concurrently with the
commencement of any period in which directors and
officers of the Company are allowed to buy or sell
Common Stock pursuant to the Company's insider
trading policy.
(b) Subject to subsection 1.3(a), prepare and file with
the SEC such amendments and supplements to such
registration statement and the prospectus used in
connection with such registration statement as may be
necessary to comply with the provisions of the Act
with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Shareholders requesting registration
such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as
they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by
them.
(d) Use reasonable efforts to register and qualify the
securities covered by such registration statement
under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the
Shareholders holding a majority of the Registrable
Securities; provided that the Company shall not be
required in connection
- 5 -
<PAGE> 72
therewith or as a condition thereto to qualify to do
business or to file a general consent to service of
process in any such states or jurisdictions, unless
the Company is already subject to service in such
jurisdiction and except as may be required by the
Act.
1.4 Information from Shareholders.
It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of a Shareholder that
such Shareholder shall furnish to the Company such information
regarding himself or herself, the Registrable Securities held
by him or her, and the intended method of disposition of such
securities as shall be required to effect the registration of
the Registrable Securities.
1.5 Expenses of Registration.
All expenses of the Shareholders, including (without
limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of
counsel for the Company shall be borne by the Company;
provided, however, that the Company shall not be required to
pay any professional fees of the Shareholders and provided,
further, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to
Section 1.2 if the registration request is subsequently
withdrawn at the request of the Shareholders holding a
majority of the Registrable Securities (in which case the
Shareholders shall bear such expenses on a pro-rata basis
based upon the number of Registrable Securities held unless
the Shareholders holding a majority of the Registrable
Securities agree that the registration shall be deemed to
satisfy the Company's obligations to complete one registration
pursuant to Section 1.2 hereof).
- 6 -
<PAGE> 73
1.6 Resales through McAfee Brokers.
The Shareholders hereby agree that all resales by them of the
Registrable Securities shall be made through Alex. Brown &
Sons Incorporated, Bear, Stearns & Co., Inc., or Robertson,
Stephens & Company LLC.
1.7 No Assignment of Registration Rights. The registration rights
provided hereunder are not assignable.
1.8 Termination of Registration Rights. The registration rights
provided in this Section 1 shall be terminated if all shares
of Registrable Securities held by such Shareholder may be sold
pursuant to Rule 144 in any three (3) month period.
2. Miscellaneous.
2.1 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions
of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this
Agreement except as expressly provided in this Agreement.
2.2 Governing Law.
This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely
within California.
- 7 -
<PAGE> 74
2.3 Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed
effectively given upon facsimile (with confirmed receipt) , or
personal delivery to the party to be notified at the address indicated
for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice
to the other parties.
2.6 Expenses.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) , only with the written consent of the Company and the
Shareholders holding a majority of the Registrable Securities.
2.8 Severability.
If one or more provisions of this Agreement are held to be
- 8 -
<PAGE> 75
unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
2.9 Entire Agreement.
This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subject hereof.
- 9 -
<PAGE> 76
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
McAFEE ASSOCIATES, INC.
BY: /s/ R. Terry Duryea
-------------------------------------
R. Terry Duryea, Vice President
Professional Services and Corporate
Development
Address: 2710 Walsh Avenue
Santa Clara, California 95051-0963
AMITGES BEHEER B.V.
By: /s/ A.CH.A SCHUURKES
-------------------------------------
A.Ch.A Schuurkes, Managing Director
Address: Landschrijversveld 520
5403 ER Uden, The Netherlands
DRS. P.A.G. PETERS
By: /s/ DRS P.A.G. PETERS
-------------------------------------
Address: Konijnenlaan 4
2243 ER Wassenaar, The Netherlands
N.A.M. HUIJBREGT
By: /s/ N.A.M. HUIJBREGTS
-------------------------------------
N.A.M. Huijbregts
Address: Maliestraat 40
5251 EJ Vlijmen, The Netherlands
- 10 -
<PAGE> 1
EXHIBIT 11.1
MCAFEE ASSOCIATES, INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Primary and Fully Diluted Year Ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding 47,691 45,452 42,557
for the period
Dilutive effect of options, net 5,516 3,913 3,618
--------- --------- ---------
Shares used in per share calculation 53,207 49,365 46,175
========= ========= =========
Net income $ 39,017 $ 14,916 $ 2,605
========= ========= =========
Net income per share $ 0.73 $ 0.30 $ 0.06
========= ========= =========
</TABLE>
50
<PAGE> 1
EXHIBIT 21.1
MCAFEE ASSOCIATES, INC.
Consolidated Subsidiaries at December 31, 1996
1. Saber Software Corporation
2. McAfee (UK) Limited
3. Saber Software GmbH
4. IPE Corporation, Ltd.
5. McAfee France, S.A.
6. McAfee Europe B.V.
7. McAfee Development Centre GmbH
8. Vycor Corporation
9. FSA Corporation
10. FSA Combination Corporation
11. FSA Subsidiary Corporation
12. McAfee Canada Software, Inc.
53
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
McAfee Associates, Inc. on Form S-8 (File Nos. 33-80272, 33-80260, 33-80258,
33-96586 and 333-11155) of our reports dated January 20, 1997, except for the
matters discussed in Note 11 for which the date is March 1, 1997, on our audits
of the consolidated financial statements and financial statement schedule of
McAfee Associates, Inc. and subsidiaries as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, which reports
are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCAFEE
ASSOCIATES, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENIRETY BY REFERENCE TO SUCH FORM 10-K 12/31/96.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1996
<CASH> 76,363
<SECURITIES> 64,389
<RECEIVABLES> 28,957
<ALLOWANCES> (3,027)
<INVENTORY> 0
<CURRENT-ASSETS> 163,948
<PP&E> 14,061
<DEPRECIATION> (6,575)
<TOTAL-ASSETS> 194,485
<CURRENT-LIABILITIES> 41,295
<BONDS> 0
0
0
<COMMON> 488
<OTHER-SE> 149,039
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 181,126
<TOTAL-REVENUES> 181,126
<CGS> 11,057
<TOTAL-COSTS> 113,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,387
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,730
<INCOME-TAX> 31,773
<INCOME-CONTINUING> 39,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,017
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
